New Internationalist

Shipping Costs!

Issue 092

Destined for distant countries, and bulky in nature, Third World exports have no option but to use ships. Ernest Ostro explores the world of maritime freight and the ‘conference lines’ which cause so much suspicion and resentment.

Getting there is half the fun,’ Cunard used to say in the days when its passenger liners dominated the seas. But getting the goods there is anything but fun for the Third World. Instead, it’s a major headache and, worse, a drain on precious foreign exchange in those parts of the world where progress is still measured in inches rather than miles.

A significant portion of this financial drain comes from the transport costs that Third World countries pay to export their commodities and to import manufactured goods.

Of course, you can’t talk about shipp­ing freight rates separately from commo­dity prices, ‘says F.D.C. Wijesinghe, a Sri Lankan specialising in shipping and transport issues. ‘The whole pricing system for freight is so complex that the less developed countries often suffer simply because they do not have the knowledge to penetrate the rate structure, putting them at the mercy of the shipping liner conference.’

These liner conferences transport a fifth of the world’s sea freight, and carry the greatest variety of cargoes among all the world’s ports. They are shipping companies operating on regular schedules and defined routes who agree at annual conferences to charge uniform prices. They are the result of the cut­throat competition of the late nineteenth century. As the United Nations Confer­ence on Trade and Development (UNCTAD) puts it:

The opening of the Suez Canal in 1869 led to severe competition for traffic in the Far Eastern trades and elimination of rate competition was considered necessary by the liners for the successful operation of service. The first conference was formed in 1875 in the UK-Calcutta trade.’ From this modest monopolistic beginning, about 370 conferences have emerged.

There is a rough parallel between the liner conferences and the scheduled airlines cartel, IATA.

An essential feature of both is regular service on advertised dates and times on specific routes at fixed prices.

Given that the conference liners perform an essential service several questions affecting developing countries arise:

  • Are the conferences’ freight charges fair?
  • Do Third World ships have access to the conferences?
  • Is it even desirable for developing countries to make the enormous investment necessary to establish and maintain national fleets?

Of course the conferences were established to eliminate price competition (and to exclude outsiders altogether), Mr Wijesinghe points out that shippers in the developing countries want the conferences regulated… they feel that freight rates are being kept too high in cost… (and) they complain that the conference rates do not reflect correctly the prevailing market trends.’

A senior official of a British shipping line - who insisted on anonymity - responded: ‘Plainly, the net profits of the world’s shipping lines are hardly exorbitant. The rates established within the conferences reflect realistic costs which are continually increasing. It is interesting to note that freight charges have, if anything, declined as a percen­tage of the price of goods transported.’

Well, maybe. The table below indicated a mixed picture: liner freight rates as a percentage of price have decreased for those commodities whose price has skyrocketed in recent years (coffee, tin) and increased for products whose markets have remained steady or shrunk (rubber, jute, sisal.)

Deciding whether the freight charges are exploitative or reasonable is like judging the length of the proverbial piece of string. What, after all, is fair? An examination of shipping companies’ annual accounts indicates no dramatic profits from their conference liner section - but then accounts can show substantially what the company wants them to show.

The stark reality remains that it is the Western shipping companies that still set the freight rates and ensure that they maintain their monopolies on their established shipping routes. Well, then, if the developing nations can’t beat them, can they join them?

UNCTAD, in its habitually guarded prose, says: ‘There is a tendency among the established operators in closed con­ferences’ (and believe it, they’re closed), ‘to concede rights of participants in liner trades to new lines only to the extent that it is forced on them by circum­stances.’

But circumstances do have a way of developing in the most unforeseen ways. Consequently, a number of African nations (see box ‘West Africa - Steaming Ahead’) have managed to build liner fleets and gain access to the appropriate conferences. India has long had a con­siderable merchant fleet and South Korea, Taiwan, Singapore, Malaysia and Indonesia have recently put together substantial cargo liner fleets which conferences have been forced to accept.

Yet the combined African fleet (excluding South Africa), though it doubled in size between 1975 and 1979, totalled only 1.1 per cent of the world’s liner fleet last year. In Asia the percentage is higher, but still pint-size compared with the liner fleets of the industrialised nations.

A great deal of the shipping world seems to be sailing these days on a sea of good intentions projected by the United Nations, Mr Wijesinge remarks, adding that he’s speaking only for himself. The UN started in the early 1970s telling shipping executives that they must admit developing nations’ fleets to conferences (which they’ve done, if with less than good grace); that they should hand over some of the business to these developing countries’ lines (which they’ve done, with even the shadow of a smile omitted) and that developed nations shouldn’t increase their shipping tonnage faster than developing nations (at which the conference executives have groaned even as they ordered more ships in a day than many nations can afford in a decade).

Then came the vaunted UNCTAD ‘Code of Conduct for Liner Conferences’, which has been something between a joke in the big shipping campaigns’ board­rooms and a desperate hope for many a poor country. The code attempted to elaborate on the 1970 principles by a complex series of guidelines, the most important of which was that developing nations must indeed have access to the conference liner trade. In fact, the code simply provides a few ground rules for carving up international trade and for establishing the rights of each group of national lines to claim a share if they wish.

If then, access to the world’s shipping is grudgingly being prised open to the developing nations’ fleets, the third question - should the Third World buy ships - is the key to the issue. If you want a piece of the shipping action, you must have ships. But ships are expen­sive, as are the training of crews to sail them, maintain them, schedule them, and so on.

As regards the idea that a country’s possession of its own ships brings "independence" and balance-of-payments savings.’ notes Richard Holland of the London School of Ecnomics, ‘there is no indication that investment in shipping provides any greater return or saving on balance-of-payments than other invest­ments, In fact, if ships are bought and the port handling and internal distribution system are not improved, such investment on a social basis can show a negative return.’

This leads to the key question of the money required for even a minimal shipping fleet, especially with the essential back-up infrastructure. Few developing nations have the surplus cash or credit - and the minimum initial investment must be thought of in tens of millions of dollars - to allocate to development of merchant fleets when a billion people in those nations are underfed. As the British shipping executive quoted earlier in this report remarked: ‘Creating a liner fleet isn’t like starting an airline, where a couple of Boeings, one or two airports, and crews usually hired from Pan Am or Lufthansa are at first all a developing nation needs. A national airline is a piece of cake compared with the com­plexities of any kind of ocean freight and the port facilities needed for it - without even beginning to consider the complex requirements of liner conference membership.’

One would expect such sentiments from a spokesman for an established British shipping company. But there is a measure of truth in them. Starting a liner conference fleet is not necessarily the best way of avoiding shipping charges any more than the best way of cutting down on taxi fares is to run an automobile.

Nonetheless, the picture is not alto­gether bleak, Regional co-operation is one key to increasing developing countries’ roles in their external trade; pooling of national shipping fleets is another. And a number of developing nations already have conference liner fleets. In global terms they may be small potatoes; but regionally, they can loosen the liner conferences’ grip on developing nations’ international trade.

It’s no easy task to tackle Goliaths - as David found out - especially when your slingshot is a twenty-year-old rust bucket, leaking at the seams.

West Africa Steaming Ahead

Less than 4 per cent of Africa's trade is within the continent, and West Africa depends on nothern Europe for approximatey 70 per cent of its overseas commerce. In 1976, no country in Africa carried as much as 20 per cent of its imports and exports in its own ships. Given the average annual increase of 15 or 20 per cent in shipping freight rates costs, it's easy to see why a relatively advanced developing country like the Ivory Coast is compelled to spend no less than 6 per cent of its GNP on over­seas transport costs. The percentage for other countries can be even higher.

Put all this together, stir gently, and you have a compelling case for regional co-opera­tionto reduce dependence on foreign shipping.

In a series of conferences since 1976 that developed substantial co-operation between the Francophone and the Anglophone nations of West Africa, it was decided to develop national conference liner fleets and shippers' councils (see Shipping Costs!). It is no accident that during this period, Australian shipping expert Stanley Sturmey - the moving spirit behind the UNCTAD liner code - was tech­nical advisor to the Ivory Coast's Minister of Marine, Lamina Fadika. Professor Sturmey was helping the Ivory Coast to establish not only its cargo fleet but the essential infra­structure to support and maintain it. And the conferences that initiated regional co-opera­tion also decided on co-operation in the essential back-up to healthy fleets of ships: port authorities, cargo pooling systems, and training schools for crews and for ancillary shipping personnel.

The regional conferences also broke new ground by facilitating uniform maritime legislation in each of the area's nations and by granting landlocked countries in West Africa like Mali and Upper Volta preferential status in handling of exports and imports. All this was complemented by the regionali­sation of the area's two maritime colleges: in sum, a very smart step toward self­sufficiency in shipping: the long-term goal.

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