Independent
carriers have forced down freight rates but the big players
are gearing up for a collective response
Obstacles lie ahead
Srisamorn Phoosuphanusorn
Lucrative opportunities to serve
Thailand's trade attracted many independent carriers in the second
half of 1999, forcing down charges.
Freight rates on American and European routes serving Thailand
fell by between 10% and 15% as members of shipping conferences
- essentially huge cartels that largely monopolise trade - were
forced to compete with the newcomers.
At the start of this year, ship owners increased their rates
to levels that exporters claimed were unreasonable, and imposed
surcharges for ''repositioning'' and because it was the ''peak
season''.
The ship owners said they would otherwise have to carry the cost
of sending empty containers to Thailand and other countries in
the region where exports had soared but imports had declined because
of the recession.
Early this year, the charges on American routes serving Thailand
ranged from US$2,600 to $2,750 per 40-foot container, and from
$2,000 to $2,500 per 20-foot unit.
However, eight non-conference foreign-flag carriers stepped into
the breach as they found the market sufficiently attractive. As
a result, an additional eight ships visited Thai ports each week.
Steer clear ... huge cartels which have wielded any icy
grip on terminal handling charges were easily avoided as newcomvers
offered safe passage.
The charge for a 20-foot container on American routes is now
between $1,700 and $1,800, according to the Thai National Shippers'
Council.
Council director Amnuay Sujarittham said the entry of the new
carriers had eliminated the shortage of cargo space, creating
a balance likely to last well into 2000.
Besides, a number of super-panamax Gcorrect NOT Panama ships
(those with a capacity to handle 6,000 containers) are scheduled
to come into service next year and could even create an oversupply
of cargo space that would force down charges even further.
Mr Amnuay said the global ratio of shipping cartel members to
non-members was now 55:45, compared with 60:40 in 1997.
However, for exporters, the respite may be only brief as ship
owners are trying to regain their advantage.
''Ship owners belonging to conferences have joined hands to limit
their cargo space through alliances and mergers,'' he said. They
want create a situation where demand exceeds supply and they can
lift their rates.
Mr Amnuay said he was concerned that members of shipping cartels
might cut their charges in the short term to force small competitors
out business, and then bump up their rates.
The signs exist already. In 2000, exporters expect problems with
freight rates to re-emerge when shipping lines on American routes
covered by the Transpacific Stabilisation Agreement (TSA) carry
out their recently announced decision to increase charges in May.
The increases for cargo shipped to American ports will amount
to $400 per 40-foot container and US$300 per 20-foot unit.
The TSA will also impose a temporary peak season surcharge of
$300 per container between June and November.
Besides,
shipping lines on European routes covered by the Asia Westbound
Rate Agreement (AWRA) will increase their freight rates in April
by $300 per 40-foot unit and $150 per 20-foot container for cargo
destined for European ports. In August, the AWRA plans to increase
the charges again, by $500 and $250, respectively.
If so, the rates for American and European routes serving Thailand
will return to the levels existing at the start of 1999 - the
highest on record.
Under US law, the Ocean Shipping Reform Act, carriers on American
routes serving Thailand must give shippers 30 days' notice before
they increase freight rates. The level of increase is also meant
to depend largely on negotiations and relationships between the
parties - the carriers and shippers.
But it is almost impossible to take legal action against conference-member
ship owners as they say their group is merely a forum, not a cartel
that fixes charges.
Mr Amnuay said the law was therefore unable to reduce the dominance
of the 13 or so carriers that are members of shipping cartels:
the Asia-North America Eastbound Rate Agreement (Anera), Asia-North
America Westbound Rate Agreement (AWRA) and Trans-Pacific Stabilisation
Agreement (TSA).
''The market power of cartels remains. Freight rates on the Thailand
and US routes remain high despite projections that they would
fall sharply in 1999,'' he said.
Shippers with big cargo volumes can bargain with carriers over
charges. But small shippers have little chance.
The National Industrial Transportation League, the oldest and
largest shippers' association in the US, had claimed that the
new law would promote the growth and development of US exports
through competitive and efficient ocean transport by placing greater
reliance on the market.
About 90% of Thai shippers send goods on the free-on-board basis,
under which the consignee pays the main transport costs. But this
still makes Thai exports more expensive.
Full speed ahead ... an additional eight ships visited
Thai ports this year as foreign flag carriers breached the
market.
In 1999, Thai exporters struck the recurring problem of terminal
handling charges (THCs), which can be increased without warning
or consultation by shipping cartels.
As well, successive governments have promised to eliminate corruption
at Bangkok Port. But shipping lines still claim that they have
to pay kickbacks to avoid delays in their cargo that resulting
in higher THCs.
The THC is now 2,600 baht for a 20-foot unit and 3,900 baht for
a 40-foot container.
However, despite shippers' concerns, industry analysts suggest
freight rates will not increase in 2000, given an oversupply of
space on ships and increased competition.
In 2000, the ship supply is predicted to increase by 8% and cargo
traffic by 10%, according to a shipping veteran.
Container throughput at Bangkok Port between October 1998 and
September 1999 equalled 1.05 million 20-foot units, down 5.4%
from the same period a year earlier.
Container traffic at Laem Chabang Port registered at 1.75 million
20-foot units, up 23.24%. Traffic through the five private terminals
amounted 264,460 units, up 10%.
The improvement in cargo traffic was largely attributed to international
trade practices. The millennium has also brought an upturn in
the import of goods for celebration. The Y2K computer problem
has also encouraged customers to build up stocks of raw materials.
Total container traffic on intra-Asia routes, the fastest-growing
container trade lane, is expected to reach 7.1 million containers
this year. By 2003, the figure is estimated to top 10 million.
About 47% of the world's container cargo traffic is now from Asia.
Technology is also making an impact on the industry. Shipping
lines, traders and customs brokers must soon be fully on-line
with electronic customs procedures.
The Electronic Data Interchange (EDI) system, intended to reduce
costs by as much as 60% by eliminating paperwork and other bureaucratic
procedures, was initially scheduled to start last October 1.
But the Customs Department has allowed an additional two years
for small industries and customs brokers who claimed that they
were not ready to go online with the new system.
However, the department required that the EDI system be fully
operational nationwide by January 1, 2000.
Besides,
shipping lines on European routes covered by the Asia Westbound
Rate Agreement (AWRA) will increase their freight rates in April
by $300 per 40-foot unit and $150 per 20-foot container for cargo
destined for European ports. In August, the AWRA plans to increase
the charges again, by $500 and $250, respectively.
