CARIBBEAN SHIPPERS GROUP FORMED TO BATTLE RATES
Byline: Joanna Ramey
WASHINGTON — A group of apparel companies that do business in the Caribbean and Central America have formed an association to try and keep shipping costs down by relying on their bulk negotiating power.
The fledgling seven-member 807 Shippers Association was hatched this fall in response to the formation in March of the Latin American Shippers Service Association in Miami, whose members are all the major players in the Caribbean Basin ocean freight business.
The carriers, which can set rates as a conference, are exempt from U.S. antitrust laws. For months, apparel industry officials with assembly operations in the Caribbean Basin have been concerned about LASSA amassing a stronghold on the region’s shipping industry and how that power could translate into rate hikes.
So far, LASSA has responded with only one rate hike of $61 per 40-foot container, to go into effect Dec. 1. Last month, LASSA withdrew a $90 per 40-foot container fuel surcharge that was scheduled to go into effect Tuesday.
This summer it postponed until Jan. 1 surcharges of $200 per container leaving Guatemala and $300 per container for the port of Honduras. The Guatemala surcharge reflects costs due to theft at the port. The Honduran surcharge is pegged to port congestion.
“LASSA has a cartel, which is perfectly legal. The shippers association allows us to pool our strengths, putting us on equal negotiating footing,” said Robert Rowan, corporate traffic manager, Wrangler Inc., a VF Corp. division, a member of the 807 Shippers Association. The association is named for the Section 807 trade benefits given to apparel assembled offshore from U.S.-cut textiles.
The association will operate much like those in other regions that combine their buying power to negotiate bulk rates with conferences, as in the case of the Far East shipping cartel ANERA. The association’s other members are Levi Strauss & Co., San Francisco; Sara Lee Corp., Winston-Salem, N.C.; Salant Corp., New York; Haggar Apparel Co., Dallas, and Bend N’ Stretch, Miami.
The potential for escalating costs aside, the current tendency LASSA has of instituting new charges, then withdrawing them, is “very disruptive” to planning a transportation strategy, according to Malcolm Robinson, logistics manager for Levi Strauss.
“It’s very difficult to run a business when the LASSA organization keeps throwing these things out and taking them back,” he said.
Because the economies of scale seen in the Far East shipping industry aren’t present in the Caribbean where small ships are a tenth the size of the trans-Pacific fleet, shipping costs are relatively steep considering the short distances traveled.
Still, when inflation is taken into account, rates, which now hover around $2,000 per 40-foot container, have remained relatively stable over the last decade, due to competition from independent carriers and air cargo, industry observers say.
Nevertheless, cost-conscious apparel companies fear the recent spate of proposed rate increases foreshadow escalating costs since the conference faces little competition ferrying finished apparel from Central American ports and the Dominican Republican, which are the centers of the growing garment assembly business. Prices for outgoing shipments of apparel pieces remain competitive since companies can contract with empty, southbound refrigerated freighters, or reefers, that have unloaded their tropical fruit cargo in Miami.
LASSA administrator Joseph Debraga argues there are as many cost pressures from competition on northbound routes as southbound, noting there are still plenty of independent operators eager to take away business; any rate hikes reflect added costs to the carriers.
“It’s a matter of necessity,” he said, noting that LASSA’s members will entertain any requests from the new apparel shippers association. “You obviously have to review your costs and adjust your prices for your customers.”
Members of the new shippers association say they don’t begrudge LASSA seeking a general rate increase or otherwise wanting to recoup costs. What they want is for the conference to enter into long-term contracts in order to set some ground rules.
“No one is really interested in bouncing around from carrier to carrier” shopping for competitive rates, said Peter Friedmann, an attorney here and the association’s independent administrator. “Shippers would rather establish a good relationship with LASSA carriers and commit cargo in return for some predictability of rates.”
Friedmann said the association plans to soon approach LASSA with a proposal to enter into a long-term contract.
— Fairchild News Service