ANALYSTS FEAR OVERCAPACITY IN FAR EAST-EUROPE TRADE

ANALYSTS FEAR OVERCAPACITY IN FAR EAST-EUROPE TRADE

A perceived trend toward overtonnage conditions on routes between the Far East and Europe, which could lead to the outbreak of a freight rate war, is worrying Japanese shipping analysts.

At the weekend, for example, several prominent Japanese shipping experts in Tokyo expressed the view that additions to the fleets serving routes between Asia and Europe might lead to a freight rate war similar to that which currently troubles lines involved in trans-Pacific trade to North American ports.According to these observers, although the same difficulties are emerging on the European routes from the Far East, the basic problem is that major container markets are involved.

It was stressed by these quarters that three large-scale containerships (about 3,600 20-foot equivalent units each) are scheduled to be placed on the Far East-European routes over the next two months by Mitsui O.S.K. Lines and Nippon Yusen Kaisha.

This is bad enough, according to these shipping analysts, but they now report that P&O Container Ltd. has decided to place orders for construction of a 3,600-TEU containership for completion in June of 1989.

In addition, these same sources report that Kawasaki Kisen Kaisha, Neptune Orient Lines and Overseas Container Line have reached an understanding under which two 3,000-TEU vessels are to be constructed for mutual operations.

These vessels are scheduled for completion between October of this year and the middle of 1989. In the meantime, however, these same shipping companies reportedly plan to charter new (and larger) containerships for these same routes.

In addition, Maersk Line is expected to advance its operations in the Far East-European trade by assigning two 3,500-TEU carriers to these routes in the near future.

One of the most attractive aspects of the business is that a fair proportion of all European-bound cargoes across the Pacific involves freight hauled by conference lines. For the present, in fact, the share of non- conference lines appears to be no more than 60 percent and often lower when freight moved out of Taiwan, South Korea and Hong Kong is concerned.

The analysts report, nonetheless, that the non-conference lines are moving quickly to increase their fleets on the European routes.

In this regard, as the observers see it, Evergreen Line already has replaced its 2,728-TEU G-type container vessels in westbound trade in round- the-world business with 3,429-TEU GX-type ships.

If this was not sufficient to upset the executives of conference companies in the trade, the Yang Ming Marine Transport Corp. has announced its decision to switch all of its eight 3,042-TEU vessels, originally assigned on the planning board to U.S. East Coast routes, to the European trade.

In addition, Norasia Line, Senator Linie and Compagnie Maritime d'Affretement (CMA) are planning to expand their fleets engaged on routes between Europe and Asia.

Most of these non-conference lines are busy capitalizing on the sharp increase in traffic on routes between Europe and the Far East.

The analysts point out that these non-cartel lines are offering relatively low rates, with their cargo-booking operations giving unusual attention to freight bound for Asian ports. Their interest in this traffic quite obviously is attracted by low costs resulting from the drastic appreciation of the yen relative to most other currencies, especially the U.S. dollar.

Indeed, the growth of competition on the Asian-European routes can be attributed to the steep increase in cargo movements between the Far East and European ports.

According to the Japanese shipping experts, conference lines on the routes

from Asia to Europe probably carried something close to 4.6 million metric tons from Japan and roughly 7.6 million tons from the Far East in general to northern Europe in 1987.

It was pointed out by these same specialists that the amount of cargoes moved from the Far East to Europe last year represents an increase of almost 30 percent when compared with 1986 - and a jump of around 70 percent against shipments on these routes in 1985.

The analysts emphasized that, with freight cargoes expanding so rapidly in the trade, shipping companies involved cannot help but continue to increase their hauling capabilities on these routes.

One industry observer remarked that, with cargo volumes expanding so swiftly, shipping companies are concerned that unless they boost their hauling capabilities they will not be able to maintain their carrying shares and the quality of their services.

Stressed one shipping analyst, in the face of non-conference lines' rate- cutting in order to expand their shares, it is difficult for the cartel operators to defend their own businesses on the Far East-European routes.

This is why many of the non-cartel lines are even now planning to transfer their large container carriers from the unprofitable trans-Pacific-N orth American routes to those from the Far East to Europe.