THE PRESS THURSDAY, MARCH 8, 1984. Decks cleared for action

Press, 8 March 1984, Page 20

THE PRESS THURSDAY, MARCH 8, 1984. Decks cleared for action

The Shipping Corporation of New Zealand has hoisted an unmistakable battle flag with its decision to challenge for a share of the Australasian trade to the west coast of North America. In the tough world of business, few businesses are tougher to be in at present than that of international shipping. Millions of tonnes of shipping are laid up; almost a quarter of the world’s container fleet is superfluous to demand; cut-throat competition has resulted in desperate freight-rate cutting as shipowners try to get cargo for their ships; ship-breakers’ yards are busier than those of most ship-builders in the West, although the fleets of Soviet bloc countries are expanding; and the threat of cargo reservation by some countries endeavouring to protect the livelihood of their national shipping lines grows larger.

Against this background, the Shipping Corporation is about to launch a new venture that will bring it into direct conflict with the conference lines that are already established on a route that is regarded, even by shipping industry standards, as being extremely competitive. Numbered among the competitors are giant shipping concerns with long experience and more substantial resources than the corporation can muster. They include the Columbus Line of West Germany and Belgium’s ABC Containerline. Strong resistance to the corporation’s intrusion can be expected, too, from the Australian-based companies that service the route, ACT and the Australian National Line. These shipping lines can be counted on to be energetic in their efforts to repel the corporation’s attempt to board the North American west coast trade.

The corporation has had a taste already of the sensitivity of some of these carriers to additional competition. Attempts by the corporation, through its joint service with the Bank and Savill Line, to expand its activities and engage in the trade to ports on the North American east coast became the target of action by several large shipping lines, the Columbus Line and ABC Containerline among them. The success of this opposition in obstructing the plans for an east coast service has played a significant part in the corporation’s readiness to try a new policy. Under this change of emphasis, the corporation will buy out its partner in the joint service, shelve plans for the east coast trade, close down the existing service to United States ports in the Gulf of Mexico, and concentrate all of the corporation’s North American business through two west coast ports. These will be Oakland, near San Francisco, and Long Beach, at Los Angeles.

The brief history of the joint service shows the sort of difficulties the corporation will meet. The service had its beginnings when the corporation became the New Zealand agent for the service to the Caribbean and United States Gulf ports that was run by the Bank and Savill Line. The corporation’s container vessel, the New Zealand Caribbean, was chartered to the Bank and Savill Line at first. By 1982, however, the service was a full joint venture and the attempt to expand it to include ports on the North American east coast was made. This required the consent of the United States Federal Maritime Commission, and difficulties abounded because of United States restrictions on cartels, monopolies, and trusts. Because the joint service was the result of a combined effort, these restrictions could be made to apply. Shipping lines opposed to extension of the joint service were quick to seize upon the barrier to competition that can be extracted from United States legislation.

The established shipping services have strong lobbying power in the United States. Their, objections to the joint service expansion would have carried considerable weight with the Federal Maritime Commission and could have tied Up the corporation and its partner in lengthy and expensive hearings and appeals.

Even then, there could be no guarantee that at the end of it all the commission would not rule against the application. It could well have decided that the three ships of the Shipping Corporation-Bank and Savill Line venture constituted an infant monopoly and an illegal commercial entity that threatened the monoliths already in the trade. By going it alone, the Shipping Corporation has changed its status and freed itself from these objections; it has also left itself open to the full weight of commercial leverage that the conference lines can apply. This could include, in the argot of the industry, the use of fighting ships. In merchant shipping, a fighting ship is not armed with guns or missiles, but with sacrificial freight rates; its role is that of a kamikaze weapon. The accepted definition of a fighting ship is a vessel used on a particular trade route by a shipping conference for the deliberate purpose of excluding, preventing, or reducing competition by driving an independent carrier out of the trade. Financial loss on the service is acceptable to the owners of a fighting ship if it meAns the extermination of competition in the end. It is five-card brag with no-limit stakes and the player with the biggest bankroll can make the table rules. It is not a subtle game; but it can be effective. The Shipping Corporation has shown its willingness to sit in on this game by boasting it will offer competitive freight rates, and also offer transit times between two and five days quicker to any North American destination than any competitor can provide.

The corporation has adopted bold tactics. They are not without risk. One of the justifications advanced for setting up the corporation in the first place was that it would give New Zealand a voice in the shipping conferences upon which so much of the country’s export trade depends. The theory was that this would also help to influence the trends in maritime transport to the eventual benefit of New Zealand. By standing outside the conference for the North American trade, the corporation has not necessarily diminished its influence; it might even have increased it by forcing the conference to react. The corporation’s management will be open to searching questions, however, if the new policy turns the present trading profits to severe losses and, at the same time, reduces the direct influence, small though it might be, that the corporation has in maritime affairs that are critical to this country.

The immediate beneficiaries of the corporation’s policy change will be all shippers who trade between New Zealand and North America. The corporation has made special arrangements for distribution of cargoes landed at its North American ports of arrival. These arrangements open a back door to the whole North American market. The move might also hasten the still-hesitant steps of the principal producer boards in New Zealand towards making shipping arrangements outside the conference lines. Sending meat and wool exports outside a conference agreement is becoming more frequent, largely as a result of the intense competition in shipping. This has given shippers an open market leverage to obtain concessions from shipping companies. A danger in this is that abandoning the conference system would give the shipping companies the same lever should cargo demand outstrip shipping supply. This could happen if shipping companies go to the wall.

The last annual report of the Shipping Corporation noted the risks inherent in the over-supply of shipping and the battles for cargo that result from it. “Some current established shipping lines may find it impossible to continue to operate and be lost to the trade,” the report said. It would be a tragedy ‘ for the corporation and for New Zealand were the country’s flag carrier, only in its twelfth year now, to become a victim of its own prophecy.