Industrial exporters, shipping lines and conferences, and government officials have been sailing collision courses on the ocean freight rates problem. They do not agree on the extent of the problem, what to do about it, or what, if any, effect present rates have on U.S. foreign trade. Federal Maritime Commission hearings slated ! for June might bring some order to . . .
?
m
M*M
Earl V. Anderson Senior Associate Editor, Chemical and Engineering News, N e w York, N.Y.
he issue of ocean freight rates has been argued from the back streets of port cities to the hearing rooms on Capitol Hill. Several Congressional committees, in fact, have provided a sounding board for ocean freight arguments now for eight years. The end of the hearings isn't yet in sight. If these past eight years of continuous Congressional hearings have proved anything, it is only that there are no simple answers to questions involving ocean freight rates. No pat answer exists to such questions as: Are ocean freight rates on American exports too high? Are they unjustifiably high? Are they slowing the rate of export expansion? There are those who say there is no such thing as a freight rate problem. There is. Some say that it's the greatest single problem facing American exporters. It isn't. Some Congressmen and industrial leaders believe the guilt belongs solely to foreign-dominated steamship conferences. It doesn't. Some conference spokesmen contend that they are completely blameless. They aren't. The causes, consequences, and cures all rest somewhere in a gray area between several sets of extremes. There is little doubt, however, that ocean freight rates are an important subject for American exporters in general, but certainly for the American chemical exporter. Last year, American chemical exporters paid an estimated $300 to $400 million freight bill to ship their products overseas. Many industry and government leaders think that freight rates on chemicals-and a host of other products, for that matter—are too high. They regard lower freight rates as a prime route to increased export business and fatter profits. Government officials, particularly, worry about the possible effect of high freight rates on the U.S. balance of payments. If high freight rates hamper our growth of exports, they will also narrow our favorable trade balance. And they will put another crimp in our already badly-dented balance of payments.
T
Ocean Freight ii3t6S
Trade Balance Slips Already there are ample signs that the normally strong U.S. trade balance is faltering. When last year's trade figures are tallied, they probably will indicate that our favorable trade bal-
ance—the excess of exports over imports-declined by almost $2.4 billion. In 1965, U.S. exports nudged ahead 1.5% to $26.5 billion; imports jumped 15% to $21.5 billion. It's true that one year does not make a trend, but imports have been growing more rapidly than exports for at least the past 19 years. Since 1960, they have increased almost 40% while exports have advanced a bit less than 30%. Chemical products are the prima donnas as far as trade balance is concerned. Of all product groups, they are the largest single contributor to this country's favorable balance. In 1965, the U.S. trade balance was $5.0 billion. Chemicals alone accounted for $1.6 billion, or about 30% of the total. But even in this traditional stronghold of U.S. foreign trade, there are storm warnings. Last year's chemical imports, valued at $780 million, were 120% higher than they were in 1960. The export figure-$2.4 billion—is only 42% higher than the 1960 level. Revitalized foreign competition also is outpacing the U.S. in world markets. A study conducted by the International Monetaiy Fund shows how this country is slipping. In 1957, the U.S. share of world trade was 23.8%; in 1964 it fell to 19.9%; for the first half of last year, it slipped still further to 19.0%. A Department of Commerce survey corroborates this. Commerce gathered trade statistics on manufactured products from 14 major industrial countries which account for about 80% of total world trade. On these materials, the U.S. share declined from 25.3% in 1960 to 22.6% in the first quarter of 1965. Chemicals are following the trend. The U.S. portion of world chemical trade went from almost 30% to less than 25% in the same period. The economic and industrial resurgence of Japan and European countries is what is pushing the U.S. share of world trade down. Chemical exports to Latin America is a case in point. United Nations statistics reveal that while Latin American countries recently have been raising their chemical imports by 3.3% per year, U.S. exports to these countries have been tapering off at an average annual rate of 1.7%. In contrast, European chemical exports to Latin American markets have risen 7% per year. FEB. 28, 1966 C&EN
71
C h e m i c a l s (millions of dollars)
2,500.
U. S. imports of chemicals and of goods in general grow at faster rate than exports
2,000
1,500
Trade Balan·
1,000
Exports •
500 ^Import:
1955 1957 1959 Sources: U.S. Department of Commerce (Bureau of the Census); C&EN estimates
Organics and Plastics Lead US. Chemical Exports 1965 U.S. CHEMICAL TRADE Standard International Trade Classification
512 Organic chemicals 513 Inorganics; elements, oxides, and halogenated salts 514 Other inorganics 515 Radioactive and associated materials 521 Mineral tar and crude chemicals from coal, petroleum, and natural gas 531 Synthetic organic dyes, natural indigo, and color lakes 532 Dyeing and tanning extracts and synthetic tanning materials 533 Pigments, paints, varnishes, and related materials 541 Medicinal and pharmaceutical products 551 Essential oils, perfume, and flavor materials 553 Perfumery and cosmetics, dentifrices, and other toilet preparations (except soap) 554 Soaps, cleansing, and polishing preparations 561 Fertilizers, mfg. 571 Explosives and pyrotechnics 581 Plastics materials, regenerated cellulose, and artificial resins 599 Chemical materials and products, n.e.s. Total Source:
72
C&EN estimates
C&EN
FEB. 2 8, 196 6
Exports Imports (millions of dollars)
$665
$170
160 100 35
120 45 60
30
8
30
25
3
10
60 240 35
4 50 45
25 50 150 20
10 5 130 10
420 377
40 48 780
2,400
1961
1963
1965 est.
Government officials are well aware of these trends in our trade and of the possible damage they can do to the balance of payments. That's why this year American businessmen can expect more government pressure, pleading, and persuasion to ship more products overseas. Although voluntary restraints on capital outflow and the "See America First" theme directed at tourists have captured the bulk of the headlines, industry is quite familiar with the Government's desire to boost exports. For every speech that Secretary of Commerce John T. Connor makes asking businessmen to curtail overseas spending, he makes another asking them to push exports. At last November's meeting of the National Foreign Trade Council in New York, Secretary Connor asked industry "to renew and redouble your efforts to increase our share of foreign trade." Noting that our trade surplus is shrinking, he added, "Export expansion is at the top of our priority list . . . I hope it is at the top of the list of every businessman in this country." U.S. industry certainly would like to increase its overseas business, but only if it can do so at a reasonable
All products
1955
(billions of dollars)
1957
profit. Lately, however, businessmen have been complaining that it is becoming more difficult to compete in world markets and that profits from exports are falling far behind those in the domestic market. Inadequate financing, credit, and export insurance, and lack of suitable tax incentives are some of the drawbacks in exporting. High ocean freight rates are another. FMC International's manager of administration, Robert R. Clark, believes that high freight rates are the biggest single handicap which chemical exports face. Others say that this may be true only for chemicals with a low unit value. All agree that rates are important, nonetheless. The problem is, what can be done about high freight rates? Some chemical exporters are trying to do something; others would like to, but don't know what or how; still others accept high freight rates as an inevitable price to be paid for doing business on an international scale. To a large degree, this confusion stems from a lack of understanding about the ocean freight industry. Much of its economics, and particu-
1959
1961
1963
1965 est.
larly its rate-setting process, are jealously guarded secrets. Timothy J. May, managing director of the Federal Maritime Commission, describes it this way, "For the uninitiated, a trip into the labyrinths of ocean freight rate structures is an experience that can only be likened to the unreality of the optical illusions created by the current vogue of op art. Now you see it and now you don't." # Before exporters can deal competently with freight rate problems, they will have to become intimately familiar with the labyrinths to which Mr. May refers. The veil of secrecy will have to be lifted. Fortunately, this veil is being lifted gradually. For the past few years, ocean freight rates have been in the spotlight of international commerce almost constantly. They have been the target of several Congressional investigations; they have provided many an after-dinner speaker with subject material; and they will continue to command attention because the Maritime Commission is getting set to launch still another freight rate investigation this year. Basically, the complex ocean freight
industry, like all Gaul, can be divided into three parts—tramps, tankers, and liners. Unscheduled or irregular sailings characterize the tramp ship. There is little or no guarantee when your product will sail, what route it will take to its destination, or when it will arrive. The tramps are normally contract carriers, hauling lowvalue, dry bulk cargo in full-shipload lots. Because tramps are contract carriers, rates are negotiated and are usually quite low, especially on foreign flags. Tankers carry primarily bulk liquid cargo. Like the tramps, tanker rates are negotiated or shippers often own their own fleet, as do many of the large oil companies. Tanker rates, as a result, are usually no problem either. A liner—cargo liner, commercial liner, and common carrier are all names for the same thing—operates over a fixed trade route on a regular sailing schedule. Its forte is rate stability and dependability. Liners carry primarily nonbulk cargo, manufactured and semimanufactured goods. They do haul some bulk cargo, but this isfilleror bottom cargo. FEB. 28, 1966 C&EN
73
•^u
- \-Μΐκ,»«&ί?.&!;*ο \
