EUROPE-ASIA LINES GEAR UP FOR TALKS ON RATE STABILIZATION AS EROSION PERSISTS

EUROPE-ASIA LINES GEAR UP FOR TALKS ON RATE STABILIZATION AS EROSION PERSISTS

A further erosion of freight rates between Europe and Asia is adding urgency to talks among shipping lines in Hong Kong set for later this week on a stabilization pact.

Rates for some low-value cargoes exported from Europe to the Far East are close to $500 a 20-foot container, compared with around $750 a couple of years ago and $1,500 in 1985.Industry sources say market conditions have deteriorated noticeably in recent weeks, and that senior shipping company officials at last seem to determined to stop the situation from getting any worse.

Members of the Far Eastern Freight Conference at their quarterly meeting in London last week considered a number of ways of restoring eastbound rates, including greater discipline among pricing staff to adhere to conference tariffs.

Both FEFC member lines and independents will be meeting in Hong Kong to discuss a broader agreement covering the whole trade.

The recent breakup of the ScanDutch consortium has contributed to the downward push on rates, shipping company officials acknowledge, with both the new services launched at the beginning of the year and existing services competing aggressively for market share.

The high cost of new ships now coming into service and the fact that global recession is hitting all the business divisions of some of the conglomerates that own shipping lines is adding to pressure to improve financial returns.

Furthermore, Asian shippers who are having to pay far higher transport costs than their European counterparts are starting to complain loudly about the huge rate imbalances, and shipping lines are loathe to upset their most important customers.

Westbound rates remain at levels the lines consider reasonable, with ships

from the Far East to Europe still full, although some senior shipping line officials are warning that volumes could fall later in the year if the European recession persists.

One possible solution to low eastbound rates is a strictly enforced agreement on the number of empty containers shipped back from Europe to Asia, according to officials.

Since Asian exporters favor 40-foot boxes whereas European shippers prefer 20-foot boxes, repositioning of containers can be a costly exercise. Lines often offer European shippers special discounts in order to try and fill some of the 40-foot boxes to be returned to the Far East, a practice that will have to stop if the lines succeed in negotiating a European Stabilization Agreement for the Europe-Asia eastbound trades.

Returning the larger boxes back to Asia via the Atlantic and Pacific trades is another option that may be considered when both conference and non- conference lines in the Europe-Asia trades sit down later this week. But the lines are anxious not to do anything that may worsen conditions on the Atlantic or Pacific that could persuade some carriers to move into the Europe- Asia trades.

Although container shipping lines have been talking about some sort of stabilization pact in the Europe-Asia trades for a couple of years, industry sources said Monday that there now seemed a reasonable chance of agreement on a capacity cutting pact.

Meanwhile, FEFC members are finalizing the new structure of the conference that should be in place on April 1 when new regional centers in Tokyo, Singapore and London will become fully operational.

The regional offices will be responsible for setting rates for exports cargoes from their areas, but other matters such as terminal handling charges and the collection of statistics will continue to be handled centrally out of the London office, said Patrick Giles, acting director general of the FEFC.

The purpose of devolving some responsibilities to regional offices is to improve communication at local level between shipping lines and shippers.

An application for FEFC membership was approved at last week's meeting, and an announcement on the identity of the new member is expected soon.