December 21, 1998
TRADE / ASIAN EXPORTS EXCEED IMPORTS Imbalance plays havoc with shipping costs Bitter wrangle over rising charges Ruth Banomyong Cardiff University, Wales The Asian crisis has thrown European and North American trading routes into turmoil. The depreciation of local currencies is making Asian exports cheaper and imports more expensive, leading to a worsening imbalance of cargo flows from Asia to Europe and North America. Demand for containers in the East, Europe and North America has diverged sharply in the past year. As there has always been some imbalance in trade, most shipping lines have adapted their operations to ensure maximum use. But this alone has not been sufficient. The imbalance and the need to reposition empty containers have led to an inevitable rise in freight rates to cover carriers' increasing costs. The increases are aimed mostly at Asian shippers. One shipping line executive mentioned a charge of US$300 for a 40-foot container of waste paper from Europe to Asia. Considering that waste-paper shippers are exempt from terminal handling charges (THCs), this was effectively well below the cost of shipping a container back to Asia. Waste paper currently makes up between 15% and 18% of eastbound cargo volumes from Europe. Faced with no income from shipping an empty container, clawing back a fraction of the cost seems reasonable. On the North American trading routes from Asia, cargo volumes have decreased and shipping lines have fought aggressively for the reduced amount of business. Higher tariffs for North American-bound goods have failed to compensate for the fall in prices on Asian-bound services. The Asia Westbound Rate Agreement (AWRA), which is an operating unit of the Far Eastern Freight Conference (FEFC) and handles westbound European trading routes from Asia, has announced that rates will be increased on January 1 and again on April 1. According to the FEFC, the planned rate increases are to enable the Conference lines to continue providing a viable service. The AWRA programme will raise rates by a minimum of $200 for a 20-foot container and $400 for a 40-ft unit on January 1, and by $150 for a 20-ft unit and $300 for a 40-ft unit in April. Currently, westbound trade to Europe is very strong with carriers finding it increasingly difficult to reposition a sufficient amount of containers to Asia. In many cases, cargo is being rolled over to other sailings, while some carriers have resorted to one-way charters to deal with the problem. At the same time, in the United States, the Federal Maritime Commission (FMC) has begun a fact-finding investigation into recent peak season surcharges and rate increases imposed by carriers in the eastbound (from Asia) transpacific market. Complaints about carriers' activities have mushroomed in recent months, as prices shippers have to pay for moving cargo have escalated. Claims have been made against shipping lines that have been charging additional rates for guaranteed space on their ships. Allegations have been made of attempts to renegotiate and terminate existing service contracts, as well as of favouritism. However, carriers argue that the higher rates and surcharges reflect market forces and that their actions have been taken only to recover additional operating costs and to ensure a reliable service. At this stage, the FMC is only conducting a fact-finding mission through Delmond Won, one of the four commissioners at the FMC. He has a 90-day period in which to finalise his report, although this could lead to a formal inquiry. In Thailand, the export drive is threatened by the shortage of cargo space. The government's policy to export its way out of recession may have hit a snag as shipping rates are quoted in dollars with various surcharges. Rate increases and surcharges make Thai exports less competitive. Transport costs can represent up to 40% of the price of the delivered product. If this proportion cannot be reduced, Thai export gains through currency devaluation will be lost. Amnuay Sujaritham, director of the Thai National Shippers' Council, has said that higher freight rates are not a major problem for Thai shippers, as almost 90% of them export on the basis that the consignee pays for the main transport leg. However, the fact that Thai exporters do not have control over the chain puts them at the mercy of shipping lines nominated by the foreign buyer. These shipping lines have, and will continue to have, a very strong influence on the competitiveness of Thai products. Any increase in transport costs will be reflected directly in the product's retail price. Thai shippers - even the Thai National Shippers' Council - have no real influence when negotiating rates with these lines as they do not control the transport chain. The bargaining power is with the foreign buyers who negotiate the rates, as they pay for the freight. If Thai exporters want a greater say over transport costs, they need to change their traditional selling practices. Their bargaining power will come when all Thai trade can be done by using "delivered" trade terms, such as Cost and Freight (CFR), Carriage Paid To (CPT), Cost Insurance and Freight (CIF), Carriage Insurance Paid to (CIP) and even Delivered Duty Paid/Unpaid (DDP/DDU). These trade terms will increase the savings of Thai exporters, as they will be paying for the transport of their product, thus controlling the transport chain to a certain extent. The threat of a boycott by Thai exporters of the main shipping lines seems unrealistic and not feasible. On the Westbound European route, none of the main shipping lines offer a direct service from Laem Chabang Port to Europe. All the cargo is transported though feeder ships and trans-shipped in Singapore. Dedicated Bangkok-Singapore shuttles mainly serve European import and export relay traffic. On the North American route, major shipping lines have already adjusted their service patterns at Laem Chabang Port. Deep-sea operators partially suspended their service, which had called at Laem Chabang, and merged it into a dedicated intra-Asia/Mediterranean-East operation. Even dedicated operators in Japan-Thailand trade have taken similar action. Terminal Handling Charges (THCs) are another contentious issue. These charges are levied by the main shipping lines for handling the Thai exporters' containers at the port of origin. One of the main reasons cited for THCs and their increase in Thailand is corruption paid to port staff. Corruption invariably increases transaction costs and uncertainty while lowering efficiency. This reduction in economic transparency creates uneasiness for Thai exporters, as they must accept the THC increase at face value. According to Vicharn Nivatvongs, chairman of the Federation of Asean Shippers' Council, there is a consensus in Asia that THCs should be consolidated into freight charges, as these charges cannot be passed on to buyers by exporters who are shipping their goods under FOB terms. Technically, this is not true. There is a way for shippers to pass on THCs to the buyer. Under FOB terms, the shipper bears cost and risk until the goods have passed the ship's rail at the port of loading. THCs are, therefore, considered as part of the exporter's cost. But if the term FCA is utilised instead, the shipper's cost and risk is only until the goods have been taken into the custody of the first carrier. When the shipper has delivered the goods to the shipping line, under the term FCA, it means that any cost that will arise after delivery belongs to the buyer. The practice in Thailand by shipping lines is to charge THCs even when the shipper's selling terms is FCA. This practice contradicts the rules edited by the International Chamber of Commerce (ICC) on trading terms - and no one seems to be able to do anything about it. Shipping lines must not charge THCs when the shipper is selling FCA. The Thai National Shippers' Council is demanding more transparency, accountability and even prior consultation by the shipping lines concerning THCs, increases in freight rates and surcharges. They are also asking for government intervention to control, or at least regulate, freight. This can be done only if all the parties involved in international trade have a clear understanding of all the issues involved. Currently, shipping lines are under no obligation to consult Thai counterparts about rates and increases. This is because 90% of Thai exporters do not control their transport chain and have no legitimate grounds for negotiating freight rates with shipping lines. But in Australia, for example, no conference or carrier group has yet managed to succeed in slapping THCs on Australian exporters in Australian ports, although new charges have appeared in Australia-Southeast Asia northbound trade. These new charges are, in fact, THCs but will apply only at the port of destination and will be paid not by Australian shippers but by their consignees. No compensating freight rate reduction has been conceded. This means that Thai importers of Australian goods will now have to pay THCs, even though since October 1 Bangkok Port has decided to take over the unloading of inbound containers. It is part of the port's policy to help Thai exporters and importers cut down THC costs. Traditionally, shipping lines were allowed to handle their containers within the port vicinity. The rationale behind this new policy is to eliminate corruption, therefore removing one of the major causes of THCs. However, shipping lines are still levying THCs, as corruption is only part of the THC. The cost of continually upgrading the handling equipment at the port is said to be offset by higher productivity and efficiency. But, as the improvements are combined with higher land premium and labour costs, the loading and unloading of cargo at Bangkok Port is more expensive than before. The decision by the Harbour Department to transfer its pilot service to a private operator will also have an impact on Thai exporters. The department used to transport pilots free of charge to the entrance to Bangkok Port. The company will charge for its service. This new cost will probably be passed on to Thai exporters, as it would seem strange if the shipping lines decided to absorb the increase. Transport costs are just the tip of the iceberg for Thai exporters. Many more costs hinder Thailand's export-led recovery. The more costs incurred in the transport chain, the less competitive Thai products will be as foreign buyers are very price sensitive. Despite bleak prospects, exporters must not despair. Better understanding of the issues involved in international trade, transport and logistics is essential. This can be done through the examination of global and regional trade flows and their effects on shipping line strategies, operations, pricing and so on. That is why it is important to develop skilled personnel in the field. Thailand's policies on transport-related matters are not consistent of a nation wanting to utilise international trade to escape the recession. Much more can be done to help Thai exporters, notably on the logistics side. The writer is a former lecturer at Thammasat University on international trade and maritime issues and is an expert on maritime law with Unesco.		Bangkok Post Asian Games Web pages Classifieds Jobs Property Entertainment Investment Education Travel Sales Learn English Weekly Database Horizons NiteOwl Student Weekly Real Time Special We Care Street Art Back Issues Last Month Archive Company Servcies Subscriptions Advertising Annual Report
© Copyright The Post Publishing Public Co., Ltd. 1998 Last Modified: Mon, Dec 21, 1998 For comments and letters to the editor see : notes Comments to: Webmaster Advertising enquiries to Internet Marketing