Are shippers making a fortune out of the supply chain crunch?


A lengthy, but very interesting report from ProPublica suggests they are.  Here’s how it begins.

Last fall, a company called One Banana loaded 600,000 pounds of the fruit from its plantations in Guatemala and Ecuador onto ships bound for the Port of Long Beach in California. Once they arrived, the bananas, packed in refrigerated containers, were offloaded by cranes for trucking to a nearby warehouse, where the fruit would be sent to supermarkets nationwide.

But in the midst of a global supply chain crisis, none of the trucking companies the importer normally worked with were willing to come and get the containers.

As the bananas sat at the marine terminal, a logistics specialist for One Banana scrambled, contacting more than a dozen trucking firms.

With each passing hour, the bananas grew closer to spoiling.

“We need to pull out 15 containers from Long Beach Port,” the logistics specialist wrote in an email to one firm. “Please let me know if you could help me with this.”

A trucking company finally said it could — but only if One Banana first paid $12,000 per container on top of already higher transportation costs.

This is where the plot ripens.

If One Banana were to accept that additional fee and pass the full cost along to consumers, the bananas could go from 60 cents a pound to 90 cents a pound. That alone might not break your budget, but rising prices of everyday items are adding up to the worst inflation in 40 years. Many of the causes may seem obvious. Massive consumer spending and pandemic shutdowns have strained supply chains. The war in Ukraine is driving up the price of gas. But the extra fees for transporting bananas — and countless other products — are a hidden and mind-boggling source of inflation controlled by ocean carriers.

Simply put, as ballooning costs hit the wallets of American families, the global ocean shipping industry is enjoying its most profitable period in recent history. In the first quarter of 2022, the biggest carriers’ operating margins hit 57%, according to one industry research firm, after hovering in the single digits before the pandemic.

The hauler that wanted $12,000 per container to move the bananas told the One Banana logistics specialist that it needed the money to cover a slew of fees the ocean carriers were tacking onto freight bills. Hapag-Lloyd, the German shipping giant that owned the containers the bananas were sitting in, had become particularly notorious in the freight industry, leading to multiple complaints to the Federal Maritime Commission.

In normal times, the fees, known as detention and demurrage, make a lot of sense. Importers who don’t pick up their stuff on time get charged demurrage for storage at the marine terminals. Truckers who don’t return an empty container on time pay late fees, or detention. The purpose of the penalties is to incentivize the various players in the supply chain to keep goods flowing.

Most of the imported goods Americans buy are carried by ship and unloaded at ports like Long Beach for transportation by truck or rail toward their final destination.

But as supply chains snarled last year, the ports of Long Beach and Los Angeles ran out of room and became clogged with shipping containers that importers, often big-box retailers and brands, weren’t able to retrieve. Surrounding truckyards and streets were flooded with empty containers, temporarily dumped there by trucking companies that couldn’t get appointments to return them to the ports.

Hapag had made it “extremely difficult” to return empty containers, the trucking company said, and it was often left holding them for a month, all while Hapag continued to charge the firm $400 a day for each container that wasn’t returned on time. One trucking company that the importer contacted said it almost had to shut down temporarily because all the chassis — the steel frames with wheels that attach to trucks — that it needed to pull new loads from the ports were sitting under 70 empty containers that Hapag refused to take back.

Essentially, One Banana and several trucking companies said Hapag had created the situation it was now profiting from.

“It’s like renting a car at the airport, and when you try to return it, they’re saying, ‘No, you have to hang on to it for us, and we’re gonna continue to charge you,’” said Fred Johring, the CEO of one of the trucking firms, Golden State Logistics.

Hapag declined to comment, but in filings with the Maritime Commission, it denied One Banana’s allegations that the fees were unfair.

There’s much more at the link, covering many other examples of how shippers appear to be holding their customers hostage and charging them excessive fees.

This is one of the primary causes of inflation – companies charging as much as they think the market will bear, whether or not there’s any economic justification for it.  To me, it’s the unacceptable face of capitalism, greed running rampant.  Whatever these companies charge, their customers will be forced to pay;  and they’ll try to recover those costs from their customers in turn, because they can’t afford to pay them out of pocket.  Eventually, all those costs, ballooning ever higher, come to rest in the retail price of the product, which you and I must pay – or do without the goods and services we need.

You can see these excess profits in action in the balance sheets of big shippers.  For example, at Maersk, one of the largest shipping lines in the world, revenues increased 55% in a single year, from $39.7 billion in 2020 to $61.8 billion in 2021.  Profits at its Ocean arm rose from $29.2 billion in 2020 to $48.2 billion in 2021.  That’s a heck of a profit margin compared to overall revenue.  Any company in the world would absolutely love a balance sheet like that!  Guess who paid for those profits?  Ultimately, you and I did, because we bought the products that were shipped on Maersk ships and using Maersk services, and the costs companies paid to use Maersk were passed on to us.

When you read the whole of that ProPublica article, you’ll understand how Maersk and every other shipping line and freight handler are basically ripping us off for every penny they can squeeze out of us.  In the process, they’re damaging our entire economy – but they don’t care.  That’s raw, unfettered capitalism in action.  They’re going to charge what the market will bear until it can’t bear it any longer;  then they’re going to take their excess profits and use them for their and their shareholders’ advantage, while reluctantly and grudgingly reducing what they charge us, as slowly as they can.

Our economic mess is, indeed, the result of catastrophic mismanagement by governments all over the world;  but it’s not only governments that are at fault.  A whole lot of companies must also bear their share of the blame.



  1. California's AB-5 is a big reason those containers can't get moved out of the port. Secretary Buttegeig, who immediately upon taking office took 60 day off, isn't about to bring up the mess Democrats are making of the US economy. If is screws small business owners then he and the left are all for it.

  2. Hapag Lloyd are obligated to accommodate customers returning empty containers without undue delay. Whether this duty is implied or explicitly stated in the contract does not matter. If the allegations are true, they are in breach of contract and face potentially severe legal repercussions. "Charging whatever the market will bear" is not "the ugly face of capitalism". It is the normal order of business, in which you take full advantage of any windfall profits that may come your way, while knowing that you must absorb losses from an economic downturn occurring through no fault of your own.

  3. [History repeats itself] This reminds me of the railroads and the robber barons of the 19th century. You as the shipper would be extorted for every penny you could (couldn't?) pay, or your product would be left to rot. And I've read examples of farmers shipping their grain across the country to CA and then back to the East coast, because shipping it across the country twice was cheaper than shipping it directly.

    Unfortunately, the Covid ports shutdown taught the carriers that people would pay what the market would bear to get their product shipped, and today the carriers are continuing that extortion. We'll then get tear-jerker stories about how the truckers can't make ends meet, to hopefully divert attention from the record profits of the shipping companies. That also doesn't address the deliberate actions of the shipping companies to make truckers suffer, i.e. Union Pacific demanding a 50% reduction in Diesel Engine Fluid, and Biden sending our Diesel to Europe to support the war in the Ukraine. There are other examples.

    I don't see a solution to this and have wondered how much of it is a deliberate attempt to crash our economy, for the Big Reset.

  4. And the independent truck drivers are being paid the same rates with fuel a $6 a gallon that they were getting 2 years ago when fuel was $2.50 a gallon. A lot of trucks are being parked when ther is already a shortage of truckers.

  5. "That's raw, unfettered capitalism in action." What a very disappointing statement.

    I compare capitalism to consensual sex. Every one is there for their own pleasure. To compare what Maersk and Hapag-Lloyd are doing to capitalism is to confuse consensual sex with coercion or rape. In a healthy market, there would be options. If they are expensive, then find another shipper. But government has limited the playing fields unnaturally.

    Another major problem is our companies aren't anything more than financial service providers now. Even the company I work for has lost it's way. The founder said our main goal was to give a good return to investors. Our company was built doing what no one thought possible, and creating an industry in the process.

    If government was operating correctly, they would protect the markets from robber barons. I'm a shipping neophyte, but I bet there are laws regarding this behavior, and their enforcement isn't being pursued. Lobbyists working behind the scenes perhaps?

    "Because justice is delayed, the hearts of men are fully inclined to do evil."

  6. This isn't capitalism, it is a sign of a manipulated market. The government has restricted the supply of this service by mandating zero emission transport of cargo moving equipment. Engines also must meet tighter standards that cut nitrogen oxides by 75 percent starting in 2024, and 90 percent starting in 2027.

    That reduces supply and increases cost projections. Couple that with the increased demand that we have been seeing, and prices go up.

    The law of supply and demand is immutable. It isn't capitalism. It's how people do things. There is no way around it, not even in communism.

    Here is an article about California's new regulations on emissions that just went into effect in June:

  7. Increase in gross income is only half the story. What was the change in profit margin or net income percentage for those shippers?

    If gross revenues are up but net percentage is not, then yes there is a real problem but are we sure it is the shipping company?

  8. "This is one of the primary causes of inflation – companies charging as much as they think the market will bear, "

    I'm not sure many economists would agree with this statement. Inflation is primarily caused by an oversupply of money leading to increased bidding for goods. Charging what the market will bear results in people making rational economic decisions about their spending (bananas are expensive, let's eat something else this week) and results in market pressure to change production (hey, look how expensive bananas are, let's ship more of them instead of the cheap papayas). These rational decision lead to an efficiency of market and the constant supply of goods that people want at reasonable prices. What Adam Smith called "the invisible hand".

    Hapag Lloyd may or may not be in breach of contract and may or may not have legal liability for charging trucking companies for unreturned empty containers that they refuse (or can't) take back. That, however, is a separate issue from the causes of inflation, especially when you take into account the many and varied government actions that have led to the shipping issues (AB-5, fuel prices, environmental regulations, vaccine mandates, the list goes on) and the government actions that have led to a significant oversupply of money in the system.

  9. One data point is nice but a look at a longer string of data is more telling.
    AP-Moller-Maersk had negative or little growth from 2015 to the last quarter of 2017, then again from 2019 to the end of 2020. The growth and declines seem rather normal on scale.

    BTW Not one of the top 10 maritime shipping companies is American owned.

  10. Wasn't too long ago we were all talking about the collapse in the Baltic Dry Index, and the destruction of ocean freight carriers. A whole bunch went out of business iirc… including at least one big name.

    Then you have a change in demand, and the just in time system gets bound up, stuff starts to sit, and why would a carrier take a load of low cost perishables, when he can take a load of high value electronics? With the loss of all the previously marginal carriers, there isn't an excess capacity in the system. Suddenly prices go up…

    It's happened on the trucking side too.

    And it's always been hard to make a living as an OTR trucker. You had to be smart, disciplined, and live in a very low cost area to minimize expenses. You are at the mercy of fuel costs, and dispatchers/ freight handlers getting you loads. A lot of guys were operating at a loss, just to get enough money to pay the note on their trucks for another month or two. You can only do that for so long, and it drives down rates for everyone, until some percentage of everyone just parks the truck and calls the bank telling them where to find it.

    It's a complex system that has broken. It will take a long time to un-break it. I won't say "fix" because it won't be the same system we had before. I'm reading articles in logistics trade magazines where top execs are saying 2023, or '24 if nothing bad happens before they have everything sorted out and working well again.

    Anyone think we'll get to 2024 without more major problems?


  11. One factor no one seems to be mentioning–business ethics have been going downhill for a long time. In the late '70s I was taking business classes at the University of Cincinnati. One day my accounting professor came into class mad. He told us why: the university was changing what it was teaching for business ethics, and he thought the changes were wrong and would be harmful. I was already working in a business services field, and in the following years I noticed that customers who formerly had paid promptly started delaying payment–and sometimes paying later and later. I eventually got into another line of work. But business ethics have continued going downhill. As far as capitalism–or anything else–without a shared moral base, nothing works.

  12. It would seem that what is needed to shortcut the actions (inaction) of the shippers is a designated storage (dumping ground) area that containers can be dropped at if the shipper indicates that they are unable to load empty ones. Lots of desert in southern CA and in TX. Probably similar low value areas near the East Coast.

    It's possible that the shippers might actually be able to handle containers more quickly if the storage costs are on them, instead of the truckers and transshippers. Still, having that option of a longer term storage facility, that would be much cheaper, would add some elasticity to the current situation. Getting government involved in this directly may not be to anyone's best interests.

    Cheap desert land, a bulldozer to make it flat, and a large offroad forklift to lift the container off the chassis, and you have the makings of a business.

  13. Will, this is CALIFORNIA we are talking about. That bulldozer won't be able to do a thing until the Environmental Impact Report is complete, and the Endangered Desert Tortoise needs to be protected…

  14. I will agree with Peter that the spike in shipping costs is a forced result of unfettered capitalism. It's naïve to believe that we don't manipulate and shackle the free market constantly and pervasively, elsewise we would have monopolies… well, more monopolies.
    In shipping, for example, the US has cabotage laws (The Jones Act) that require maritime vessels to be American owned, crewed and built, to ensure that shipyards are able to employ, train and retain workers and maintain shipbuilding skills between wars, and also to ensure that the US has sufficient trained mariners available to transport military materials.
    This is hugely inefficient, but the alternative would see unskilled 3rd world mariners being relied upon to carry tanks and trucks, bombs and bullets… if they were willing. Everyone remember when the UK couldn't get ammo to their military in the Falklands? No shipping company wanted to go into a war zone and since over 1/3 of the world's maritime officers are Indian, nobody felt particularly inclined to help the Brits. Anyways, the British Army was reduced to carrying out bayonet charges under fire from the Argentinians, who in fact had both ammo AND food.
    And while that's an extreme example, the 10,000 or so tugboats that move cargo within the US would be run by foreign owned, built and manned tugboats. Tugboat crews need 5-13 guys, each making between $275 and $975 a day. They can be replaced by Indonesians who get paid between $8 and $100 a day. Hell, the Ag company ADM spends millions each year lobbying for this to happen. They don't like paying American wages to get their grain down rivers to their cheap 3rd world bulk ships.
    The airline industry has similar trade protections that are certainly defined as fettered capitalism.
    So do imported construction materials. We manipulate our markets based on 2nd and 3rd order effects in most markets. Hell, tax breaks? Fettered Capitalism.

    Shipping is further muddled by Maersk, for example, who have 'ties' to the government of Demark, which is pretty much to say that the government of Denmark always enacts policies that are beneficial to Maersk, and subsidizes the company as well. Thing is, Maersk is also one of the largest 'American' Shipping company now, as well. Maersk America has corporate citizenship, which enables them to be classed as an American company, and so the Government of Denmark DBA Maersk also controls a large piece of our Military Sealift capability as well. The US's Maritime Security Program is a subsidy given to American shipowners in exchange for the right to commandeer all carriage in event of a surge in sealift needs. So American MSP ships get between $5 and $10 million per year in exchange for being always ready to make Uncle Sugar their next charterer if needed. Hasn't happened widely since 1991 but it happens.
    Guess who receives the largest MSP subsidy in the US? Maersk. Oh, excuse me, Maersk America.

    There is nobody to tell Hapag-Lloyd not to be assholes. The mafia used to efficiently handle international freight disputes in the US at our ports (Nice ship, oh look, somebody lit it on fire), but the US government in driving them out, replaced them with sackless weak appointees hired by state governments as hack jobs. The revival of the Federal Maritime Commission as a result of complaints about shippers has thus far resulted in the hiring of some new appointees, lots of meetings and airline miles, and a proposal to Say Something to the shippers that thus far amounts to 'Pweeze, stahp.'

  15. Uh, what you are referring to, manipulation of the market? Yeah, that isn't a free market. It's the opposite of free market economics.

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