On July 9, 2021, President Biden issued the “Executive Order on Promoting Competition in the American Economy”. Outside of the business press, there hasn’t been much media coverage of it as the order is lengthy and, rather than announcing new laws, mainly focuses on telling its agencies to enforce the laws that are already on the books on specific industries.
One of the target industries for this contract is shipping. In 2000 the 10 largest shipping companies controlled 12% of the market. Since then there has been a merger and takeover frenzy among the shipping companies. Today the 10 largest shipping companies have a market share of 82%.
The Executive Ordinance focuses on one problem in the industry, the detention and demurrage charges. Shipping companies charge these fees if the goods land in port but the goods cannot be unloaded immediately for any reason. These fees can add up to hundreds of thousands of dollars, leading to complaints from hauliers and truckers and, of course, higher consumer prices for the goods being transported.
To counter this problem, the Executive Ordinance instructs the Federal Maritime Commission to “vigorously enforce the prohibition of unjust and inappropriate practices in the context of detention and demurrage in accordance with” existing shipping laws. That’s all. It may help us here in Hawaii, but we wonder if they miss the forest for the trees here.
Here in Hawaii we are heavily dependent on water transportation, which brings us all kinds of consumer goods, building materials, and everything else we can’t make. So we know all too well what happens when goods or people have to be transported across the high seas, but there is little competition among shipping companies. There has been an ongoing debate over the need for Section 27 of the Merchant Marine Act of 1920, also known as the Jones Act, as well as its older cousin, the Passenger Vessel Services Act of 1886. These are laws the main purpose of which is to restrict competition. It is a wonder that none of the laws are mentioned even once in the Executive Order.
It is also a miracle that instead of trying to make it easier and cheaper to move people and cargo, the State of Hawaii is putting a general excise tax on shipping costs. In a previous article in this area, we pointed out that the federal government has banned state taxation of air travel.
We denied it, of course, and still tried to tax aviation with a somewhat creative theory, which resulted in a major crackdown by the US Supreme Court in 1983.
We have now accepted that we cannot tax air traffic. But we can and do tax other modes of transport. Why are we doing this Because maybe we can; because maybe we can make some money with it. We doubt that this is a sensible social policy given our heavy dependence on transport.
Are we serious about making sure the cost of living for all of us in Aloha state is not outrageously high? If so, then we should vigorously encourage our Congress delegation to break free of 80 year old and 135 year old cabotage laws, find ways to restore competition between carriers, and take our state tax laws out of the industry to increase our stratospheric cost of living reduce.
Tom Yamachika is President of the Hawaii Tax Foundation.