Board study of shipping to Japan

Press, Volume CXII, Issue 32838, 11 February 1972, Page 12

Board study of shipping to Japan

In the interests of maintaining competition in the shipping of meat, and in particular mutton, between New Zealand and Japan the Meat Board recently sent a deputation to Japan to study the situation which has lately developed over there and to confer with the parties concerned. The board mission comprised Mr A. C. Wright, a board member from Dunsandel, and Mr A. E. Frazer, assistant to the board’s New Zealand manager.

The move was sparked oft by the action which the New Zealand Eastern Shipping Committee or Conference has taken to discourage Japanese meat importers from using the Lauritzen Line, which has recently come into the trade at the invitation of

the board, to carry meat between the two countries. The Conference lines have introduced a system of rebates to Japanese importers and processors to bring their freight charges down to the level of their competitors, but at the same time the New Zealand exporter, and in the end the New Zealand fanner, is being called on to foot the full freight charge, so that in effect New Zealand is, to some extent at least, subsidising Japanese importers and processors. The mission has reported to the board, which is now awaiting developments when the trade in mutton with Japan begins to develop this season.

Meantime the Conference, which comprises the P and O, China Navigation, Japan Lines and Mitsui 0.5. K., has declined to do away with rebates but has indicated its preparedness to enter into an agreement with the board in place of the agreements it now has with Japanese interests.

The board has wide powers that it could implement to share the trade between the Conference and Lauritzen and also to make the Conference reduce their rates to the levels of Lauritzen.

The board has sole jurisdiction over the transport of meat to overseas

ship meat without the board’s consent and no shipping company or conference can carry New Zealand meat without first having the approval of the board.

The Eastern Conference <! has no agreement with the I; board for the present arrangements — the agree-;' ment is with Japanese im- ! porters and processors—and i! in an extreme situation the !: board could withdraw; approval of vessels charging ; a freight rate higher than ; the Lauritzen rates and

could thus force the Conference to reduce freight rates to Lauritzen levels. It could also allocate space on all vessels to ensure that all lines received a share of the trade. The board is, however, hoping for a satisfactory arrangement to be reached voluntarily with the parties. The present situation has developed out of the mounting costs of moving meat by the Conference lines over the last 16 months or so. In the last year freight rates have risen by something like 30 per cent. Last June the Conference advised the board that it intended raising rates on meat by ■ 20 per cent and the board then reacted strongly to this increase coming on top of two increases within the previous 12 months and suggested that the Conference should reconsider its intention. The board at meetings with the Conference pointed out ways in which it was considered their service could be made more efficient so that freight rates could be held or even reduced, but the Conference remained adamant—it refused to lower or delay imposition of its increase.

At this stage the processors in Japan, through the Ham and Sausage Association, advised the Conference

that they, too, were most concerned at the proposed freight increases and entered into discussions, along with officials of the Ministry of Agriculture in Japan, in an attempt to persuade the Conference to reconsider its decision. Again the Conference declined to move.

In this situation, concerned that the attitude of the Conference lines was detrimental to the New Zealand mutton trade with Japan, and in the absence of a suitable alternative Japanese line, the board decided to invite the Lauritzen line to enter the Japanese trade to compete with the Conference.

Lauritzen, who operate a large number of reefer vessels mainly on a charter basis, agreed to carry New Zealand meat to Japan at rates from 7 per cent to 25 per cent below those being applied by the Conference as from September 1 last year. They also undertook to operate on a liner basis providing a monthly service and if necessary to increase the frequency.

In retaliation, the Conference reached an agreement with the Meat Importers’ Association in Japan under which importers in return for undertaking to ship only on Conference and Ham vessels were to receive a 10 per cent fidelity rabate which would be paid every four months, and if this did not bring the Conference rates down to the Lauritzen level a further rebate would be paid to the importer at the time of the discharge of the vessel. The Conference also undertook not to raise freight rates for a year.

As well the Ham and Sausage Association, whose members purchase the meat from the importers, agreed

to accept a rebate of 0.25 c per lb on all purchases carried on Conference vessels. The Conference also agreed to renegotiate freight rates in the future with the meat importers and the Ham and Sausage Association. “These measures by the Conference have resulted in a lowering of the net freight rates, which was our major aim,” say Messrs Wright and Frazer, "but the nature of the rebates offered and the agreements made between the importers, the • Ham and Sausage Association and the Conference virtually prevents importers from using Lauritzen ships.” As a result Lauritzen’s second ship to call in New Zealand had not been able to obtain any mutton for shipment at ail, they said. This was in spite of a preference by some New Zealand exporters to ship with Lauritzen. However, exporters had received instructions from Japanese importers not to use them. The board’s main concern is that the Lauritzen Line should not be squeezed out of the trade so leaving it entirely in the hands of the Conference, as it is believed that the Coference would, once again raise freight rates. It is also concerned with the rebate system introduced by the Conference as it is not thought that all of the rebate is being passed back to the end user of the meat, so that mutton prices are higher than necessary. As New Zealand mutton is sold to Japan on a c.i.f. basis (cost, insurance, freight) the New Zealand exporter pays the freight rate and out of this the rebate is paid to the Japanese exporter. In effect then the New Zealand exporter is paying for some part of the rebate to the Japanese importer. And in spite of paying the New Zealand exporter is still not being permitted to nominate which line he ships on. “We would much prefer to see the Conference compete with Lauritzen by lowering their basic rate instead of paying rebates,” say Messrs Wright and Frazer. At a meeting with the Ham and Sausage Association Mr Wright said that the processors had agreed to look into ways by which competition in shipping could be retained. However, the importers were responsible for nominating shipping services and they indicated that while they listened to the requests of the Ham and Sausage Association they did have also to take into account the rebate system.

The Conference had re* fused to consider altema- | tive ways of competing with Lauritzen in place of the present fidelity rebate system. Fidelity rebates also apply to other commodities than meat, and Mr Wright said that because of this importers were reluctant to use the other line as they might lose the rebates not only on meat but also on other goods carried by the Conference member lines from various parts of the world. The Conference did not operate a rebate system with Australia although outside charters also operated with that country. This was because these charter vessels usually carried carcase mutton which was not profitable to the Conference, which only used container vessels. However, it was thought that individual members of the Conference lines offered incentive payments to some Australian exporters who used their vessels. The rebates, payable in Japan, were now reacting against New Zealand sellers in comparison with Australia as importers were now trying to buy New Zealand mutton at the same c.i.f. price as in Australia, which represented a discount f.o.b. against the former premium enjoyed. The Conference had also advised, however, that they would prefer to have an agreement with the board in place of those made at present .with the importers and the) Ham and Sausage Association and would be prepared to do this if the Japanese trading bodies agreed, Messrs Wright and Frazer said. Mr Wright said he believed that their visit had clarified in the minds of the Japanese people involved the board’s attitude to the current situation and had also made clear the board’s position of authority in the shipment of New Zealand meat. While it was too early to judge, he believed that as a result of the visit the parties would be looking much more closely at their longer term relationships with New Zealand and' would be making a concerted effort to retain competition in shipping services. At the present time there was little trade in meat to Japan but traders would have the opportunity in the next two or three months, when the trade got under way, to prove whether they were really keen to retain competition. If at this stage the board still felt that there were not adequate opportunities for competition, there were a number of measures that it could consider and would be prepared to implement.