PUBLISHER'S NOTEBOOK

PUBLISHER'S NOTEBOOK

The U.S. Shipping Act of 1984 was clearly a compromise between the owners of ships and the shippers of freight. It was a case of two natural enemies, aided by the government, agreeing on a new set of rules.

Now, six years later, with the act itself under review, one may ask, who really won?Clearly, the shippers have so far fared the best. The carriers have been clobbered.

Ocean freight rates have fallen since 1984, with drops ranging from 5 percent to 40 percent on a constant dollar basis, according to a study by the Federal Maritime Commission. Costs today for point-to-point delivery of goods constitute a significantly smaller percentage of overall product costs than they ever have.

Moreover, the rise of intermodalism - in which one price may cover delivery by ship, train and truck from Osaka to Ohio - has led to better service than ever.

Malcom McLean, the legendary father of containerization, whose United States Lines went bankrupt in 1986, described the carriers' plight best last year when he said:

"We used to get more money 20 years ago for port-to-port than we get today for door-to-door."

That was the same day Mr. McLean told a meeting of shipping executives that he had looked up intermodalism in the dictionary but couldn't find it.

"I'll tell you what intermodalism means: It means the carrier gets screwed!" he said.

Mr. McLean said carriers had failed miserably to price properly the services they were providing.

To be sure, in 1986 the industry went into a tailspin marked by bankruptcies and billions of dollars in losses.

Today, the industry has recovered somewhat and has emerged as leaner, smarter and slightly more hopeful about the future, despite continuing overcapacity.

Given the sad performance of most carriers in recent years, you might think they would be dying to change the Shipping Act of 1984, especially the provisions that allow conference members to set rates independently with only 10 days' notice. That, combined with service contracts in which carriers provide special rates to large customers, has led to the decline in rates.

But no, as Bill Verdon told this newspaper's editorial board two weeks ago, the vast majority of carriers serving the United States feel the act is working. Rather than risk negative changes, they prefer to have the act renewed exactly as it is.

Mr. Verdon is president of the United Shipowners of America and secretary of the recently formed Ocean Common Carriers Coalition. The coalition comprises 27 ocean freight carriers serving the United States. It was formed to deal with the government as a united front on the ongoing review of the 1984 act.

What is it about the 1984 act that carriers seem to like so much? Stated simply, the act enables carriers to discuss rates with the competition without having to fear the treble damages imposed by this nation's antitrust laws.

Second, the carriers like the fact that the act gives them the ability to rationalize: to share ships, services, equipment, and to do virtually anything together.

For these two benefits, they'll gladly exchange mandatory independent action by conference members and the often-onerous service contracts, which shippers have used as an effective tool to drive down rates.

Given the results of the last six years, are the carriers as crazy as Mr. McLean has suggested?

My guess is they are optimistic. Call the first six years a learning period. Most, if not all, carriers now understand the folly of endless rate- cutting to win cargo. Of course, it doesn't always stop them from doing it.

From my talks with numerous shipping executives, it is clear that the majority believe that discipline on rates among the carriers will improve and that more rationalization of services will occur in the coming years. That should lead to improved profits.

But Mr. Verdon believes it will continue to be a balanced marketplace, where the give and take between shippers and carriers will lead to fair pricing.

Obviously, circumstances in which carriers are allowed to function as efficiently as possible through cooperation mean lower costs. That makes a lot of sense to me so long as shippers are not exploited and carriers' profits are fair but not exorbitant.

With respect to rate-fixing, history shows that whenever there is an overcapacity or oversupply, competitors seldom can resist cutting rates to attract business. Frankly, I'm somewhat skeptical that the carriers can exercise the discipline necessary to achieve and hold what they consider to be proper rate levels.

There are just too many players, and there is too much container capacity out there to change dramatically what has been a buyer's market. Moreover, corporate objectives among carriers vary markedly, as do cost levels. Both factors tend to suppress rates.

I wish the carriers well in their quest for fair returns on their

investments. Nonetheless, I suspect the advantage in coming years will continue on the side of the shippers. The reason is that the carriers have always been their own worst enemies, even with antitrust immunity.