Wednesday, 15 September 2010 13:42
‘Our protectors are turning a blind eye’
Mike King | Fri, 9 Jul 2010
John Lu, Chairman of the Asian Shippers’ Council, tells IFW why he believes “cartel” behaviour by shipping lines threatens the future of exporters in Asia and the recovery of global trade.
IFW: Do Asian shippers believe the corner has been turned, in terms of international demand?
Lu: The recovery has been much faster than expected. Business has recovered, but the economy overall is still uncertain. Orders are smaller and more short-term than pre-crisis.
IFW: Has the global financial crisis left any long-term scars on Asian manufacturers?
Lu: When the crisis struck, orders just stopped. Global trade shrank about 20%, but exports in Asian countries were down by as much as 50%. A lot of factories were forced to close and the survival of the industry was in question at one point.
IFW: How have they managed as demand has returned?
Lu: It was difficult to restart. Workers who were retrenched are not returning and factories face difficulties recruiting. Many businesses couldn’t capitalise and increase production. Now, the shortage of workers and high inflation is why we’re seeing strikes for higher wages in South China. The costs have gone up for companies and I think higher labour costs in China will be a permanent feature.
IFW: What are manufacturers doing to stay competitive?
Lu: They can no longer depend on cheap labour, so they need better equipment, more productivity and better management to bring down unit costs. We’ll see more manufacturers moving inland, and to countries like Vietnam. We’re also seeing more emphasis on supplying Asian markets, which is one reason why intra-Asia trade is performing so well.
IFW: What impact are equipment shortages and rising ocean shipping rates having on shippers?
Lu: It is bad news. The production and supply cost is shooting up and, if the buying countries’ economies are not strong enough, that’s a problem. The US recovery is not strong enough to absorb price increases and the value of the euro has fallen. I think the rising cost of moving cargo – which must be passed on to buyers – threatens the trade recovery. We’re also seeing some companies moving production closer to [end] markets. That’s normal when freight costs are high and so unpredictable.
IFW: Shipping lines lost huge amounts during the trade downturn. Are they not entitled to recover some of those losses now trade is recovering?
Lu: Shippers also lost billions. Despite overcapacity, after freight rates touched the bottom, they started to rise even before any sign of recovery. This is not normal. Because of the crisis, the shipping lines have started to work more closely and, in my view, this is the action of a cartel that has pushed shipping rates and surcharges artificially high.
IFW: How are shippers preparing for the anticipated spike in rates and further container equipment shortages during the peak season?
Lu: Shippers are suffering higher and higher shipping costs already, reflecting cartel movement rather than market forces. Shippers have to be more careful in organising shipping and look for alternatives as the peak season approaches. The shortage of containers is another factor to the advantage of shipping lines, but actual capacity is still in oversupply. It’s hard to prove, but lay-ups, slow-steaming make it obvious to us that it is collective action that has enabled the lines to charge even higher rates and surcharges and it is very effective for them. Artificial shortages are helping the lines make good their losses. If the cartels are allowed to continue abuses, then the future is very bad for Asian shippers.
IFW: If you feel lines are acting unfairly, what action would you like to see taken against them?
Lu: The good news is that the US government is looking into the situation via the Federal Maritime Commission. Shippers are very pleased about the investigation. Outside the US and Europe there is no protection for shippers. Governments are not paying attention. Asian shippers should be looked after by Asian governments, but we look to US instead which is sad. It is Asian shippers that are the victims of the cartels. The so-called anti-trust bodies in Asia just turn a blind eye.
