The market sets the
rates, not the lines
DURING THE debate that has taken place in your paper about the increase in charges by shipping lines, all sorts of things have been said, some better informed than others. As I am leaving the scene I am in the happy position of being able to comment without any axe to grind.
The issue of freight rates badly needs to be put in its historic perspective. I did a talk a couple of years ago in which I pointed out that whereas freight costs in 1975 were on average between 7.5% and 10% of the value of the goods shipped, today they are between 1% and 1.5% of the value of those goods. Looked at another way if the price of cars had moved in line with freight rates we would be paying somewhere around R9 000 for a four door saloon today - let me add quickly that the quality and the specification of a car today is very different from what we could buy in 1975!
Looking at more recent history, the decline in freight rates since 1995 in trades to and from South Africa means that they need to rise by 80% just to get back to 1995 levels.
While shipping lines need to remember that the fall in freight rates has enabled some commodities to move for the first time (so they must be careful not to price these commodities out of the trading arena) freight rates do move on a global basis, so South Africa's competitors have also enjoyed the decline in rates and will face the same level of increases. The impact on South African competitiveness is therefore largely neutral (with possibly some gain for South Africa where there has been greater growth in shipping services than elsewhere).
The recent increase in freight rates is a simple factor of market forces - it is not a global conspiracy! If it were does anyone think that they would have fallen so far? I have always maintained that the market sets the rates, not the shipping lines and, temporarily at least, the market is moving in favour of the lines. What has happened is that the very low freight rates enjoyed by a number of shippers has forced the likes of Nantai out of business. As a result the survivors have at last been able to increase their rates. (I find it interesting that those who were the quickest to remove their business from the established lines to give it to Nantai at uneconomic rates are generally the first to cry foul and seek the intervention of the Competition Board.)
The lines are accused of failing to respond to queries of their clients. In particular ASL is accused of failing to reply on rate issues to the Shippers Council. We are members of ASL and I would never allow them to speak on my behalf on rate issues. They simply do not have the mandate or the knowledge and rates are a matter for discussion and negotiation between the shipping line and the shipper. Each shipper is different and is entitled to individual attention. Similarly the Shipper's Council may have very noble motives (though we never heard of them when rates were nose-diving) but we negotiate rates either in our own name, or in the name of the conference or consortia of which we are members, with shippers, not with a Council. If any shipper has approached a line directly to seek an explanation or clarification of the position then I would agree he has justified cause for complaint.
Sinister motives are attributed to lines in respect of applications to the Competition Board. Let us put this in perspective. The Competition Board and the Competition Act are new here. However the legislation is clearly based on European legislation. In Europe shipping conferences and consortia have received block exemptions (as long as they abide by certain rules) because of the accepted need for regular sailings and slot charter arrangements. All that is happening here is that the lines are seeking a similar understanding in South Africa. It would be strange if South Africa took a different view from all its main trading partners.
John Turner, outgoing managing director
P&O Nedlloyd (South Africa), Cape Town.
Copyright Now Media (Pty) Ltd
No article may be reproduced without the written permission of the editor
To respond to this article send your email to joyo@nowmedia.co.za
