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16th October 2008

Sri Lanka shippers expect fall in freight rates

Oct 16, 2008 (LBO) - Freight costs could fall with an expected slowdown in the US economy and the end this weekend of shipping liner cartels which fix rates, Sri Lankan shippers said.

Rates have already fallen on the main Asia-Europe trade route with an influx of big container ships which have created an overcapacity problem for shipping lines, although bunker fuel surcharges remain high owing to high crude oil prices.

A sign of the times was the recent failure by some lines to implement what’s known as a GRI (general rate increase) during the usual surge in shipments to Western markets in the run-up to Christmas.

“The tendency is for freight rates to come down with the slowdown in the US economy although it might take awhile for us to feel its effects,” said Randolph Perera, chairman of the Sri Lanka Shippers Council.

The end of the liner ‘conference system’ under which shipping lines operated like cartels to set freight rates could also benefit shippers, he said.

A European Union ruling to outlaw the conference system, seen as a monopolistic practice, comes into effect on October 18, 2008.

Shipping lines operate in groups called conferences and defence the practice saying it is necessary to optimise vessel capacity because of heavy investments and long lead times to build ships and fluctuating trade patterns.

Until recently shipping alliances had been given immunity from anti-competition laws but the conference system is on the way out with the impending ban by the European Union.

The Sri Lanka Shippers Council had long campaigned against what they called price fixing by the liner conferences which they said kept freight costs high.

“Usually during this period we see an increase in freight because of Christmas,” said Perera. “Some lines tried to do a GRI but it did not work.”

He said the impending ban on the liner conference system means shipping lines would no longer be able to collaborate and set freight rates.

“The shipping lines will have to negotiate individually with shippers. That would naturally help shippers,” said Perera.

He said shippers had had a “good year" this year with no space problems that could delay shipments.

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