US IMPORTERS RESIST PACIFIC SHIP RATE HIKE

US IMPORTERS RESIST PACIFIC SHIP RATE HIKE

A classic standoff is developing between companies that import goods from the Far East and the shipping lines that carry them.

The carriers, noting that freight rates have dropped 30 percent since 1984, say they will enact a previously announced general rate increase of $300 a shipping container.The increase applies to importers who sign service contracts for the period May 1, 1990, to April 30, 1991.

In a typical service contract, a shipper commits a given volume of cargo to a carrier and in return receives a discount ranging from 2.5 percent to 15 percent on freight rates.

But many importers, citing continued surplus shipping capacity in the eastbound trans-Pacific, are refusing to pay the full increase. Many are sitting back and waiting for the ship lines to soften their stand as the May 1 deadline approaches.

The Asia North America Eastbound Rate Agreement, the rate-setting conference that represents shipping lines carrying cargo from the Far East to North America, except Japan, last year signed 501 service contracts accounting for about 60 percent of the cargo its members carried.

Anera is signing service contracts for the coming season, and has told importers it must increase rates $300 a container if its member lines are to make a slight profit this year.

"I don't know of any Anera carrier that's making money in North America today," said Don M. McCallian, general manager of administration at Nippon Yusen Kaisha in Secaucus, N.J. NYK is an Anera member.

Albert A. Pierce, Anera's managing director, met with importers in nine cities over the past several weeks to explain the rate hike. "By and large, people are aware we're serious about the increase," Mr. Pierce said in Los Angeles before heading back to Anera's headquarters in Hong Kong. He said he expects the increase to stick.

Most importers believe the conference will back off. Some importers are shifting to ship lines not associated with Anera and securing service contracts at lower rates.

"It's known throughout the industry that K mart is not accepting a $300 increase," said Linda Gutman at that company's import division in Troy, Mich. She said K mart is signing contracts with non-Anera carriers at much lower rate increases.

Kurt Hoffman of Kuehne & Nagel, a non-vessel-operating common carrier that represents importers, said the action in service contracts is definitely with the independent lines.

Mr. Hoffman, who just returned to New York after meeting with clients in the Far East, said the major exception to this trend is in Southeast Asia and the Indian subcontinent. Anera members serve that region more extensively and thus have an advantage in the trade.

Importers generally concede the $300 rate increase is not excessive, but they refuse to pay it because non-conference lines are offering better rates.

An executive at one independent line said if the Anera increase sticks he will also raise his prices but still maintain a discount from Anera rates. However, he said he is not sure market conditions will permit a $300 rate hike.

Eastbound cargo volume, which increased by 7.1 percent last year, continues to grow. PIERS, the data reporting service of The Journal of Commerce, reports that U.S. imports from the Far East totaled 475,000 20-foot containers in the first two months of 1990, up 3.4 percent from the first two months last year.

Most forecasters expected eastbound cargo volume to grow about 3 percent this year, but Michael Sclar, vice president at Temple, Barker & Sloane Inc. in Lexington, Mass., said he expects the percentage increase by year's end will be even greater. "The market will strengthen as the year goes on," he predicted.

Importers, however, say carriers in the eastbound trade are operating at only 75 percent to 80 percent capacity, so downward pressure on rates will continue.

Steve McGowan, vice president of market research and strategic planning at Sea-Land Service Inc. in Edison, N.J., qualified those figures. He noted that most carriers have joined a trans-Pacific "stabilization agreement" in which they agree to hold roughly 10 percent of their capacity off the market.

With the 10 percent reduction, carriers are operating at close to 90 percent capacity utilization, Mr. McGowan said. Sea-Land projects that utilization figure will hold for all of 1990.

Mr. McCallian of NYK Line added that importers should not equate vessel utilization with rates. "What does it matter whether ships are full or not? Rates have more to do with the type of service customers are getting," he said.

Peter Moe, vice president of marketing and logistics at Sea-Land's Pacific division in Seattle, said importers must also realize that non-conference lines have only so much space to offer. With the busiest shipping months approaching, importers may find the independents overbooked.

He urged importers to take a long-term view of the trade, both in terms of the carriers' capital investment needs and shippers' requirements for quality service. "I think they are getting a fair value for their transportation

dollar. The $300 increase is not excessive," he said.