FOREWORD

Much effort has been spent in recent years on improvements in naval architecture and marine engineering. These improvements have added greatly to the inherent economies of oversea transportation. However, full advantage can be derived from them only by the most efficient regulation of the shipping industry. This, both in its private and governmental capacity, must have as its object a minimum of wasteful competition among shipowners and a maximum of coordination between shipowners and merchants. The present world survey, therefore, deals with this more fundamental aspect of rate control, as well as with the measures which have been adopted for the prevention of discriminations and unfair practices. It makes available, at a time when the United States is rehabilitating its merchant marine, a summary of experience and precedents of value alike to shipowners, merchants, and the Government.

This survey has been made by Albert E. Sanderson, with the assistance of Douglas W. Seitzinger, under the general supervision of Lacey C. Zapf, Assistant Director of the Bureau, and Thomas E. Lyons, Chief of the Transportation Division. It is based, in part, on replies to questionnaires circulated by the Transportation Division to the United States foreign-service officers of the Department of Commerce and the Department of State, as shown under "Principal Sources of Material" contained in the appendix; also on information available in the Transportation Division, including official reports from various Governments.

JULY 1938.

ALEXANDER V. DYE, Director,

Bureau of Foreign and Domestic Commerce.

VI

CONTROL OF OCEAN FREIGHT RATES IN FOREIGN

TRADE

INTRODUCTION

The purpose of this study is to present a summary of rate control from the viewpoint of underlying policies and principles. In this prefatory chapter passing reference should be made to the factors which have influenced the freight market as a whole. It is significant that during the past 2 decades there has been a general tendency for shipping to exceed requirements. This situation is traceable to a number of causes, but principally to the following: The vast destruction of wealth during the World War; the ensuing dislocation of international commerce; the imposition of countless Government trade restrictions, following the depression which began in 1929; and the increasing State participation in the financing of shipping, which is partly a heritage of the World War.

Steps were taken during 1937 by an appreciable number of countries toward facilitating trade; but, in the main, the restrictions still persist, often accompanied by arbitrary and discriminatory trade channelization. Import duties are still much higher in most countries than they were before the depression. Moreover, in many instances, they are accompanied now by additional levies under various captions. Quota restrictions on the volume of imports of particular commodities or from respective countries, or official controls of foreign exchange allotments with which to pay for them, or a combination of both, continue to dominate the methods of doing business with most of central, southern, and eastern Europe, parts of Latin America, and even parts of Asia.

The attainment of an annual balance of trade with each country, or a closer approach thereto, still appears to be a motivating principle in the trade-control measures of many governments. As part of their current nationalistic programs, Germany, Italy, the Soviet Union, and Japan have declared as their objectives, at almost any cost, a large measure of self-sufficiency in certain basic foodstuffs, raw materials, and even industrial equipment. It is not surprising, therefore, that the aggregate of international trade has suffered. Index numbers for years following the World War reflect declines, often below those of 1913. More recently, the aggregate in comparison with that year has ranged from 91 percent in 1932 to 105 percent in 1936, with a rise to 114 percent in 1937, the last figure being due in large measure to the stimulus of rearmament programs.

This adverse trade situation, coupled with a superabundance of shipping, has had the inevitable effect of weakening the freight market. Since the World War, maritime countries generally have

State

been more aggressive in the maintenance or expansion of their merchant marines, for political as well as for economic reasons. financing has been undertaken on an increasing scale, often for the joint purpose of developing commercial fleets that might also serve as naval auxiliaries.

Japan leads in relative gain, having trebled the tonnage of its fleet. The United States follows, with an increase of 176 percent, but this figure is misleading, since it includes war-built tonnage much of which has been laid up continuously. For instance, at the middle of 1937, when practically all foreign shipping was in operation, there were 1,500,000 gross tons laid up in the United States. Other countries which have led in making additions to their fleets are: Greece, 163 percent; Italy, 149 percent; and Norway, 132 percent. Those countries with smaller but nevertheless substantial increases are the Netherlands, France, the Soviet Union, Sweden, and Spain, and the percentages of increase range from 26 for Spain to 104 for the Netherlands. The only countries that have smaller merchant marines in 1938 than they had in 1913 are Germany and the United Kingdom. In the aggregate, the world fleet of steamers and motorships at present is larger by about 50 percent.

The effect of the excess of shipping over requirements is indicated by the index numbers of charter rates which are representative to a considerable extent of the freight market as a whole, although it should be borne in mind that liner rates are somewhat slower in responding to changing market conditions, since they are controlled mostly by conference arrangements and can be varied only by negotiations between the parties to those arrangements.

Index numbers of world charter rates, compiled by the Chamber of Shipping of the United Kingdom, reveal that the general level of these rates in 1929 was only several points higher than in 1913. From the base of 100 taken for the year 1929, the chamber reports a decline to 75 in 1935, a rise to 84 in 1936, and a further rise to 131 in 1937, during which year the shipping industry again experienced prosperity. By April 1938, however, the index had declined to 95.

As might be inferred, the problem of excess shipping and unprofitable freights is not new, except in scope and intensity. More than half a century ago the first liner conference had its inception from such a problem. Self-preservation has impelled shipowners to organize for the purpose of minimizing wasteful competition, although it is only in recent years that tramp conferences have been formed for the purpose of rate control. The depression which began in 1929 was so prolonged and devastating to the financial resources of shipowners that they were forced to resort to unprecedented measures of cooperation. Thus there was established in 1934 the first ratefixing conference of importance in the history of the tramp-shipping industry. This, however, required the initiative of the Government primarily concerned-that of the United Kingdom-which granted a temporary subsidy on the condition that British tramp owners organize, at least among themselves. This they did and enlisted the cooperation of liner and tramp owners, both national and foreign, in which they were remarkably successful. Minimum rates were agreed upon for the important grain trades from the River Plate, Australia, eastern Canada and the United States.

Other developments of major significance in recent years have been the formation of the International Tanker Pool by European tanker owners, the adoption of the so-called Baltwhite Timber Scheme by the Baltic and International Maritime Conference, and the organization of the Australian Oversea Transport Association. This last-mentioned association is worthy of special note inasmuch as it is in the nature of a superconference, including among its members shippers as well as shipowners.

Rate control up to the present time is mainly or exclusively a function of the shipowners themselves in most countries. A number of governments, however, have superimposed on private control various degrees of authority, notably for the correction or prevention of abuses to which the conference system is susceptible. Government control of rates in foreign trade obviously has its limitations, arising from the dual jurisdiction of countries concerned; and possibly, to some extent, from treaty obligations. However, no conflicts appear to have arisen so far, due, apparently, to the general policy of conservatism in legislation and in the administration of existing laws and regulations.

The succeeding sections deal with both private and government control of rates. Because of the secrecy with which shipowners and conferences in a number of countries regard their agreements and rate schedules, the available data are somewhat incomplete. Nevertheless, they present a fairly comprehensive review of the underlying policies and principles. The order of arrangement is partly chronological and partly in relation to the significance of developments.