Cut-price Soviet shipping alarms E.E.C.

Press, 3 July 1978, Page 12

Cut-price Soviet shipping alarms E.E.C.

From the “Economist,” London

The Russian merchant navy plies the world’s major trade routes with increasing frequency these days. Western shipowners are furious at the cut-price competition. But their governments cannot decide to take a united stance against it This month the E.E.C. transport ministers did no more than take a tentative first step towards establishing a system to monitor Soviet ship movements. It was only the latest in a long line of missed opportunities. The Russians’ shipping services earned them perhaps S6OOM in hard currency in 1976, doubtless more today. There is no need to go along with the more alarmist Western shipowners to appreciate that this is a serious challenge to the profitable operation of Western shipping. With the tanker and dry bulk cargo sectors in severe slump, only the relative buoya 'v of the liner trades (general cargo carried on regular routes) has kept many Western shipowners afloat. And it is these liner trades that are now feeling the full force of Russian competition.

Since the early 1970 s the Soviet Union has expanded its cargo liner fleet far faster than the growth in either its own trade or world trade would justify. Today it is the world’s largest (just ahead of Britain) and another IM tons deadweight should come into service before 1980. The result is that Russia now carries 95 per cent of its seaborne trade with the E.E.C. in its own ships, and is biting deeply into the major world trade routes as a formidable crosstrader.

Comecon countries (the Soviet Union plus Poland and East Germany) have captured 18 per cent of the eastbound and 20 per cent of

the westbound cargo traffic on the busy sea lanes’of the North Atlantic; between a fifth and a quarter of trade on the northern Europe/South America and Europe/East African routes; and around 12 per cent of the traffic between Japan and the west coast of the United States.

Soviet penetration has been possible on this scale because of savage under-cut-ting of freight rates to an extent that makes it impossible for Western shipowners to compete. Russian ships operate outside the traditional liner conference (cartels of shipowners which decide freight rates, carve up the available trade and agree on schedules). They charge shippers up to 40 per cent less than the going rate. Thanks to the bottomless purse of the Kremlin, say their competitors, and it could well be; the Russians are more interested in earning hard currency to pay for Western imports than in profits. There are also strategic implications behind the Russian expansion: penetration of the trade routes has been greatest where the Soviet Union has important foreign policy interests at stake, eg, in East Africa. The increase in roll-on roll-off ships (planned to rise sixfold in the 10 years to 1986) has obvious military advantages Large-scale shipowning is a highly convenient way of gathering all sorts of commercial and political information about countries. It could even be the result of a planning mistake, wrong assumptions about world trade growth leaving Russia with excess ships on its hands. Whatever the Soviet motivation, the commercial consequences for Western fleets are the same. When Western governments have attempted to do

something about it, however, the Russians have led them a merry dance. Britain, the United States, the Netherlands and West Germany have all recently had a bash at trying to reach some kind of accommodation. Each has been conned in three stages. Stage one is the softening-up process in which the Russians say they are only too happy to talk and, six months later, agree to meet round a table.

Stage two is the redcarpet treatment in which Western delegations are treated like royalty and the Russians negotiate in a positive manner (last August, for example, a British team <rf officials and shipowners sailed round the Black Sea in a luxury Russian cruise ship while negotiating with

their Soviet counterparts). Stage three is the sting: no further action will be taken on the grounds that more time is needed to consider Western proposals. But the Russian door will remain ajar, the Russians will raise new points and start off on the same roundabout once more. Western pussyfooting is not necessary: there is every sign that the Russians are not looking for a confrontation. A tough and united Western stance would almost certainly prompt Russian concessions. It is even possible that on some routes the Russians would be prepared to join the conference system. But so long as the Russian Government reckons the commercial advantages

of its aggressive competition outweigh the political advantages of coming to an accommodation, then it has no incentive to agree to anything, Only concerted Western action will change its mind.

But who is to give the lead? Certainly not the United States. Its shipping policy is in a mess and the Justice Department is more concerned to trust-bust the conference system (though it has nothing better to put in its place) than to help draw up a co-ordinated response to the Russians.

Which places the ball firmly in the E.E.C.’s court. The nine transport ministers will meet again in November. There must be no vacillation this time over approving the commission’s propo-

sals for tough monitoring of, and the threat of a government quota system for, Comecon ships if they continue with their undercutting activities. Mr Stanley Clinton Davis, Britain’s Shipping Minister, left Luxemburg recently cooing “I don’t think the Russians can ignore us now.” That kind of nonsense only encourages the Russians not to take the E.E.C, seriously.

Between now and November Britain and Germany (which could press ahead with its own monitoring and quota system) will have to lobby the French (who have their own peculiar reasons for not wanting to be nasty to the Russians) to stop Mocking concerted E.E.C. action.