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ICC/ESCAP Regional Conference on Transportation Facilitation and Trade Growth in Asia
Prepared by Federation of Asian Shippers’ Councils
27-28 November 2003, Bangkok
Working together is gaining greater urgency both for shipping lines and shippers. The sharp volatility that has characterised the freight market in recent years has not benefited the shippers or the shipping lines. We need to sit down in a cordial environment based on mutual respect to exchange views and to establish a proper balance of interests if some of the issues confronting the industry were to be addressed, including the ever-sensitive issue of freight volatility.
The modern economy demands that we should make this effort. Globalisation is continuing to sweep across the world in spite of some attempts by anti-globalisation movements to stop it. A new study by sociologists in the University of California reveals that globalisation is not a new phenomenon. It began over 100 years, with spices and tobacco. Since then it has gathered pace as borders continue to crumble and the global village becomes a reality. In the US, the world’s biggest economy, foreign trade accounted for some 16% of the total trade in year 2000, and the figure is expected to grow. Today, companies are making their products in a dozen countries, either in their own plants or in outsourced units, with parts sought from the most competitive locations. And these are sold throughout the world.
But for this to work, it must be backed by an efficient transport and communications network, which can deliver components, sub-assemblies and finished products quickly and cost effectively. The entire process will have to be integrated and transparent. Not only must there be transparency in data flow so that all parties in the supply chain will be aware of where the products are any given time, but everything else related to it, including charges and surcharges, for only with access to reliable information can companies make sound judgement.
This demands tighter collaboration among the different parties. Herein lies the difficulty: the ongoing feud/differences between the two key parties in the supply chain -- the shippers and the shipping lines. At the heart of the difficulty is the anti-trust immunity which was accorded to shipping lines over 100 years ago, that has allowed them to collaborate in rate-fixing cartels. Shipping lines have been able to hide behind this protection, which is enjoyed by no other industry, to fix rates and collectively impose an ever-lengthening list of surcharges.
While this may have been allowed under the UN Code of Conduct for Liner Conferences, shipping conferences have crossed the line again and again by failing to consult shippers or their representatives, the shippers’ councils, as required by the code. They have raised freight rates at will without consulting the shippers affected, and without providing even the most basic facts and figures to back their demand. They have imposed surcharges which have rolled on year after year when the code has specifically emphasised that surcharges should be temporary in nature.
The impact on worldwide shippers community differs from bloc to bloc:
- In the United States, the implementation of the OSRA, as part of US efforts to liberalise maritime transport, has accorded shippers a level of protection against shipping cartels;
- In Europe, with the government as an invaluable watchdog, shippers are strong and organised and are able to hold their own against the conferences;
- In Korea and Japan, the shippers and service providers have a tradition of working closely together in a harmonious climate of mutual respect; but
- In the rest of Asia, we find ourselves on the receiving end, with little government involvement, or regulatory protection. We are the ones most adversely affected by the shipping conferences, who blatantly disregard us of being no consequence.
The Organisation of Economic Co-operation and Development (OECD) has found common cause with shippers. A report released in April 2002 unambiguously recommends the termination of price-fixing arrangements in the liner shipping market. It further urged OECD Governments to review anti-trust immunity for rate fixing. In recent years, the Federal Maritime Commission and the European Union have taken conferences and rate agreements to task for infringing anti-competitive rules.
THC (Terminal Handling Charge) has been a long-standing and thorny issue among the shippers. FASC is garnering the support of regional trade agencies and governments to compel shipping conferences to the negotiating table to discuss the highly contentious Terminal Handling Charge (THC). This follows the recent Asean Maritime & Transport Working Group Meeting where separate studies by FASC and APA (Asean Ports Association), reached the same conclusion that THC was non-port related. A THC study conducted by FASC further concluded that it is a double charge and should be abolished. (A complete study is available in Appendix 1) Rather than rely on a outmoded practice, which is little relevance in today’s world, it is definitely more beneficial if shipping lines and their conferences should direct their energy towards monitoring the supply-demand situation which lies at the heart of the sharp fluctuation in freight rates. The oversupply of ships last year in relation to cargo flow, were instrumental in the sharp fall in freight rates. With better forecasting and more prudent decisions, the level of volatility in liner freight rates will be reduced. It will benefit both the shippers and shipping lines, and provide the climate for the deliberation of issues that matter. Fairplay and free competition are the necessary building blocks for an efficient business environment. Shippers and liner shipping companies will benefit from it in the long term, just like any other business in this globalise world.
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