TAA MOVE OUTRAGES FREIGHT CONSOLIDATORS COMPANIES SAY CUT IN DISCOUNTS THREATENS SURVIVAL

TAA MOVE OUTRAGES FREIGHT CONSOLIDATORS COMPANIES SAY CUT IN DISCOUNTS THREATENS SURVIVAL

Freight consolidators Tuesday charged that the Trans-Atlantic Agreement ocean carriers have violated an earlier understanding, cutting their volume discounts by as much as 60 percent and threatening their ability to stay in business.

According to consolidators that have received 1994 contract renewals, the TAA's new plan considerably narrows the difference between the rate shippers can obtain by pooling their cargo through a consolidator and the rates they can obtain by going to the carriers directly.In October, the 15 carriers that dominate the U.S. East Coast to Europe trade had indicated to the consolidators - also known as non-vessel-operating common carriers (NVOCCs) - that there would be little or no change in the discount rate from this year.

Because shippers will benefit much less next year under the new plan by booking through a consolidator, they will be much more inclined to deal with carriers directly, even if it involves paying a somewhat higher tariff.

"The margin is reduced substantially compared with 1993, to the point that we might lose money by accepting a shipment," said Fritz Bauer, president of The Norton Line, a large NVOCC based in Secaucus, N.J. "It is a disaster, to tell you the truth."

Ocean freight consolidators also learned this week that they will be permitted to ship a maximum of 110 percent of their 1993 volumes at service contract rates, with any boxes beyond that having to move at full tariff rates.

Consolidators say the squeeze on their margins, which has practically eliminated potential profits on small volume discount contracts, is part of a deliberate attempt by the TAA to push them out of the full-container business. NVOCCs also sell partial-container space to smaller shippers.

The TAA controls more than 70 percent of the containerized cargo along the North Atlantic.

Service contract renewals containing the rate changes for 1994 have been arriving at consolidators' offices since late last week. Consolidators account for more than 10 percent of all outbound container traffic moving across the Atlantic to North Europe. They signed more than 600 service contracts with the 15 TAA carriers this year, moving most of their cargo on the six "second- tier" or non-structured carriers such as Polish Ocean Lines, Mediterranean Shipping Co. and Cho Yang Shipping Co.

The consolidators had been assured in October that the TAA would take no rate actions to adversely affect their margins, and Harold "Lucky" Holden, the conference's executive director, insisted there had been some "minor adjustments" in the rate plan since then but nothing more.

"We're not trying to impede the ability of the NVOs to maintain their business, but we're not going to give them spectacular (license) to increase their business either," he said. "We're not going to give them free rein to take business from proprietary shippers and bring it back to us at a lower rate," he said.

Consolidators paint a different picture. Since they earn most of their

revenues by offering shippers a better rate by contributing their cargo to a pool, consolidators prosper to the degree that their pooled rates are better than what shippers can obtain by going to the carriers directly.

But when comparing service contract rates per 20-foot equivalent unit (TEU) with non-service contract, or tariff rates, that shippers can obtain for themselves, consolidators discovered that the difference had narrowed considerably.

On 7,000-TEU contracts, for example, that margin will shrink 30 percent on Class 17 (including peanuts, sugar and wine) commodities, 50 percent on Class 18-21 (including machinery) commodities, and 60 percent on the low-volume commodities in Classes 22-26 (including airplane parts). The TAA uses its own simplified 26-class commodity structure.

From the day it was formed in 1992, the TAA has been divided over whether to support or hinder the growth of the NVO industry's ability to traffic in full containers. Non-structured carriers, many of which depend on the NVOs for a majority of their business, generally support the industry, while full- service carriers such as P&O Containers see them as direct competitors.

The full-service carriers have no objection to NVOCCs gathering cargo from shippers with less-than-full-container volumes, and consolidating it into full containers that move at mixed commodity rates.