[ FEFC Business Plan 1997-A New Beginning ]

When the Lines published their previous Business Plan, they proposed t
o restore rates from 1 January 1996, instead freights have declined th
roughout the year. Apart from the brief Eastbound recovery in 1993/95,
rates have now fallen coctinually since the early 1980’s, a reductio
n in real terrms of between 40 and 50%. With its enlarged membership,
the total Eastbound/Westbound lifting by FEFC carriers are now over 3
million teu per annu, so that the overall revenue lost in 1996 alone i
s likely to be more than USD 600 million.

The FEFC Lines cannot indefinitely withstand such crippling reductions
in revenui and have had to undertake an urgent review of what can be
done to reverse this spiral of rate decline. As will be well known, th
e Lines individually have already introduced radical cost-cutting meas
ures including the formation of closer alliances and mergers but the r
evenue loss goer far beyond what can be comrensated through succh cost
saving.

It has accordingly been devided by the FEFC Lines that throughout 1997
there will be a continuing review of the trade by high level Principa
ls. Thos will be directed towards stabilisation and a reasonable recov
ery of lost revenue.

There is no evvidence that higher levels would in any way affect the v
olume of trade. This was borne out by the large increase in Conference
carryings during the brief Eastbound rate recovery period wwhen in 1
994 alone, lifftings rose by 13%. One solution therefore would be to a
pply an immediate large increase to rates to begin to remedy the situa
tion. However the Lines realise that their customers are already deepl
y involved with budgets and pricing for 1997 and it is felt that a mor
e pragmatic first step, reflecting the Conference’s historic responsi
bility to the trade, will be to take firm action to stabilise rates an
d restore thr full application of the multi-part tariff principle.

The Lines have already agreed to ‘freeze’ their current rates and fr
om 1 January 1997, will apply simplified multi-part interim tariffs in
the EMA and AWRA trades: the JEFC tariff has already been revised. Th
ese tariffs will be commodity based and reflect current market levels
and although they are not directed towards a restoration, there will i
nevitably be some re-alignment of individual rates.

From 1 January, the Lines will also ensure the application to the inte
rim tariffs of the Currency and Banker Adjustment Factors as well as t
he tariff ancillary charges. CAF levels have been unchanged for some t
ime and will therefore remain as at present(AWRA CAF 7percent) until 3
1 March 1997, i.e. there will be no radical changes up ir down in that
period. Thereafter, the CAF will be reviewed only on a quarterly basi
s accordingly to the long-established dormula but with the announcemen
t date of the calculation brought forward to allow for 30 days notice
of any changes.

A BAF of 2.23% triggered from 1 October 1996 but because of the declin
e in ocean rates, this figure goes only a little way to recovering the
substatial increase in bunker costs that Lines gave experienced. In c
onsultation with independent accountants, the BAF calculation has been
reassessed with a view to producing a simpler and more realistic resu
lt. The percentage BAF will now be converted to a lump sum basis of US
D 41.54 per teu and this level will be applied until the end of March
1997. The previous monthly BAF reviews will be withdrawn and as with C
AF, there will be no radical changes up or down and 30 days notice wil
l be givec of future changes.

The various ancillary charges in the tariffs are also being reassessed
with the aim of ensuring that they are set at levels which can now be
collected throughout the trade. The Lines belive that this revision -
which will take some time to complete - together with the introductio
n of quarterly CAF and BAF reviews, will be a notable contribution to
the badly needed stabilisation.

In vview of the severe decline in rates this year, the FEFC Lines appr
eciate that their customers may view their Business Plan with some sca
pticism. They have therefore agreed at the highest level that Principa
ls will ensure that all aspevts of the Plan are applied by their own o
rganisations. Apart from the usual seasonal variations, high utilisati
ons are expected for 1997 and with this programme in place, prospects
are good for a new beginning in the North Europe/Asia trade.

The Lines would therefore appeal to their customers for their support
and understanding for this essential Business Plan.