PACIFIC LINES OFFER DISCOUNTS IN SEEKING COTTON SHIPMENTS

PACIFIC LINES OFFER DISCOUNTS IN SEEKING COTTON SHIPMENTS

Ocean carrier rate battles are erupting over cotton shipments moving across the Pacific to Asia.

At least two major independent shipping lines are offering discounts to U.S. cotton exporters in reaction to mid-November pricing actions by a maverick Taiwanese shipping company. Those rate moves are forcing the nine members of a carrier rate-making group to come up with countermeasures.The battle over cotton, a crucial commodity in the outbound Pacific trade, is exacerbating pricing problems for Pacific export shipments. For a year, major commodities in the trade - such as wastepaper, resin, and hay - have seen dramatic price drops. The result is a grim revenue picture for ocean carriers.

"It's disturbing," said Dodd Fiori, senior vice president of sales and marketing for NYK Line (North America) Inc. in Secaucus, N.J. "The market is actually strong now. The year has generally been bad but the last three months have been strong. It's hard to understand why rates are depressed when the market is strong."

Carriers in the Pacific have been trying to halt the decline in rates through a broad pricing alliance called the Westbound Transpacific Stabilization Agreement. That alliance is comprised of major independent carriers in the trade and a pack of nine carriers that set prices as a single unit through the Transpacific Westbound Rate Agreement.

In mid-November, one independent carrier, Yang Ming Marine Transport Co. of Taiwan, left the broad pricing alliance. At the same time, Yang Ming made a drive to secure cotton shipments by offering prices $5 a ton lower than conference carriers and $2 a ton lower than other independent carriers.

Cotton is a major commodity on the Pacific trade, accounting for roughly 8 percent of the outbound traffic flow. It also typically commands a higher freight rate than most base commodity cargoes. A 40-foot container of cotton can get a rate of $1,300 to $2,000 to various Asian destinations, without add- ons. A container of wastepaper, by contrast, is moving for rates around $700.

Yang Ming had practically no market share in cotton, according to carrier executives. Its recent discounts, however, have already managed to get six contracts with major cotton exporters. The contracts, however, are for very low volume commitments - in most cases only 30 containers.

"The idea is a trial shipment," said an executive with one cotton exporter, who asked not to be named. "It worked for us. We can try them out without major exposure."

In response, two independent lines, Hyundai Merchant Marine Ltd. and Evergreen Marine Corp., are matching many of the Yang Ming rates, said shipper and carrier executives.

"Yang Ming is a market killer," said an executive with one of the two lines. "They're ruining the market and we can't always match them."

Yang Ming is guaranteeing its customers rates $1 a ton below whatever the competition is offering. Such guarantees, called most favored shipper clauses, typically are used to ward off price matches by competitors.