Good morning to all.
First, I want to thank everyone in advance for their participation today, and their willingness to provide testimony on these critical issues confronting our global supply chain. Mr. Chairman, I want to thank you, for scheduling this hearing to discuss the challenges we face as a nation and globally, as we consider the unprecedented impacts of deep cuts in service to the world’s two most important trans-oceanic canals, Panama and Suez.
The topic of this hearing is Red Sea shipping conditions, but we cannot consider or confine our review to just the impacts of the attacks emanating from Yemen on shipping, unless we consider the equally challenging impacts on shipping caused by reductions in service through the Panama Canal.
In my view the confluence of both these challenges is unique. My concern is becoming amplified as the attacks in the Red Sea against commercial shipping are also driving increases in piracy off the coast of Somalia, and also reports of other organizations proposing attacks on innocent commercial shipping.
What is at stake is severe international economic disruption. The United States is still recovering from the aftershock of the pandemic induced supply chain disruption that that saw 30% increases of imported container shipping resulting in congestion suppressing the delivery of critical supplies to health care providers, consumers and the manufacturing industry.
In my view, the impacts of inflation were largely caused by the delays in shipping. I believe that most Americans still do not fully understand the level of importance that international ocean shipping plays to our economy.
U.S. retailers are heavily dependent on the trade, U.S. manufacturers rely on just in-time delivery of multiple components necessary for end manufacturing, food and grocery products are imported or require packaging or additives for domestic shipment, critical medical supplies and chemicals are provided by overseas shipment. U.S. exporters of agricultural and other manufactured products are just as heavily dependent on ocean shipping as the U.S. consumer.
Ocean shipping moves over 90% of our international trade. Reductions in ocean shipping cannot be overcome, aviation alternatives cost 8 to 10 percent more and with pricing and volume limitations cannot do more than supplement maritime trade – as they used to say, “mostly reserved for fine chocolates, perfume and tulips”. So, there is a lot at stake as we consider the impacts of what is approaching to be closure of one of the major maritime superhighways, and 50% reductions of the other.
I know that my colleagues, participated in hundreds of meetings during the pandemic, where businesses explained the difficulties of managing a very complex supply chain of items. I want to relay one a conversation from one a meeting in Salt Lake City, Utah with the Chamber of Commerce.
In particular, I met with one of the largest homebuilders in the region. The homebuilder reported to me that they had intended to build over 200,000 residential units in the region during 2021, but by the end of the year had only been able to complete 140,000 units, because of delays in securing overseas supplies – a reduction of just less than one-third of potential productivity. I know that my colleagues all had similar meetings.
In preparation for this hearing, I talked to executives from every major shipping line providing shipping services into and out of the United States. I am continuing to make my way through the shipper, port, and other intermodal shipping interests to get their perspectives and status.
I can report that I think that there is some good news, in that at present, cargo is moving smoothly, there is some additional capacity at marine terminals, and the equipment providers and intermodal rail and trucking are aware of pending challenges as ocean carriers adjust. Ocean carriers have orders for new ships being delivered that can be plugged in to help address reduced shipping capacity as ocean carriers will have to order diversions because of circumstances in both Panama and the Suez Canals.
We also have a little bit of time, as the implications of ocean shipping events tend to lag behind cargo put ashore today, reflecting shipping conditions that existed 4 or 5 weeks earlier when that ship departed a foreign port. However, make no mistake about it, in two-or three-months, shipping conditions will have changed.
The attacks on U.S.-flag shipping and all international shipping in the Red Sea are clear violations of the International Law of the Sea, and the attacks emanating from Yemen are violations of Article 17 provisions protecting innocent passage of merchant shipping, even in time of war. Article 34, the regime of passage through straits, is also being violated.
As a result, it is my understanding, that all major container lines have suspended service through the Suez Canal and Red Sea. Reductions of service caused by drought in the Panama Canal are amounting to close to 50% in total transit availability, and reductions in carrying capacity of those shipping lines able to transit the canal are being reduced in volume by amounts of 5-15% because of low water.
The longer these impacts linger, the greater the economic impact. Already we are hearing of factory closures of automobile manufacturing in Europe as a result of shipping related supply chain disruption, and we are just in the beginning of this challenge.
I wanted to reflect briefly on the responsibilities of Federal Maritime Commission in the midst of this test of maritime trade. I want to emphasize this personal perspective.
In my view, the most important obligation of a shipowner, is to protect the safety of merchant marine personnel operating their vessels, and the security of their ships. I will not second guess the choices made by shipping companies to protect their ships and crews.
That said, the FMC has the duty and requirement to protect the public from unreasonable shipping practices, and while I understand the need for price increases to reflect additional shipping operational costs caused by the “Trans-Oceanic Canal” crisis, the FMC may be called upon to question the legitimacy of new charges or other shipping practices. Congress recently empowered the Commission with the passage of the Ocean Shipping Reform Act of 2022, and in addition to new regulatory authorities, we have been provided additional funding for enforcement resources to protect the shipping public. So, I feel that we are in a good position to ensure that we can police against potential market abuse.
Finally, Mr. Chairman, the events impacting the global supply chain were not caused by the shipping industry. They were caused in the case of Panama a drought, and in the Red Sea because of politically generated attacks emanating from Yemen and perpetrated on innocent civilian transportation workers aboard cargo ships. We are hearing of the spread of piracy and other actors contemplating similar attacks on merchant shipping.
Not since, the days of the Barbary Pirates have we faced such a challenge in the protection of our shipping. It is a clear violation of international law, and it will have global implications.
Accordingly, I am evaluating the potential applications of either the provisions of section 19 of the Merchant Marine Act, 1920, or the Foreign Shipping Practices Act to assess whether we could initiate an investigation to determine whether the actions in Yemen cause “unfavorable conditions to shipping in the foreign commerce”.
Because of the general level of regional instability there could be challenges to the application of the law, however, I believe that the international importance of protection of navigational freedom provides an overriding impetus to evaluate a potential investigation. I plan on further consultation with you Mr. Chairman, and all my colleagues, after reviewing precedent and collecting more information.
We have assembled a really good selection of panelists, Mr. Chairman, and I look forward to the dialog.
Carl W. Bentzel 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.