SHIPPERS COUNT ON MEETINGS TO PREVENT PACIFIC RATE WAR

SHIPPERS COUNT ON MEETINGS TO PREVENT PACIFIC RATE WAR

Industry officials are banking on a rash of meetings among shipowners next week to avert a war of rates and allegiance in the trans-Pacific shipping market.

"I think one mistake by one major carrier could conceivably get us into a rate war," said an executive with one of the carriers.Shippers are following the goings-on closely. The growing competition in the trade and any subsequent lowering of carrier rates would mean a smaller transportation bill overall for their cargo.

"Everything is apparently moving against the carriers," said Toshio Suda, managing director for the Japan Shippers Council. "It comes down to simple economic principles (of supply and demand)."

Several factors worry the carriers as they head into next week's meetings.

The industry, for one, is divided into conference and non-conference lines with conference members setting their rates collectively and non-conference lines pricing their service independently.

Over the past six months, members of the principal eastbound shipping conference - the Asia North America Eastbound Rate Agreement - have lost a large chunk of business, reportedly about 3 percentage points worth of market share, to non-conference members.

Some conference members appear to be taking a tougher stance in a bid to recover lost ground. They advocate cutting rates and appealing to large shippers to shift their allegiance. This, they fear, could start a downward rate spiral.

The Anera conference has taken forceful action in recent weeks to keep key import cargoes like footwear, toys and household merchandise from slipping away to independent lines. Earlier this month the conference significantly expanded a program of offering discounts on cargo shipped during the post- holiday slack season.

The discounts were originally planned to take effect in December, but with pressure from independent lines mounting, the conference moved up the discounts to Sept. 1 where they would affect holiday season as well as slack season cargo. The conference also increased the discount from $60 to $100 per container, in effect giving back most of the rate increase it won from shippers during annual rate negotiations last April.

Although virtually all conference carriers say they're worried, officials single out a more aggressive market stance recently by American President Lines Ltd., which has lost a sizable amount of business.

"APL has been very conservative in the past, but word is they've become an aggressive carrier in executing (a rate-cutting tool known as) independent actions," Mr. Suda said.

Another concern is that trade volumes are lower than expected for what should be the busiest time of the year - fall and Christmas shipments coming

from Asia.

MORE CAPACITY LOOMING

Lingering on the horizon, moreover, is the prospect of a large increase in new vessel capacity next year and the impact that new partnerships could have on the competitive equation.

Next week will see a frenzy of meetings in North Asia as carriers address these and other issues.

The Box Club, a group of the very top executives in the industry, will meet in South Korea Sept. 21-22. Although there is no set agenda, U.S. shipping deregulation is expected to play a large part in the discussions.

From there, the focus will shift to Kobe, Japan. Here the Europe-Asia conference will meet on Sept. 22 and the Transpacific Stabilization Agreement and the Westbound Transpacific Stabilization Agreement will meet Sept. 23.

Finally, Anera, the Transpacific Westbound Rate Agreement, the Trans- Pacific Freight Conference of Japan and the Japan/Atlantic & Gulf Freight Conference will meet on Sept. 24.

An age-old problem for the shipping industry is that a rate cut by a single carrier can bring the entire market down by forcing other carriers to follow suit.

MEANINGFUL PLEDGE

In this environment, officials say they hope to get a meaningful pledge in Kobe from individual carriers that no one will first pull the trigger.

"Let's not panic," said one Japanese carrier official. "Inevitably we're going to face a lot this season. Let's not make any good excuse for rate actions."

Carriers say they hope to formulate in Kobe a "damage-control" system that establishes quick response procedures and industrywide meetings as soon as any rate-cutting begins.

Even as carriers outline the need for cooperation, however, they admit individually that they're not going to sit back and watch others steal their business.

Conference carriers say non-conference pressure is coming from several sources this time, not just from the usual ambitious non-conference foursome in South Korea and Taiwan. Troublesome though they may be, these four at least are members of various industry discussion groups and can participate in discussions, the conference carriers say.

Since May, aggressive rate cuts reportedly also have been coming from second-tier non-conference carriers such as China Ocean Shipping Co. that are outside most industry groupings.

'NO WAY TO TALK'

''With Cosco, we have no way to talk," a Japanese carrier official said. "And Cosco is also upgrading its quality and service to have more business opportunities."

In some cases, the mid-level non-conference lines may be defending themselves against Cosco and other third-tier players. In other cases, the third tier may be moving up to take advantage of the vacuum left when mid- level players divert conference accounts.

Already there have been several warning shots. Orient Overseas Container Line reduced its rate for automobiles kits, known as CKD, from Japan to the U.S. West Coast. The independent action by OOCL lowered the rate by $475 per 40-foot equivalent container unit, to $2,833 per FEU. This reportedly was matched by Nippon Yusen Kaisha.

"Non-conference lines are aggressive so conference lines are taking funny IA's left and right to compete," said one official with a Western carrier.

An OOCL official said this independent action was only one of several industrywide, that it was well targeted and that OOCL remains a stability-minded carrier.

Cosco, meanwhile, reportedly has a $2,000 rate for auto parts that, according to competitors, may even be attracting the interest of some major Japanese carmakers. Carmakers have traditionally avoided bargain rate deals for fear a misstep could disrupt production lines.

"An $800 rate spread, you can't beat that," one competitor said. ''Cosco's had a steady and rapid increase in market share."

"Shippers are now basically favoring rates over service," he added.