The Houthi attacks on merchant shipping, predominantly in the Red Sea, endanger life and property regardless of origin or destination, and are the biggest impingement on freedom of the seas in decades.
The United States’ economy depends upon ocean shipping to provide reliable, efficient, and affordable access to global markets for American importers and exporters. No economy has the luxury of having ships sit idle until it is safe again to transit the Suez Canal. Trade must and will continue.
Speaking for myself, I applaud the carrier lines for placing the lives and health of the officers and crews on these merchant ships above all else. As important as ocean shipping through the Suez is, no commercial shipment is worth putting civilian crews – American or otherwise – at serious risk, particularly when there are alternative routes.
That said, I know it is a priority of President Biden and of both parties in the U.S. Congress to make this route, and all international trade routes, safe from terrorist attacks and piracy on the high seas. To this end, the United States has already acted. In one operation, two Navy SEALs were lost in the line of duty. In recognition of their sacrifice, the sacrifice of three other U.S. soldiers killed in Jordan, and to allow for a brief prayer for peace in that troubled region, I ask for a brief moment of silence. Thank you.
At the Federal Maritime Commission, our responsibility is not to consider or debate how to stop the violence that threatens international shipping in the Red Sea region – that is up to Congress, the President, the U.S. Department of Defense, and others. Nor is it our mission to suggest to any carrier, shipper, or NVOCC how to run their business in a challenging environment. Our job, when it comes to the Red Sea trade route disruptions – and to my mind the purpose of this hearing – is to ensure that our shipping laws are being obeyed and specifically to make sure any Red Sea-related fees charged to shippers are reasonable, not deceptive to the shipper, and comport with applicable regulations, so that no unfair or unjust discriminatory methods are used to apply tariffs and service contracts, and that a competitive marketplace continues to exist notwithstanding any unexpected shock to the market.
The Commission understands that any alternative to the Suez Canal involves tradeoffs and higher costs. It is not unreasonable for carriers to recover some of these higher costs and U.S. law permits shipping lines to institute fees and surcharges to do so. When events occur that are both unanticipated and outside the control of Ocean Carriers, U.S. law permits companies to seek “special permission” from the Federal Maritime Commission to institute these fees and surcharges without the usual 30-day notice. The terrorist threat to the Red Sea shipping lanes is well within the purpose of these exceptions because, without such waivers, ocean freight service could be dramatically curtailed creating a far worse situation.
However, granting these so-called special permissions does not provide ocean carriers carte blanche to invent fees and surcharges for unrelated reasons. Fees and surcharges must be clearly defined, serve a specific purpose, and have an end date. The Federal Maritime Commission is closely following and noting the fees and surcharges being established in response to this crisis. The Commission will promptly address any conduct that raises concerns, including referring matters to our Bureau of Enforcement, Investigations, and Compliance where warranted.
I believe the FMC’s oversight is also necessary not only to protect the shipper but to ensure the integrity of the ocean carrier industry and guarantee that no law-abiding carrier trying to protect its mariners is put at a competitive disadvantage due to another carrier’s potential abuse of the situation.
By doing our job of ensuring reasonable behavior and fair competition, market forces should eventually mitigate the increase in costs to shippers, at least somewhat. In fact, after initial spikes in the rates in the Asia-Europe trades, rates have already decreased. For the U.S., the spike in rates has been less severe because there is much less U.S. cargo normally using the Suez than Europe-Asia cargo. And I am hopeful that rates to and from the U.S. will stabilize since there are more alternatives for U.S.-Asia cargo than for Europe–Asia cargo – including porting on the West Coast and using landside options and the utilization of the Panama Canal.
Unfortunately, the world is increasingly uncertain and – what were once seen by some as Black Swan events are now as common as black crows. The Suez isn’t the only issue. Geopolitical forces could easily lead to situations that close off or threaten other routes. Piracy is still an active threat along some routes. For the East and Gulf Coasts, the Panama Canal is an alternative to the Suez but there are major capacity issues there due to low-water levels that may not be resolved any time soon. The U.S. still has limits on its inland transportation infrastructure and some issues – such as the security challenges facing trucks and rail on the West Coast – seem to be getting worse. Add to that, possible rearranging carrier alliances, fluctuating fuel costs, and the inevitable issues with equipment distribution, and this is a very challenging situation indeed.
I have heard the situation compared to a bad movie or sometimes a horror movie. My concern is that the challenges for U.S. shippers might reflect the title of a recent really good movie, in that the challenges could become everything, everywhere, all at once.
To me, that is another important reason why we are having this hearing today. For the FMC to be the most helpful in these trying times, we need to hear directly from stakeholders about what is happening in a real-world context. I very much look forward to hearing our expert witnesses and also the back and forth with my Commissioner colleagues.
Daniel B. Maffei is a Commissioner with the U.S. Federal Maritime Commission. The thoughts and comments expressed here are his own and do not necessarily represent the position of the Commission.