BATTLE RAGES IN PACIFIC OVER AUTO KITS CARGO MARKET RATES ARE IN DANGER OF COLLAPSING

BATTLE RAGES IN PACIFIC OVER AUTO KITS CARGO MARKET RATES ARE IN DANGER OF COLLAPSING

A battle in the Japan-U.S. shipping trade over some of the highest-paying cargo in the business is fraying carrier nerves and threatens to destabilize the trade's entire rate structure.

At stake is the multimillion-dollar shipments of auto parts in a kit, a cargo that requires very exacting handling and commands premium rates. This has been a cornerstone of the Japanese shipping industry's revenue base. The ''knocked-down" parts are assembled at U.S. plants according to very strict production schedules.But this lucrative business - about 50 percent of which is carried by the three Japanese and two U.S. containership lines - is being targeted by second- tier conference and non-conference lines who feel the premium is too great to ignore in a weak market.

In response, the traditional carriers have vowed to defend their turf.

"We will fight," said one Japanese carrier. "It could mean a total rate collapse. But we will defend our blood line."

The knocked-down auto parts issue - known in the industry as CKD shipments - came to a head about two weeks ago when Orient Overseas Container Line Ltd. of Hong Kong filed an independent action, which is a type of discount.

An OOCL spokesman said the carrier carefully targets its rate actions and has no intention of destabilizing the market.

That reduction brought OOCL's CKD rate from Japan to the U.S. West Coast down to $2,833. That represents a drop of about $475 and puts it on a level with normal auto parts that require less exacting handling.

OOCL's rate was quickly matched by Singapore-based Neptune Orient Line Ltd. and Denmark's Maersk Line Ltd. with the fray sending tremors through the market.

Major Japanese automakers have been reluctant to gamble too much with their CKD shipments - OOCL doesn't carry a lot traditionally - because any delay could interrupt their just-in-time delivery systems.

But when the rate spread becomes too great - the gap between premium lines and secondary lines is now as much as $700 per 40-foot container equivalent unit (TEU) - they can't ignore it.

"It's a pure demand-and-supply situation," said Toshio Suda, managing director for the Japan Shippers Council. "Tonnage is up and cargo is down."

Furthermore, carriers worry that this assault, if successful, could undermine the entire rate structure by turning on its head the idea that premium service - involving advanced information and cargo tracking systems, extensive intermodal investments and superior on-time records - is worth paying for.

The issue is further complicated by pressure from individual shippers. Toyota Motor Corp., Japan's largest automaker and largest CKD shipper, signed a one-year service contract on May 1 that set the rate at just above $3,100 per FEU.

Nissan Motor Co. and Honda Motor Co., however, only signed six-month agreements at around $3,200 that expire Nov. 1. They pay more because they have lower volumes.

With the market weakening, Nissan and Honda are well positioned to demand larger discounts. In addition, some say Nissan is even considering going without a CKD service contract for the next six months - betting that there is ample shipping capacity in the market and it can enjoy further benefits as rates decline.

Toyota, not surprisingly, is watching all this closely. The company is reportedly close to meeting its minimum requirements under its May 1 one-year service contract. Once it has done that, it is in a position to demand equal or better concessions relative to what Nissan and Honda can negotiate.

Toyota has traditionally been more conservative and more willing to pay for assured service. It reportedly ships about 70 percent of its CKD cargo with the three Japanese and two U.S. carriers, with Nippon Yusen Kaisha taking the biggest share. The other carriers in this group of five are Kawasaki Kisen Kaisha, Mitsui O.S.K. Lines Ltd., American President Lines Ltd. and Sea-Land Service.

Nissan, on the other hand, has tended to ship 70 percent of its CKD volume with non-conference carriers or more aggressive conference lines.

Toyota is reportedly doing more test shipments with lines other than the big five. If nothing else, it reportedly wants to force its traditional carriers to lower their rates.

Honda, meanwhile, is said to be revising its logistics strategy, which may result in its using fewer carriers. Those carriers who don't win out could respond with rate cuts of their own.

This is all causing a mad scramble for information and position. "There's a lot of potential rate action to maintain share positions," one carrier official said.