Shipping lines in the beleaguered eastbound trans-Pacific trades on Monday scrapped a plan to bolster ocean freight rates over a three-year period by holding some of their containership capacity off the market.
Stiff opposition from federal regulators and shippers was the key factor in the decision.The shipping lines, a group of 15 carriers that haul most of the cargo moving from Asia to the United States, abruptly withdrew an October petition to the Federal Maritime Commission to reinstate a ''capacity management program'' that was in place from 1989 to 1995.
Capacity management is the term carriers use for withholding space in an attempt to bring supply into balance with demand. It's intended to prevent rate reductions, and possibly permit rate increases. Shippers generally decry it as an artificial constraint.
Scrapping the program means carriers in the U.S.-Asia trades, where the supply of ships far exceeds demand, will be hard-pressed to raise rates even when the market strengthens in 1998 and 1999, according to some shipping market analysts. It would have been too late for the program to have had much impact on this year's contracts, they said.
The 15 lines, acting collectively as the Transpacific Stabilization Agreement, scuttled the capacity plan in response to opposition from the FMC and shippers, said Robert Peavy, the carriers' Washington attorney.
AVERAGE DROP $800
In October, Mr. Peavy noted that freight rates in the eastbound Pacific had dropped an average of $800 per 40-foot container while shipping lines continued to add vessels.
Mr. Peavy said there was a 19 percent increase in total capacity in 1996, to be followed by another 10 percent increase this year. Yet during this time period cargo volume was expected to increase only about 4 percent.
But Mr. Peavy said Monday senior commission officials expressed ''deep concerns'' about the plan's impact on competition and indicated they might go to court to block it. Such action, although authorized by U.S. shipping law, would have been unprecedented.
Additionally, a ''number of our customers (shippers) were not too pleased,'' he said.
The TSA lines ''are not going to try to shove this down peoples' throats . . . it's not of such crucial importance that we're going to go to war over it,'' the attorney said.
Harold Creel Jr., FMC chairman, said he had ''serious reservations'' about the plan because of the market share controlled by the carrier group and its rate-setting authority.
The commission, with input from shippers, was able to convince carriers to drop the program and prevent any harm to competition, Mr. Creel said.
Shippers represented by the National Industrial Transportation League had raised concerns about the carrier plan and asked the commission for a tough review.
''As someone who has beaten up on the commission in the past, I think this is a big plus,'' said Edward Emmett, NIT League president. ''When shippers have complained in the past, (the commission) went behind closed doors and cut a deal with the carriers. But this time they took a more balanced approach.''
Outside Washington, shipper and carrier executives said the decision to withdraw capacity management will have more psychological than practical impact on the depressed trans-Pacific market. Because capacity significantly exceeds current freight volumes in the Pacific, withholding a certain portion of vessel space from the market would not likely have affected shippers' ability to reserve space on specific vessels.
Some shippers have contracts that guarantee them space on ships irrespective of trade-wide initiatives such as capacity management.
''Capacity is so big and demand is so small that capacity management wasn't going to affect the market,'' said a senior carrier executive. ''The only impact was going to be psychological.''
Executives said it is difficult to assess how the absence of capacity management will affect carriers' efforts to restore rate levels after a bruising rate war in 1996 that collectively cost carriers an estimated $1.5 billion in revenue.
In the 1980s, capacity management gave carriers confidence to increase rates knowing that other lines would be less likely to undercut them. The new program was intended mostly to renew the sense of collective effort among carriers to keep rates stable, a mind-set that was all but wiped out during last year's rate war.
Without capacity management, carriers have to resort to old-fashioned discipline if they want to begin to set rates on an upward course.