Veteran supply chain executive Michael Erickson, running as a Republican for the new 6th District congressional seat in Oregon, is sounding more like Joe Biden than someone familiar with the industry in blaming ocean carriers for contributing to Americans’ high cost of living this year.
Erickson faults Biden and Democrats in Congress for inflation, higher gas prices and slower economic growth. He portrays the Inflation Reduction Act as the poster child for wasteful liberal policies such as tax credits for electric vehicles, making prescription drugs more affordable and creation of a corporate minimum tax. Never mind that inflation is a global phenomenon stemming from the pandemic that is much worse in most other countries and the oversupply of money is more due to the unnecessary 2017 Trump tax cuts than to current policies.
Sure, Democrats contributed to the inflation situation with one-too-many COVID-19 stimulus bills, but that isn’t the primary reason for the current economic situation.
And neither are high gas prices the result of a Keystone-pipeline section denied for environmental reasons. The situation in oil markets is a result of refinery shutdowns during COVID-19, the roaring back of economic activity after the pandemic and Russia’s invasion of Ukraine. That’s what the experts tell us.
And, by the way the U.S. economy grew 2.6% in the third quarter.
But let’s focus on Erickson’s politicization of shipping.
Erickson is supposed to be a supply chain expert, so it was surprising to hear him during a recent interview bash container shipping lines for contributing to pocketbook problems.
“Supply chain costs are passed onto consumers every day. If you order something with a FedEx, UPS shipment to your house, you’re paying almost 20% to 30% more to have that product delivered to you,” he said last month on KGW News’ “Straight Talk” program. “In the last two years during COVID, all the transportation costs have gone up dramatically, some of them tenfold. For instance, any container ship from the Asia-Pacific rim to the West Coast — it used to be $2,000 to $3,000, now it’s like $15,000 to $16,000. And those costs are being passed onto consumers. I think there’s a lot of price gouging going on at the supply chain global level. I’d like to go back and dig deeper. I do this every day. I help companies reduce their supply chain, shipping costs. That’s a big part of inflation.”
Erickson, who lives near Portland, founded AFMS Consulting LLC 30 years ago after many years at the former Airborne Express. He negotiates and audits shipping contracts for companies such as John Deere, Lego, Harley Davidson, Honda Motor Co., La-Z-Boy, GE, Under Armour, Disney and Quicksilver.
As colleague Mark Solomon previously reported, he is known in the industry for waging a multiyear legal battle with FedEx Corp. and UPS Inc. over alleged antitrust violations. AFMS argued that UPS and FedEx colluded to boycott third-party consultants who negotiated parcel contracts for their shipper customers. A federal district court in 2015 dismissed the case with prejudice, ruling that AFMS had failed to properly define a market impacted by the carriers’ alleged actions. The 9th U.S. Circuit Court of Appeals upheld the lower court ruling two years later.
I reached Erickson by phone on the campaign trail to find out why he believes freight carriers are acting badly and whether any customers have expressed reservations with his newfound visibility advocating for conservative positions on immigration, law enforcement and healthcare.
He pointed to liner Hapag Lloyd going from a $600 million profit to $6 billion (actually $10.7 billion last year compared to about $970 million in 2019), and FedEx and UPS having record profits during the pandemic. Last week, he groused, the express carriers hiked base rates a record 6.9%, not including fuel and other surcharges.
“Free enterprise is important to me. But a lot of people question how can you have 10 times the profit from a year ago. And those are things that in Congress, I think we have a lot more oversight, and look into that. I mean, if those Asian containerships are really price gouging, I want to make sure that doesn’t happen again. People can be taken advantage of And they shouldn’t, especially when you’re in a state of emergency worldwide with COVID. And I just seen so much profits with ocean carriers. This doesn’t sit well with me,” he said.
Erickson said that if he wins office he could help tame diesel fuel prices that get passed onto shippers, although he didn’t give any details other than to reiterate the cancelation of the Keystone Pipeline unleashed high fuel prices on American consumers. Customers have been positive, he added, because he could use his experience to clean up supply chain problems.
Nobody likes inflation, but . . .
It makes sense Erickson is wary of freight carriers since his main business is benchmarking trucking, rail, air and ocean contracts to identify overcharges and savings opportunities.
Still, he should know better. For starters, the Federal Maritime Commission found no evidence shipping lines were taking advantage of the market to artificially inflate rates. Carriers may be engaging in some other questionable behavior related to ancillary charges. However, a recent investigation found no price gouging.
“Notwithstanding certain misconceptions, the current market for liner services in the trans-Pacific trade is not concentrated. Competition among ocean common carriers, among the three major alliances and among the members in each of these alliances is vigorous. The market for ocean services remains highly contestable, particularly in the trans-Pacific trade,” the report said.
“Although certain ocean transportation prices, especially spot prices, are disturbingly high by historical measures, those prices are exacerbated by the pandemic, an unexpected surge in consumer spending particularly in the United States, and supply chain congestion, and are the product of the market forces of supply and demand.
“We have, to date, observed no indication that the current prices for liner shipping are a result of collusive or illegal conduct on the part of the major ocean carriers in our markets,” the report said.
When Erickson points the finger at ocean carriers for price taking, he sounds like Biden, who liked to deflect any blame for record-setting inflation toward foreign ocean carriers. Biden this summer asserted that alliances diminished competition and allowed ocean carriers to rip off consumers, a charge the FMC debunked. The President also took credit for fixing supply chains and averting a Christmas toy shortage because the White House jawboned the ports of Los Angeles and Long Beach into one experimental night shift and the threat of fees for stranded containers when the reality was market related: Retailers ordered much earlier to avoid a late-season crunch.
Furthermore, ocean shipping spot rates on the trans-Pacific westbound lane have recently plummeted to about $2,500 for a forty-foot container, approaching rates in 2019 in a way few saw possible at the beginning of the year. The only reason some shippers are still paying more than that is if they locked in long-term contracts when the market was high to guarantee space on vessels for their cargo.
Also worth noting is the fact that inflation was much lower nine to 12 months ago when the cost of a container move hit astronomical levels between $15,000 and $20,000. Today, the Consumer Price Index is 8.2% higher than a year ago, but ocean rates have cratered.
Auditing transportation vendors is important, but that’s different from assuming wholesale bad behavior by an industry. And it’s unclear what type of government intervention Erickson is proposing. His campaign did not respond to requests for an explanation.
Using red herrings to score political points is nothing new, but it undermines Erickson’s credentials as a supply chain expert to throw around baseless charges he, more than the average politician, should know aren’t true.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
Mission Creep: Why the FTC is investigating retail supply chain distortions