Bill Clinton Wrote the Law That Created Our Big Dumb Ship Problem

It's never just economies of scale. Monopolies happen because of laws, in this case the the Ocean Shipping Reform Act of 1998.

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I’ve written a few pieces now on the stupidity of making giant ships that can’t fit into the Suez Canal. The reason we have this problem is because the industry is highly consolidated, and experts in the industry know that what happened in Suez, with dangerous bottlenecks to world trade, was minor compared to what could happen.

In my piece, I blamed Thomas Friedman, New York Times columnist and author of multiple books on globalization, and his consolidation friendly way of thinking. The thinking goes, well, we’ll do whatever we can to make things more efficient, which means corporate combination and bigger ships, ports, etc. But as usual, there’s a law behind the changes, in this case it’s the Ocean Shipping Reform Act of 1998, which legalized secret rebates by shippers and spurred massive consolidation of the industry.

Before 1998, ocean carriers had to post their prices and terms publicly, so small shippers could ask for the same prices as the big guys. Once carriers and shippers could negotiate for secret prices, big shippers could demand secret rebates unavailable to their smaller counterparts. Corporate size and power, not the ability to ship effectively or reliably, became the dominant competitive advantage. Carriers merged in a wave of deals, and then further combined into three global alliances.

Transparency in pricing has always been key to competitive open markets, while the ability to engage in kickback schemes has always been a key weapon of monopolists, from John D. Rockefeller to Bill Gates. It’s no different in ocean shipping. Every industry is complex and unique, but the gist of the problem in shipping is as follows. The reason we have big dumb ships run by three giant shipping lines is because Bill Clinton (and Republicans and Democrats in the 1990s) wrote a law to make that happen.