Wal-Mart Stores Inc. is increasing its volume commitment to an eastbound Pacific carrier group by 50 percent under its 1994-95 conference service contract to give the market a boost.
"We're very pleased indeed, particularly that they're willing to make the extra commitment," said Brian Conrad, Hong Kong-based managing director of the Asia North America Eastbound Rate Agreement (Anera) shipping conference, in a telephone interview. The contract was worked out late last week in Hong Kong.Conference carriers set rates collectively while non-conference lines price independently, usually 5 percent to 15 percent lower. Service contracts, meanwhile, provide shippers with discounted rates in return for higher volume commitments.
Sources say Bentonville, Ark.-based Wal-Mart agreed to place 18,000 40-foot containers (FEUs) under its annual service contract with Anera, up from 12,000 FEUs last year. This makes it by far the largest service contract on the trade.
Carriers attributed the increase to Wal-Mart's rapid expansion and recent strong U.S. economic growth. Wal-Mart, the nation's largest retailer, has big volume and wants to guarantee dependable service, sources said.
Wal-Mart also agreed to a moderate freight rate increase, but it would provide no details. Anera, the eight-carrier conference hauling goods eastbound from Asia, would not comment on contract terms either.
Sources in the United States speculated that, given the volume involved, any increase would be very small or even negligible.
The giant retailer is a so-called champion account - one of the very largest importers whose contracts set the transportation standard for the industry - although Anera says it's so big it is atypical.
The increased volume is good news for conference carriers just entering the spring service contract negotiating period. Anera must negotiate more than 600 service contracts by a May 1 deadline.
Carrier sources say a wave of applause went up at owners' meetings at the Shangri La Hotel in Hong Kong late last week when the contract was announced.
But one official expressed concern that with such a large contract going to the conference, non-conference lines might become more aggressive in seeking out other accounts.
However, a non-conference executive said that was unlikely, because most independent lines aren't in the running for Wal-Mart traffic. The size of the Wal-Mart account and the volume discount demanded makes it unattractive, he said, because other shippers demand similar prices.
"We like Wal-Mart but we've never been able to agree with them on rate levels that would minimize impact on other accounts," said Ken Kolbe, eastern regional director for Hyundai Merchant Marine Ltd., an independent line with offices in Englewood Cliffs, N.J.
Earlier in the year Anera carriers targeted a $225-per-FEU general rate increase on the trade scheduled for May 1. An early toy contract for 3,500 FEUs signed in January contained an increase of roughly $117 a FEU.
In a related area, carriers in the eastbound conferences between Japan and North America discussed in Hong Kong their growing frustration with efforts to levy a planned $190 per FEU rate increase this spring.
Members of the Transpacific Freight Conference of Japan and the Japan Atlantic & Gulf Freight Conference say they're making overtures to non- conference lines in a bid to stabilize the trade.
They say they need some part of the $190 increase to weather Ja pan's recession and their own higher yen-based costs. But Japanese shippers have just as strongly resisted a hike, citing their own predicament.
After a long, drawn-out battle last year, carriers on this trade failed to enact a terminal handling charge. They then regrouped in a bid to enact the general rate increase but this also looks difficult. Consultations with the Japanese Shippers Association have reportedly not gone well.
One carrier official said lines in the Japan to North America trade will consider raising rates unilaterally. In the Japan trade, shippers and carriers more often than not reach an "understanding" given the importance of consensus within Japanese culture.