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FMC commissioner red-flags Congress on China’s container monopoly

The results of a yearlong investigation into China’s monopoly over ocean container production are being highlighted to lawmakers to illustrate the potential threat to the U.S. economy.

Federal Maritime Commissioner Carl Bentzel, who released a report on the investigation publicly on Wednesday, wants to spark a policy debate on the long-term implications of the country’s “complete reliance” on Chinese container manufacturing.

“Chinese container manufacturing clearly took steps together to suppress the market prior to the pandemic,” Bentzel told FreightWaves. “Those efforts resulted in part in the congestion issues and increases in containerized prices and magnified the issues created by congestion down the line. So they used their market power to control the market. The question is can they use their level of control adversely in other areas.”

The report — which Bentzel notes represents his views as a commissioner and is not an official FMC publication — lays out the current status of the container manufacturing market, in which three major state-run Chinese companies, along with a few smaller Chinese companies, control roughly 95% of the global market.

The report cites a statement made by a People’s Republic of China (PRC) spokesman in December 2020 supporting China’s container manufacturers and the acceleration of container returns to China, at a time when concern was high that China was suppressing container manufacturing.

“This statement … starkly illustrates the level of commercial control that the PRC exerts over container manufacture. The fact that the PRC controls an industry that has a near de facto worldwide monopoly in the production of shipping containers should be deeply concerning,” it states.

A countervailing element to China’s market power, according to the report, is the need for China to manufacture enough containers to sustain their own national export policy. However, “while this might operate as a market deterrent for manipulation into the United States with an 80-20% imbalance of trade, [the deterrent] is not prevalent in trade between other markets in Asia, such as South Korea, Thailand, Malaysia and Vietnam,” which could lead to those countries having to raise the price of their exports.

The report makes the following summary findings:  

  • The three largest Chinese manufacturers control over 86% of the world’s supply of intermodal chassis, and those same companies manufacture over 95% of containers in the world’s market, including U.S. domestic train and truck intermodal containers.
  • When demand for ocean containers increased, Chinese-based intermodal equipment manufacturers were notably slow in ramping up production, raising the question of whether this was part of a deliberate strategy to manipulate prices.
  • The Department of Commerce has determined that Chinese container and chassis manufacturers are state owned and controlled and are the recipients of large government subsidies.
  • The level of control manifested by the PRC government and Chinese container manufacturers is mitigated by the interest of the PRC in supporting its exporters’ reach overseas markets, especially the United States. However, the mitigating interest in carriage of Chinese exports does not extend to other trade markets in Asia, or other overseas markets that compete with Chinese exports, nor does it ultimately diminish the potential level of market manipulation.

Container prices remain high

The report notes that “the good news” is that Chinese container manufacturers substantially ramped up production in 2021. “However, the price of containers is an indication of ongoing scarcity, in part attributable to the slowdown in production in 2019-20, and in part attributable to congestion.”

The price for a new container is now $3,500 per cost equivalent unit (CEU, a measure of the value of a container as a multiple of a 20-foot dry cargo unit), versus $1,800/CEU in early 2020 and $2,500/CEU in late 2020. The price “has remained roughly steady” at $3,500 for the past three months, according to the report.

An FMC remedy?

The report points out that, through the Foreign Shipping Practices Act (FSPA), enacted in 1988, the FMC “has expansive authority to take actions against the activities of foreign governments, foreign carriers and foreign maritime service providers for restrictive trade practices that adversely affect U.S. carriers in foreign trade.”

While U.S. carriers may not play a significant role in the majority of imports and exports flowing into and out of the U.S., interviews with a wide cross section of ocean carriers found that U.S.-flag carriers were harmed as much as any international carrier by the downstream effects of high container prices and container availability, Bentzel asserts.

“The report doesn’t make recommendations on whether the FMC should conduct an assessment under the FSPA because I don’t feel comfortable making at this point,” Bentzel said. “There would have to be political will beyond a report issued by one FMC commissioner. But we do put out there the threat of potential market manipulation.”

Finding alternatives

One option — other than sanctions — is to develop and/or grow viable container and intermodal chassis manufacturing in the U.S., Bentzel’s report points out, citing efforts by companies such as Global Secure Shipping to commercialize a new smart container manufactured using composite shipping materials with technology developed through research of the University of Maine and Georgia Institute of Technology.

On the chassis side, the report underscores efforts by Stoughton Trailers to establish a new chassis manufacturing facility in Texas.

But Bentzel’s report also acknowledges the challenge of getting a foothold in the industry when the main competition is already scaled up and receives government subsidies.

“Marine container technology has changed little since inception, and the path to develop this market will be rooted in next-generation technology. Inevitably, this crisis, and the supply chain disruption, would hopefully generate positive impact in this area and provide impetus for future efforts to support the development of next-generation technology and jump-start a U.S. market in container production.

“Consideration should be given to whether to consider further actions to combat market domination or to provide economic stimulus to incent the production of U.S. intermodal chassis and containers.”

Click for more FreightWaves articles by John Gallagher.