end of the trade. This, as far as the foreign exporting end of the trade is concerned, is a gross encroachment upon the international comity of nations and—as has been demonstrated—is a perfect recipe for a clash of jurisdiction between the United States and its trading partners in what is, after all, a mutual foreign trade of both parties. International comity aside, any such prohibition of meaningful consultation also does not make good commercial sense an area where the United States might claim preeminence-and flies in the face of sensible supplier-customer relationships. It is not enough in international shipping to say individual customers may consult with the conference, or with individual lines members of those conferences. Consultation on such a restricted basis subjects the conference to sectional pressures which distort the overall requirements of the trade. If there is to be effective consultation which will be to the general benefit of the trade, it must be between a representative shipper body and the conference-as in Europe and Japan-and not confined to individual or sectional interests. Another colleague of mine, Mr. Pot, read a paper on the subject of institutional consultation at an International Chamber of Commerce conference in Hong Kong in December 1975, and I attach a copy of his paper as enclosure B. [The following was received for the record:] ENCLOSURE B WORKING SESSION 1: INSTITUTIONAL CONSULTATION (Report submitted by D. Pot (CENSA)) Institutional Consultation is a term which can be applied to consultation by a conference or group of conferences with a shipper body or group of such bodies on all matters of principle which are of mutual interest. It is to be distinguished from the normal day to day consultation at a commercial level which has always gone on, and continues to go on, as between individual shippers with individual lines or individual shippers with a conference or vice versa. It is important to recognise the difference between the two and this paper is purely concerned with consultation over matters of basic principle. The last fifteen years have seen the development of Institutional Consultation in various parts of the world. The purpose of this paper is therefore to explain how such Institutional Consultation has developed in Europe and to consider to what extent the principles of it are applicable elsewhere. To that extent, it is necessary to have some understanding of the bodies which have been the prime movers in the development of this type of consultation in respect of outward trades from Europe. The formal starting point was a Note of Understanding concluded between European Conference Lines and European Shippers' Councils in December 1963 and formally adopted in 1964. It was the Conference Lines who were signatories to the Note of Understanding which later developed into the machinery which today is termed 'CENSA' and which comprises the National Shipowners' Associations of 12 principle maritime countries in Europe with Japan. The primary objective of CENSA is to promote and safeguard the interests of its membership through the development of sound shipping policies. In the broad it is concerned with the task of monitoring shipping policy and legislative developments in all parts of the world; with the activities of the United Nations, and particularly the development of Institutional Consultation. One of the basic elements of CENSA's philosophy is that Conferences have demonstrated that through adequate self-policing arrangements etc.. they are capable of regulating their own internal affairs satisfactorily. By the same token it is held that matters of principle which are of mutual concern to both shipowners and shippers, can be properly administered through mutually agreed guidelines and formulae. Hence it is believed that as in any relationship between two commercial parties, it is preferable for fundamental issues to be discussed jointly for one party to simply brush objections by the other brusquely to one side or for some third party to superimpose its views on both. The Note of Understanding represents an advanced stage of the natural processes of continuous dealings and the mechanism which now exists provides a forum for regular meetings between representatives of ship-owners and shippers at which matters of principle and broad issues of common interest are freely discussed. In Europe this forum is called the Joint Standing Committee. CENSA receives advice on the numerous technical issues which emerge not only from the National Associations themselves but also through the InterConference Working Party, which comprises representatives from 16 major European-based Conferences covering the main trading areas of the world. The various Working Groups which work alongside representatives from the Shippers' side to draw up mutually agreed guidelines largely work under the aegis of this latter body. THE PURPOSE OF ORGANISED CONSULTATION Essentially, such institutional consultation provides a medium for the exchange of information and ideas through explanation and discussion. This does not necessarily mean that agreement is always achieved but the aim is to achieve harmonisation in matters of general liner practices wherever possible. The pattern outlined above has grown steadily during the period since 1963 and as a result it has been possible to establish “norms” of practice on a wide variety of subjects, all of which are kept constantly under review. The passage of time and technological development render changes inevitable and necessary if such "norms" are to continue to be of practical use. These "norms" are reflected insofar as consultation in Europe is concerned in the 19 Joint Recommendations drawn up and agreed between CENSA and European National Shippers' Councils. These Recommendations, and they are purely that and in no sense binding, are all of a somewhat technical nature. They embrace the principles underlying such diverse subjects as currencies-devaluation, revaluation and floating, shippers' loyalty contracts, pallet rules, dangerous goods declarations, notice of freight increases, measurement rules and a skeleton outline for tariff conditions. This work is now being developed to cover fundamental issues connected with container practices and other Joint Recommendations are currently under study. It must be stressed again, however, that day to day matters are not the concern of such consultations, being matters for resolution at individual line/ shipper level or between shippers-either collectively as Trade Associations. or individually-and Conference or Conference Lines' representatives. SUITABILITY OF CONFERENCES FOR INSTITUTIONAL CONSULTATION PROCEDURES The question is often posed as to whether the structure of Conferences today is suitable for consultation of the type outlined above. Although the size and type of Conferences vary widely, their basic purposes and aims are similar, and time has proved that institutional consultation does assist their work by serving to strengthen the relationship between themselves and their customersthe shippers. Points of friction between the two sides, largely stemming either from misunderstanding or failure to appreciate the others' point of view solely from inexperience, have been successfully ironed out through Joint Recommendations. Other issues of common interest, for example, agreed terminology, condemnation of the evils of misdeclaration of cargo for freighting purposes, are also subjects which have lent themselves to fruitful consultation. Problems which jointly affect both sides such as port congestion are now tackled jointly. There is no doubt that joint approaches of this type of common problems are both beneficial and effective since each side is thereby enabled to concentrate its efforts into those areas where its influence will most be felt, rather than dissipate its efforts across the board. For practical reasons joint approaches cannot, however, extend into consultations in each and every problem. ORGANISATION As more and more developing countries enter the International Liner scene so that membership of Conferences steadily increases. Conferences are, generally speaking, comprised of Lines from the countries which are served and hence it may be said that the policies and aspirations of each of the nations concerned can be voiced. In parallel it would seem preferable that shipper organisations should also be fully representative of the shippers in each particular country. The ICC in 1959 recommended the creation of tradewise shippers' organisations and although both countrywise and tradewise organisations exist today in many countries spread across the world, it is most important that they should be fully representative of the interests they defend. The European National Shippers' Councils are organised in that style. Since the lines' customers are not only the shippers but also the consignees, be they merchant, bank, consolidator or whatever, this concept does not imply a conflict of interests for matters of fundamental principle affecting both ends of the trade, albeit perhaps in verying degrees. HOW FAR SHOULD CONSULTATION EXTEND The introduction and rapid expansion of through intermodal services has extended the sphere of consultation into new areas. The ocean carrier is now often drawn into the area of inland transportation and in consequence into spheres of operations which are, particularly in regard to financial aspects, entirely outside his control. Consultation is therefore normally limited to those matters of principle which directly affect the port-to-port movement although as time passes the sphere of consultation could ultimately broaden. WHAT LIES BEYOND CONSULTATION The 1963 Note of Understanding provides for conciliation as being a stage beyond consultation. Provision for this further stage is also made in the Code of Practice adopted by many Conferences in Europe. Through Institutional Consultation it has been possible to create machinery which affords the opportunity for the two sides to effectively resolve difficulties in certain areas through a mutual understanding of their respective positions. Thus conciliation is the natural progression of consultation, although the area of issues on which conciliation becomes feasible must, of necessity, perhaps tend to appear at times to be somewhat limited. It must be stressed that matters which rest essentially upon the commercial judgment of one or other party, i.e. rates of freight, are not submitted for conciliation let alone arbitration. CENSA and the ESC have agreed on a machinery for the resolution of disputes and work on a set of detailed rules is now nearing completion. SHIPPER ORGANISATIONS OUTSIDE EUROPE Shippers' Councils in Europe have, over the years, used their experience in order to assist in the establishment of Shippers' Councils elsewhere. CENSA has itself, through its constituent National Associations, encouraged the establishment of Shippers' Councils in other parts of the world and has also been able, through methods short of financial assistance, to assist national merchant marines. Mr. RUSSELL. It is only on the basis of consultation between conferences and shippers' councils that the collective views of the trade as a whole can be made clear to the carriers who can then attune their services as appropriate to meet those wishes. This has indeed been well demonstrated in non-U.S. trades, and I am sure your committee can obtain corroborating evidence from the shippers' side. Under present interpretation of U.S. law, we have not been able to obtain antitrust clearance to conduct meaningful consultation with the sum total of your exporters-importers and, worse still, there is the consequential inhibition of meaningful consultation with the exporters and importers at our end of the trade. In result, we are forced to be less responsive to the needs of the trade into and out of the United States than in other trades. The second point I made was rationalization. As you well know, this is impossible in the U.S. trades because of your system of "open" conferences. In this connection may I refer your committee to the evidence_another colleague of mine, Mr. Sager, recently gave to Senator Inouye when he referred to an in-house study Hapag-Lloyd had done to compare the cost of containerizing in the U.S. trades under existing legislation with the hypothetical cost of the operation if it had been undertaken without existing U.S. restrictions. I attach as enclosure C, a copy of Mr. Sager's testimony. [The following was received for the record:] ENCLOSURE C STATEMENT BEFORE SENATOR INOUYE'S SUBCOMMITTEE Our final witness this morning is Deputy Chairman of Hapag-Lloyd, Mr. Karl-Heinz Sager. STATEMENT OF KARL-HEINZ SAGER, DEPUTY CHAIRMAN HAPAG-LLOYD AG Senator INOUYE. Mr. Sager, welcome to the Committee, sir. Mr. SAGER. Thank you, Mr. Chairman. My name is Karl-Heinz Sager, I am Deputy Chairman of Hapag-Lloyd, a German transportation company. We operate about 70 ships. We are strongly engaged in the liner business. We run 15 liner services out of Northern Europe, three of them to the United States. We have been in the United States trades for about 130 years, and in spite of the problems we face, we intend to stay in it. I have no prepared statement. But I have a presentation, a speech I held at the forum of the American Shipper in New York which I submit on record. I would like, however, to make a few statements. Senator INOUYE. Without objection your text of your speech will be made part of the record. Mr. SAGER. Thank you. [Document follows.] Mr. SAGER. To make a few general remarks, Senator. I was very impressed when I heard your luncheon address in New York two weeks ago. When asked I agreed to come to this hearing because you said very specifically that you like to address the whole problem of liner shipping and not just the matter of malpractices, and this was also mentioned by a number of other speakers. With regard to malpractices we are talking about a symptom and not about the evil. The evil, and I have mentioned this very clearly in my presentation in New York, is the sick conference system in the United States liner trades. We have here the so-called open conferences which allow everybody to come in, and which is a very weak system. What really creates malpractices? It was mentioned before, and there is very little really what I can add to what Mr. Diaz and Mr. Amoss have said. Basically they are caused by (1) an overtonnaged trade, (2) weak conferences, (3) heavy outside competition, and (4) noncommercial competitionI am talking about the COMECON fleets. Also by (5) the non-existence of pools and other cargo sharing arrangements and (6) none or a weak self-policing and inspection mechanism. This is what generally leads to malpractices in all parts of the world. All of these points unfortunately apply to the United States trades. The American philosophy that the more vicious the competition, the lower the rates is actually an open invitation for everybody to come into the trade. Look at fly-by-night operators which would never have a chance to be able to enter other trades of the world, the United States are always open to them. Or take someone who has built container ships on speculation and has no employment for the ships when they come into operation. He would certainly look at the United States trades, because there are the necessary facilities, the container is introduced and it's easy to come in or go out of the business, if it is not as good as one expects. I would like to quote an example on the North Atlantic. There is a new outsider, I think it is called Transfreight Lines. They operate two container ships which were for some time engaged in the Australian coastal trade, but turned out to be noneconomic. The ships were up for sale but couldn't find a buyer. Obviously, the price was too high. In any case, the ships appeared on the already overtonnaged North Atlantic, and this is a typical example. Another thing which also plays a certain role with regard to malpractice in recent years, is the fact that the economy between a container ship and conventional ship is quite different. If you have a conventional ship which is half empty you also have more or less half the cost, not the operational cost, but the cargo handling cost. On a container ship you have to carry the empty containers anyway if you have no cargo, and it costs about the same amount of money to handle them. Therefore, a $100 contribution of a container is better than zero. This has changed the thinking of many container operators. This is also a reason in my opinion why the mini-bridge has become so popular, because a mini-bridge container in many cases only yields not very much more than $50 or $100 a box, if you really look at the out-of-pocket expenses. But, nonetheless, as I said earlier, it is better than nothing. How to stop malpractices? Tough policing? I would say that policing is very necessary. I would like to state here that the policing on the North Atlantic, which Mr. Oiaz has been running for a couple of years, is very effective. It has eliminated a large amount of intended or unintended malpractices, and is the best policing system I know at the moment. Senator GRIFFIN. Could I interrupt? Senator INOUYE. Yes. Senator GRIFFIN. Tough policing by whom? The neutral bodies? Senator GRIFFIN. Is that enough? Mr. SAGER. Yes. Senator GRIFFIN. OK. Mr. SAGER. International conventions? I would certainly say that this could be a way, but looking at other instances I would say it takes a long time and it is a tedious procedure. It would therefore not be effective very quickly. High penalties undoubtedly would also deter people from certain practices, but also this I think is no cure for it. In my opinion, and I agree with Mr. Diaz, we have to do something in the American trades with regard to the freedom of action of conferences. In order to eliminate malpractices in the United States trades there are a number of things which could be done. Conferences in the first place should be enabled to effectively defend themselves against outsiders through rate action, which they are unable to do today. At best they can meet outsider rates but to do so is never good enough to get the cargo, because the outsider then has the freedom to go lower if he wants to. Second, the geographical scope of the conferences should be adjusted to modern ship systems, such as containers and to the itineraries of the respective vessels. Today in the North Atlantic we have single ships covering seven conference areas which, of course, is not serving any purpose. Third, conferences must have effective inspection and policing systems through neutral bodies. Fourth, conferences must be enabled to introduce effective tying devices or contract systems which have been mentioned already by Mr. Amoss and by Mr. Diaz. Fifth, conference members should be allowed to form pools and other cargosharing arrangements, in order to rationalize their trade. Sixth, mini-bridge operators must be enabled to become full members of the all-water conferences which is not the case today. We have a number of minibridge operators which are associate members of conferences, but they have the right of independent rate actions because of the rules of the ICC. Seventh, conferences to be given intermodal authority to quote point to point rates. |