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Kröger, Bernd

Article — Digitized Version More urgent need for political initiatives

Intereconomics

Suggested Citation: Kröger, Bernd (1976) : More urgent need for political initiatives, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, Hamburg, Vol. 11, Iss. 4, pp. 100-104, http://dx.doi.org/10.1007/BF02928666

This Version is available at: http://hdl.handle.net/10419/139359

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Competition from East Bloc Fleets

East European merchant fleets have been undercutting the conference rates of western liner companies by as much as 60 p.c. and are engaging in major expansion programmes, thereby causing great concern to shipowners in the western countries and the Federal Republic of Germany in particular. Are the privately operated western merchant fleets in danger of being ousted by the East bloc fleets?

More Urgent Need for Political Initiatives

by Dr Bernd KrSger, Hamburg *

restern shipping circles are about "transparent anti-commu- own cargo monopoly and "in W referring more often and nist indoctrination", they denied the interest of the socialist ex- more insistently to perilous that there had been any dump- ternal economy" making prefer- competitive pressure by the ing and remarked that the USSR ential use of their own tonnages. fleets of the COMECON states and other COMECON states to- and, more especially, the USSR. gether owned no more than Intrinsic Cost Advantages In the Federal Republic, Great 7.5 p.c. of the world's merchant Britain, Holland and Norway fleet at the middle of 1975. The East bloc fleets are prof- this discussion about the policy iting from cost advantages in- of the state-owned shipping What are the relevant facts? herent in the economic system enterprises of the eastern coun- The state-owned shipping enter- of their countries. The state tries and their growing influ- prises of the socialist countries shipping enterprises of the so- ence on the liner markets is and the USSR in particular are cialist economies have a place now conducted more and more developing an increasing activ- in the wage-incentive and per- often in public. The problems ity in the cross trade between formance-control systems of the involved have even been raised western countries. They are state-directed economic group- in the Deutscher Bundestag forcing their way into the liner ings but their investments are (Lower House of the German markets by undercutting the largely financed from budget Parliament) through a question conference rates by varying allocations, amortization rates tabled by the opposition parties. margins and methods. The are low and interest charges on The East bloc media reacted OECD liberalization code en- capital mostly a formality be- immediately with fierce attacks sures free access to the mar- cause - as BOhme 'in particular on western shipping represen- kets and ports of the western recently pointed out correctly tatives. Apart from complaining countries for all fleets. The East in "Die Weltwirtschaft" (2/1975, * General Manager of the German Ship- bloc states are however at the p. 138) - sea-going shipping owners' Association. same time holding on to their has been zero-rated for the per-

100 INTERECONOMICS, No. 4, 1976 FORUM tinent interest charge. Moreover, Anybody who enjoys the cost ventional general-cargo vessels special accounting systems ap- advantages of a system which in the world. ply to sea freight earnings in refuses to accept the competi- foreign currency instead of the tive methods of the market If all sea-ships on order in the world are taken into account, it cost-earnings ratio pertaining in economy within the compass of becomes clear that the state general, with the result that its own system but at the same trading countries - foremost even low rates can yield a profit. time claims for himself a right amongst them again the USSR The shipping enterprises in the to avail himself of the liberal East bloc countries can there- - have the intention of engag- competitive methods of another fore gear their business policy ing also in future predominantly system without accepting the to factors in no way comparable in liner shipping. Inquiries last to the profitability considera- cost conditions of this other year showed the COMECON tions applying in market econ- system is capable of underbid- countries to account for 4.7 p.c. omies where firms must calcu- ding the cheapest bidder from of the orders on the books of late according to commercial the industrialized countries by the world shipbuilding industry; criteria. 20 points or more whatever the for the liner tonnage alone their rate level may be. Since the proportion was 16.9 p.c. It is hardly surprising that this conditions underlying the bid basic difference is reflected by are different, it goes without An inquiry into the reasons an aggressive rate policy of saying that he can align his for this policy of fleet expansion East bloc shipping enterprises offer of services to his own shows a number of disparate on routes where they find free supply potential and his own and mostly general economic scope. The Council of European aims and adhere to this policy criteria to play a part. There is & Japanese National Ship- for many a long day, if neces- the aim of carrying the foreign owners' Associations (CENSA) sary until he has ousted his trade merchandise and the eco- has carried out investigations nomic and military aid deliv- competitors. Decisive from his showing that the COMECON eries to socialist countries and point of view is not primarily fleets, and especially the USSR "friendly" states in Africa, Latin the ratio of costs and earnings fleet, have undercut the rates America and Asia as far as pos- in various routes by between which is crucial to his rivals in sible in own vessels. Besides, 10 and 60 p.c. the "competitive markets" but the outlays in foreign currencies the market share which he has are to be kept down and earn- Threat of Overwhelming independently determined as ings in foreign currencies to be Competition his target. increased; the latter in partic- ular are to develop into a copi- The East bloc shipping com- Largest General Cargo Tonnage ous source of revenue over the panies reject the charge of rate long term. Last not least, the dumping. Nevertheless it must Starting from this basic point merchant fleet is to be employ- be said that no matter what eco- and bearing in mind the quanti- ed as an instrument of foreign nomic theory is accepted as tative relations of the supply and security policy and to be valid for a definition of the potential of the East bloc fleets, made use of for establishing term "dumping", it makes little their growth rates and espe- and developing an economic- change for those directly affect- cially that of the Soviet mer- strategic presence on the ed. It is not to be denied that chant fleet must be a matter of oceans of the world. price differentiation and rate concern even for heedless op- undercutting are practised as timists. Many figures have been How greatly such arguments instruments of market economy quoted in the discussion, and influence the East bloc shipping competition, that they are part these can of course be arranged policy is indicated by the struc- of the free scope allowed in in various ways. The often quot- ture of merchant fleet, especially market economies. But as far ed ratio of the total COMECON in the USSR. Roll-on/roll-off and as the competition from the fleet to the world merchant fleet container ships and conven- COMECON and the USSR in (of "only" 7.5 p.c.), for instance, tional general-cargo vessels are particular is'concerned, at is- bears no relevance to the com- playing a much greater logistic sue is not the method as such petitive pressure of eastern role than bulk carriers. The fact but the extent to which it is shipping enterprises on liner that the USSR is largely self- being used - competitors may shipping, for the East bloc ratio sufficient in regard to raw ma- be ousted from the market com- on the liner routes was 12.8 p.c. terial supplies explains why in pletely - and the conditions at the middle of 1975; with 7.3 intra-Soviet sea shipping also under which the parties engage mn grt the USSR on its own has more bulk carriers are being in the competition. today the largest fleet of con- used than liner tonnage. About

INTERECONOMICS, No. 4, 1976 101 FORUM

40 p.c. of the Soviet fleet are These developments have pro- eventually lead, can only be reportedly plying between USSR voked the mentioned reactions effective if several countries or COMECON ports, but this is from the affected shipping com- take them at the same time and certainly not the figure for liner panies and the political authori- move on substantially parallel shipping. ties. There have been louder courses. calls for "active measures". The The sea-borne foreign trade initially defensive counter-reac- Port Objections of the USSR is small in relation tion of spokesmen for the Soviet to the size and structure of its shipping policy only added fuel It will be seen at this point own fleet, and there are reveal- to the joint plea for government at the latest that the interests ing examples indicating the measures on the basis of extant of the shipping industry may ratio of own cargoes on Soviet or if necessary new enactments conflict with other economic in- vessels to the tonnages carried and ordinances. terests in the western shipping between third countries. The countries. Objections may be German Shipowners' Associa- Certain instruments are al- raised in particular on behalf of tion last year investigated the ready at hand. The German leg- the ports. Those concerned with nature and extent of the East islation on external economic port operations are afraid that bloc competition on a large relations allows in principle of they may in consequence of de- number of liner routes. In 1973, compulsory licensing of sea- fensive government measures the year covered by the investi- shipping contracts and the sub- have to bear the loss of transit gation, the Soviet line, which at jection of foreign trade licences cargoes from the COMECON that time operated only a four- to certain stipulations as re- states which in Hamburg for in- weekly service, carried about gards the mode of shipment. stance at present account for 94,000 tons of general cargo on The US Congress is discussing about 6 p.c. of the traffic pas- the so-called Hamburg/Antwerp bills which would impose on sing through the port. It is cer- range to the West Indies and "third flag carriers" who under- tainly difficult to weigh up such Central America. The same cut the lowest rates offered for different interests and settle ships carried during the same ships from the countries of dis- political priorities. Nevertheless period no more than 600 tons patch and destination the duty it may be doubted whether a from Leningrad. West European to prove that the cost of their largely coordinated action by lines did not obtain any cargoes services is fully covered. Na- the West European governments in Soviet ports. tional regulations in Great Bri- against non-commercial meth- tain and other European states ods of competition as desired Call for Action likewise permit protective inter- by the shipping industry would In the light of Soviet state- vention. Furthermore, the UN really have a significant impact ments about the new Five Year Code of Conduct for Liner Con- particularly on Hamburg's tran- Plan period it is to be expected ferences could be used as a sit traffic. that the USSR fleet will grow lever for tackling these prob- For a port is made attractive further. There has certainly lems. Political instruments how- and interesting to shippers by been no mention so far of volun- ever, no matter to what cata- the density and frequency of its tary self-restraint. logue of measures they may liner services, by the quality of its harbour, dispatch and for- warding services. On account Table 1 of these qualitative factors the Eastern Bloc Fleets - Analysis by Principal Types countries behind the Iron Cur- tain will in the foreseeable fu- General Container Ore & Bulk Cargo ture have to depend on ship- Oil Tankers Ships Passenger Carriers Inc. (Fully Tons Gross Passenger/ Liners ments through foreign ports, for Tons Gross Cellular) Tons Gross Cargo Tons Gross instance via Hamburg, for their Tons Gross foreign trade because these Albania - - 57,068 -- - Bulgaria 288,567 187,763 270,395 - 13,581 provide more numerous and far Czechoslovakia - 81 ,~3 34,155 - - more frequent liner services German Dem. Rep. 172,078 152,377 625,988 -- 12,068 than the COMECON ports. A Hungary -- -- 49,150 -- -- much larger volume of foreign Poland 38,244 824,819 1,105,406 -- 15,044 Rumania 150,653 207,065 150,078 -- -- trade than the COMECON coun- USSR 3,658,025 482,650 6,854,104 48,156 251,690 tries command would be need- ed to justify diversion of the Total 4,307,567 1,936,667 9,146,344 48,156 292,383 shipments to a port in their own S o u r c e : Lloyd's Statistical Tables - November, 1974. sphere of influence and substi-

102 INTERECONOMICS, No. 4, 1976 FORUM tution of a wide range of own conduct their competition with general cargoes. Another con- services. the liner conference companies sideration needs taking into ac- fairly and according to com- Western governments have count for the long term, namely mercial criteria. This resolution often given priority to their I'n- the increasing dependence of was adopted unanimously, by terest in foreign trade when western industry on the willing- the East bloc states together considering concrete measures ness of East bloc shipping lines with all others. for the protection of their na- to go on carrying its goods at tional fleets against discrimina- low rates when they have gain- Growing Dependence tion and similar practices in ed a larger share of the market sea-shipping by their trading With all due understanding for themselves. partners. It is often ignored that for the fact that shippers take the principle of equal participa- a certain interest in the quota- Necessary Political Activities tion on a commercial basis can tions of COMECON lines which The Federal Government also be safeguarded for the shipping are in part much more favour- seems to take an increasingly industry without detriment to the able, one must not overlook one foreign trade if the governments crucial point: On most of the critical view of the activities of act with appropriate pertinacity. routes on which they are oper- the East bloc fleets as may be This is no less valid for the re- ating as outsiders the shipping inferred from various statements lations with the East bloc than enterprises of the East bloc go by public personages including elsewhere. in for the more remunerative the State Secretary in the Fed- cargoes, i.e. general high-value eral Ministry of Transport and Code of Conduct for Liner goods for which the conferences is shown in particular by the Conferences are charging higher rates in answer of the Federal Govern- order to encourage a healthy ment to the parliamentary ques- The UN Convention on a freight mix. This has the effect tion tabled by the opposition Code of Conduct for Liner Con- of lowering the average remu- parties. In spite of the condi- ferences was adopted with a neration of the conference lines tional clause one is probably large majority in Geneva in so that the conference members not going wrong in interpreting April 1974. One of the reasons are obliged to raise their rates the explicit reference to the why this was possible is that in order to avoid getting too Government's readiness to take the shipping interests were deep into the red. In different "the requisite measures;' if re- given as much consideration in circumstances there would be quired by developments as a this code as the foreign trade less or less frequent need for clear political hint that activities interests Of the large majority this. of the participating countries. - political activities - will be As regards the distribution .of So the first ones to suffer are undertaken to avoid such an un- cargoes the Convention is bas- the shippers of the less valuable welcome development. ed on the principle of equal rights for the national fleets. It ensures that third flag carriers Table 2 receive an appropriate propor- Eastern Bloc Fleets: Containerships and other Specialised Tonnage tion of the cargoes, and should on Order as at February 1975 therefore be regarded as a mo- Speed Delivery del for cooperation also with Type of vessel Country No. Tonnage (DWT) Capacity (Knts) data the liner operators in the East bloc countries, the more so as 1. Fully cellular USSR 13,500 324C 17 ? important COMECON states like ro/ro vessels 13,000 304C 19 ? 24,000 1,000C 22 1975 the USSR and the GDR have 15,000 700C 22 ? signed the set of treaties as 10 13,300 7980 22 1975-1979 have France, Belgium and the 2 21,000 1,1000 22 1975 Federal Republic among West 2 21,650 1,400C 23 1975 3 17,500 774C 20 1975 European countries. Poland 6 16,000 550C 23 1975-1977 2. Barge/seabea USSR 2 36,000 26Bxl,300 DWT 20 1978-1979 A resolution which may be 3. Semi container- considered to be practically an ships USSR 40 -- 9,9460 Total 15-23 1975-1976 appendix to the Convention East Germany 8 -- 1,920C Total 22 ? Poland 5 -- 793C Total 15-22 1975 says that the governments are 4. Passenger/car not free to take measures to ferries USSR 38 4,0C0-15,000 -- 12--21 1975--1979 Poland 3 2,000- 6,200 -- 16--20 1975-1977 obstruct competition by outsid- ers as long as these outsiders S o u r c e : Fairplay International, World Ships on Order.

INTERECONOMICS, No. 4, 1976 103 FORUM

The Federal Government is in having reached such an equal measures at least with the this context speaking of bilat- status. It should be noted that neighbouring states and the fact eral shipping agreements and the USSR has concluded sim- that such coordination usually regards these as one suitable ilar shipping agreements with involves a political process instrument for the harmonization other West European countries which is anything but brief, a of the various mutual foreign and obtained in these practi- hesitant approach would be a trade and currency interests cally unilateral guarantees step backward. The urgency of with the COMECON countries which give it free access to the the problem is shown clearly by and the USSR in particular. It ports of the other contracting the mentioned figures about the may be said that the conclu- party also in regard to traffic to development of the liner ton- sion of a bilateral sea-shipping and from third countries. A mu- nage of the COMECON states agreement with the USSR is tual right of free movement can and especially the USSR. It is certainly desirable as a means probably be achieved in relation to be hoped that the authorities of achieving really equal partic- to the USSR, at best, only on a concerned will appreciate how ipation by the two fleets in the bilateral basis. urgent this problem is and show mutual goods exchanges. For at In view of the need for co- themselves willing to draw the present we are still far from ordination of possible defensive appropriate conclusions.

No Cause Yet for State Measures

by Helmuth Kern, Hamburg*

here are people who de- past year has actually been an able light on the own position T scribe the recent activities outstanding one for some liner are omitted. The interested ob- of the big German liner ship- operators. If one reads besides server will also note certain in- ping companies concerning, or that the large Norwegian ship- consistencies. He may for in- rather against, the COMECON ping company of Wilh. Wilhelm- stance wish to ask the liner flags as part of a public rela- sen has informed its sharehold- operators how they account for tions exercise designed to ac- ers that the last year has ended the 13.5 p.c. hoist of freight quaint the German public with with a profit close to that of rates on the Europe/East Asia the international liner shipping 1974 and was thus one of the route from March 1976 in the problems and to campaign for best in the company's history, light of their plaints about large the retention of the conference and that this success was due tonnages being lost to the system. In this context, they say to its engagement in the liner Trans-Siberian rail route. an exaggerated account and trade, one will suspect that the assessment is given of the activ- German and western shipping The claim that western mer- ities and the expansion of some companies issue their Cassan- chant fleets are facing a grow- East bloc fleets. dra-like warnings largely for 'ing threat from the COMECON prophylactic purposes. flags should be taken seriously I cannot endorse this version but has not yet been sufficiently nor can I reject it. For there Lack of Precise information proved because of lack of ex- exists no certain information yet act data, comparable statistics, about the problem of the com- Statistics are known to make neutral studies and conclusive petitive situation between east- excellent ammunition but many statements by other interested ern and western shipowners al- of the figures mentioned in re- parties. This lack of information though the German liner com- cent discussions need correlat- makes it in my view at the pres- panies are known to have on ing with others or even correct- ent juncture impossible to indi- average earned good profits ing. That applies to both sides, again in 1975; according to * Senator for Economic Affairs, Transport especially if comparable figures and Agriculture of the Free and Hanseatic Hamburgische Landesbank the which would cast an unfavour- City of Hamburg.

104 INTERECONOMiCS, No. 4, 1976