The Hindu Business Line : Will this hike sail through?

YET ANOTHER PROPOSAL for freight hike has been mooted by the India/Pakistan/Bangladesh/Ceylon Conference (IPBCC), the world's oldest shipping cartel serving the the UK/Europe- subcontinent trade route. This is the third of the four rises planned for 2004. The first two rounds were put through in January and April, each of $150 per TEU (twenty-foot equivalent unit) and $300 per FEU (forty-foot equivalent unit). The current proposal, due for implementation shortly, is for a higher increase, $250/TEU and $500/FEU. The fourth round is likely in the last quarter of the year.

If experience is any guide, the proposals, never translate into freight increases. A freight hike is certainly done with some hope but along the way many such hopes collapse. Ever since the shipping freight market was in dumps in 2001-02, the IPBCC has refrained from effecting general increases in freight rates; instead, it has been resorting to what is called rate restoration initiative. Under such an initiative, every year several proposals are made for freight increases totalling at least $500-600/TEU (or $1,000-1,200/FEU) a year. But the actual increases, the ship-owners have noted with chagrin, are no more than $100/TEU or ($200/FEU). On occasions the market rates, following the proposals for a hike, have even dropped instead of rising. No wonder, the market freight rates on the route today hover around $1,100/TEU and $1,900/FEU compared to $1,500-1,600/TEU ($3,200-3300/FEU) in 1985-86. The operation costs of shipping lines have no doubt multiplied since, but the freight market has not reverted to earlier levels. With oil prices having jumped in recent times entailing an escalation in bunkering costs and charter hire rates on fire, there may be justification for increases in freight this time also, but whatever the justification, the ground realities are different.

The non-Conference lines together represent a strong force, putting up a stiff competition, often by quoting attractive rates. But the contradictions among the Conference members too are sharp and there is no way its honchos can force members to follow the officially declared rates. Too often member-lines agree on the rates in public, but promptly pursue their own agendas in private. No wonder, the freight increase proposals no longer elicit any excitement. Anyway, the market does not go by diktats but by the free interplay of supply and demand and the shipping lines follow the market. And there are so many factors which influence the market, such as the availability of equipment (containers) at a particular port which depends on the volume of imports arriving at that port, the availability of slots in the mainline vessels at the transshipment ports and the cargo inducement. Shipping represents free enterprise at its freest and caution has not always been the watchword of the container market.