TRANS-PACIFIC RATE GROUP WARMS TO SERVICE CONTRACTS

TRANS-PACIFIC RATE GROUP WARMS TO SERVICE CONTRACTS

Ocean carriers in the outbound trans-Pacific rate-making group are talking about expanding their use of service guarantees as a tool to lock in large volume commitments from U.S. exporters.

The Transpacific Westbound Rate Agreement, a nine-carrier conference that sets rates between the United States and much of Asia, has traditionally shied away from offering service contracts, fearing that exporters would use them to drive down rates. Prior to August, the group had just three contracts in force.But with deregulation and a surge of capacity coming to the U.S. ocean trades, the threat that service contracts will lead to lower rates is outweighed by the need to lock in cargo in preparation for uncertain times.

"We have agreed to continue to look at service contracts on an ad hoc basis either by customer or commodity," said Albert A. Pierce Jr., the TWRA's managing director.

The carrier group signed its fourth service contract in August, locking in 9,100 40-foot containers in a one-year deal with the forest product giant Weyerhaeuser Co. That deal was similar to previous TWRA service contracts given to large-volume shippers. Now, the group is offering similar service- for-volume deals to cotton exporters that would require as few as 75 40- foot containers, according to some reports.

Previously, the minimum volume the TWRA carriers would accept for a service contract was 5,000 20-foot containers, putting service contracts out of reach for most exporters. Many shippers lacking that amount of cargo were offered time-volume rates, which gave a rate incentive for volume, but involved no service or volume commitments from either the shipper or the carrier.

Having extended those offers to cotton shippers late last month, TWRA carriers are now in the early stages of deciding whether to make service contracts available to shippers of other major export cargoes, including chemicals, mixed containers and chilled and frozen agricultural goods.

Carrier executives emphasized that those discussions, while under way, have not reached the formal stage. The conference is nowhere near the point where it will be extending service contracts on commodity groups other than cotton, they said, adding that even the cotton deals may never be consummated.

''We have, and will continue to be huge supporters of having service contracts," said Scott Hagen, westbound trade director for Sea-Land Service Inc. in Charlotte, N.C. He added, though, that "the group hasn't even ventured into discussing other commodities yet, although I'm sure we will get to that."

Mr. Pierce said "nothing of substance" has been discussed about extending service contracts to chemical, mixed cargo or refrigerated cargo shippers.

The TWRA members have long been divided on the issue of making service contracts more widely available, and are still far from unanimous.

Nevertheless, having indicated that its 5,000-container minimum on service contracts is being revised - at least with respect to cotton - the TWRA will be forced to offer those deals to a broader spectrum of customers, some shippers said.

"Once (the minimum is scrapped), they will have to sign contracts with everybody else. The old 5,000-TEU minimum will go out the window," said George Hazzard, manager of international and water transportation for Monsanto Co. in St. Louis.

"We're going to put pressure on our carriers to devise a service contract for Monsanto," he said.

The terms under which the conference will be willing to offer service commitments in return for volume will not be known until details of the group's cotton deals - should they occur - emerge publicly.

But Mr. Pierce told agricultural shippers in July that the conference will not allow service contracts to become a vehicle for exporters to drive down rates.

"No trans-Pacific carrier, even in a completely deregulated environment, is going to offer service contracts with a volume discount and a guarantee of either equipment availability or transit time at current rate levels. It won't happen," he said.

The conference recently voted to increase rates on most outbound cargoes early next year.