When shippers battled against a new surcharge

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FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.

In this week’s edition, from the January 1978 issue, FreightWaves explores a battle between shipper and container lines over a new surcharge.

Shippers critical of 10% surcharge to offset losses from strike; CPA called in to help settle the issue

Eight inches of snow didn’t stop nearly 200 shippers from attending a National Maritime Council forum on the Federal Maritime Commission regulation of liner shipping in Chicago on December 8.

What the Commission’s two representatives, Chairman Richard J. Daschbach and Geoffrey Rodgers, director of the New York field office, found was that Midwest shippers are concerned about the length of FMC proceedings, the unpredictability of conference rates, the dual-rate contract system, the possibility of the imposition of an emergency surcharge by North Atlantic conferences to recoup losses from the recent longshoremen’s strike, rate disparities between inbound and outbound conferences serving the same points, and the Department of Justice interventions before the FMC.

“I am aware … that some members of the shipping community, especially small shippers, don’t feel that they are given adequate representation in Commission affairs,” said Chairman Daschbach. “There is some justification for the feeling shippers’ voices are not heard as frequently in the corridors of the Commission as the voices of the carriers. It probably is fair to generalize that shippers do not provide as a group as much input into Commission policy making as other members of the maritime community. The blame for this deficiency rests in several areas: with the shippers themselves, with the Commission, and with the FMC’s unique role as a regulatory agency.”

Conferences cut surcharge To 6%; Ends by Oct. 4

In response to vigorous protests by shippers and consignees, the North Atlantic conferences on December 23 announced the proposed 10% temporary surcharge to cover losses incurred in the October-November dock strike would be dropped to 6%. The surcharge becomes effective January 19 and will not extend beyond October 4, 1978.

Deere & Co.

Russ Waechter, the manager for overseas transportation for Deere and Company, told the forum, “For us out here, the Federal Maritime Commission is off in the distance, and it’s somewhat mysterious. … Before coming to this forum, I did a little bit of research on the FMC, and discovered that the statutes under which it operates were drafted in 1916 — and apparently there’s been very little change since then.”

Waechter added that, “I don’t know of any time that the Commission has given any assistance to a shipper to enable the shipper to meet worldwide competition.”

Sears, Roebuck & Co.

Milan Fabry, national manager for imports at Sears, Roebuck & Co. added, “The cost of shipping has increased more than the cost of merchandise and has become a significant cost factor. As a result, the merchant marine has become a significant cost factor in the total competitive posture of the U.S. merchandiser. Without predictability in international trade, based on predictability of rates, there always will be an underlying feeling of apprehension on the part of U.S. exporters or importers. Unfortunately, for some time now, we have been observing a lack of predictability of rates and of service. For example, the timing of rate increases has not corresponded with selling seasons in international trade. Increases are not guaranteed for a specific period of time, and buyers and sellers, therefore, must compensate by absorbing increases out of our profits. Both bunker and currency surcharges add to this unpredictability.

“We’re facing the possibility of an ‘emergency’ surcharge, to be assessed on a ‘temporary’ basis for losses suffered by the lines during the recent East Coast longshore strike. All of these end up masking the true rate, and sometimes, additional surcharges are used as a coverup for other cost increases and operating inefficiencies,” Fabry said.

Also, Fabry complained that the dual-rate contract system is controlled very loosely, so that “signatories to contracts with conferences are penalized, since non-signatories often are allowed dual-rate discounts.”

“With the new technology — containerization — contingent liability has become insignificant and inconsequential, so that the value of cargo should not be the predominant rate-setting factor,” Fabry continued. “Cost of transport should be primary.”

“One result of this emphasis on value as the key rate setting determinant is rate disparities on inbound versus outbound trades. In the Pacific trades, there can be as much as a 50% differential, which negatively affects the competitiveness of U.S. goods in the Far East, Fabry said.

The complex tariffs that most conferences and carriers file before the FMC are another product of this value-oriented rate setting, Fabry noted.

Joint services?

Charles Hiltzheimer, the president of Sea-Land Service, told the forum that he believes that sometime within the next five or six years, there will be a major push for rationalization of the American merchant marine.

“In my opinion, approximately 20% of the U.S. flag shipping companies face either bankruptcy, or sale of all or part of their assets,” Hiltzheimer said, “while around 80% do not make any profit on a year-by-year basis before receiving Operating Differential Subsidies from the Maritime Administration. … We need to rationalize in order to realize economies of scale, and there should be encouragement given U.S. carriers to participate in joint services and other rationalizations.”

Hiltzheimer said that Sea-land has advocated extension of the Shipping Act’s Section 15 immunity from antitrust law to cover mergers of U.S. flag companies, allowing an antitrust exemption for conference rate bureau intermodal tariffs, and requiring conferences to promulgate independent rate action clauses to allow conferences and conference lines to price responsively.

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Editor: American Shipper Archives