A PLAN TO RECLAIM THE PACIFIC

The recent rise in labor costs in Taiwan plus changes in the value of the

dollar have given U.S. shipping companies the opportunity to close the cost gap with Taiwan and Japan and perhaps re-establish the United States as the pre-eminent shipping power in the Pacific.

In February 1988, Henry Gilbertson, a U.S. maritime consultant, found that a U.S. carrier's average cost per 40-foot container crossing the Pacific was $464 while a Taiwanese carrier's cost was $365 - a differential of 27 percent. Two years later, Mr. Gilbertson believes that the gap between U.S. and Taiwanese carriers is closing.Two factors have improved U.S. competitiveness. The Taiwan dollar has appreciated against the U.S. dollar by 10 percent between 1988 and 1990, raising the dollar-denominated costs of the Taiwanese liner operators, Evergreen Marine Corp. and Yangming Marine Corp., by 10 percent. And labor costs in Taiwan increased by 20 percent over the last year.

The impact of these two factors, along with rising shipbuilding costs in South Korea and Japan, may have forced Evergreen to scale back by two-thirds the 22-vessel shipbuilding program it announced in early 1989. This means that Evergreen will continue to increase capacity to drive other carriers out of the Pacific container market, but at a lesser rate than during the 1980s.

U.S. carriers such as American President Lines Ltd. and Sea-Land Service Inc. have been doing a good job competing with Evergreen, their leading competitor in the container freight business. They have reduced costs and invested in more-efficient vessels, which has improved their competitive advantage.

This does not mean the battle is won, however. The U.S.-flag carriers were bloodied by the rate wars of the 1980s. Excluding subsidies and preferential cargo arrangements, few profits are being made. Both Taiwanese and Japanese carriers still control a sizable share of the Pacific market. If U.S. carriers want to dislodge them, they must be willing to go on the offensive.

Success is going to depend on several key factors.

First, the U.S. companies need to develop a partnership with seafaring unions in support of a U.S. maritime strategy. Too often, labor's best efforts to work with management are met by executives who criticize unions to the news media. This reflects poor management. The unions have made a major contribution toward working to reduce costs and they haven't received the credit.

The industry needs labor's support to continue cost and quality improvements. Labor also can be an important ally in lobbying Congress to support a competitive maritime policy.

Second, the industry needs to improve its public relations. Too often, U.S. shipping companies treat the media as if it was the enemy. Executives who answer press inquiries are sometimes rude and delegate responsibilities to individuals who know little about the industry or who demand that reporters submit questions and credentials in advance.

Third, U.S. carriers must stop receiving operating subsidies from the U.S. government. Instead, they should utilize government support to enhance competitiveness and manufacturing.

Subsidization creates an atmosphere of complacency and shields the industry from free market forces. This is bad for its image and creates an unnecessary emphasis on subsidy politics rather than free-market competition. The Cold War is ending. Unless the industry works with government in a more constructive way, budget cutters may eliminate subsidies and leave the industry to fend for itself.

Fourth, the U.S. maritime industry's most important priority should be to establish itself as the pre-eminent maritime power in the Pacific. That means it must beat out Evergreen Marine, U.S. shipping's most serious competitor.

To do so requires a long-term strategy that begins with cargo-sharing. The existence of the United Nations Code of Conduct for Liner Conferences makes cargo-sharing a legitimate activity of maritime nations.

The United States should sign the code, and the maritime industry should lobby Congress to implement its cargo-sharing ratios - 40 percent for the ships of each nation in bilateral trade, 20 percent for third-country ships - with countries that post sizeable trade deficits with the United States. In this way, South Korea, Japan and Taiwan would help finance the revitalization of the industry by shipping cargo on U.S. carriers.

In 1988 the United States paid $9 billion to foreign-flag carriers for bringing goods to the United States. This is an outrageous sum of money. It could be pared down if a percentage were allocated to U.S.-flag carriers.

The reality is that Congress is not going to implement a cargo-sharing strategy to benefit a handful of shipping companies unless it can be demonstrated that others will benefit, too. That means that if additional ships are going to be required, they must be built in the United States to help revitalize U.S. steel-making and must use American-made engines, radar and other components to revitalize the marine components industry.

In a corporate climate where thinking three months ahead is seen as long- range planning, the notion of developing a strategy that will take five to 10 years to implement seems impossible. It's worth remembering that when Japan began rebuilding itself after World War II, it chose an identical path.

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