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Rate Agreements 1

rates, competition, service, carrier, stable and shippers

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RATE AGREEMENTS 1. Advantages of stable rates to shipper.—Well managed and reliable steamship conections are of the greatest importance to exporters. The service must be regular and fast so that goods contracted for may be delivered on the dates agreed upon and with the least elapsed time. Superior service, moreover, re duces insurance charges and interest losses on goods in transit.

Stability of freight rates also is an important fac tor in competition; knowledge of what the freight rate will be, say, three months hence enables the ex porter to calculate closely. The foreign customer who knows that the cost of delivery is not likely to change is willing to contract for large orders. Under a condition of fluctuating rates he will limit his pur chases in the hope of lower prices when freight rates fall.

2. Advantage of stable rates to carrier.—The ad vantages of stable rates to the carrier are clear. The smaller the risk of violent fluctuations in gross re ceipts, the smaller need be the working capital and cash items. Violent fluctuations over fairly long periods necessitate the setting aside of a large safety fund to help the company over times of low rates.

Tying up money in this way is a great expense. It could better be utilized in improving and expanding the service. But all but the most necessary expan sion and improvement have to be postponed when there is no certainty that the rates and the volume of cargo which justify such outlays will continue. Fluctuating rates result in poor service.

3. Reasonable rates a desiring stable rates, both shipper and carrier are in terested in reasonable rates. The shipper wants as low a rate. as possible to enable him to reap a large profit and also compete more effectively with firms of other nationalities. For the carrier to hamper shippers by exorbitant charges would be something like killing the goose that lays the golden egg. The interests of shipper and carrier are, therefore, in the long run not antagonistic, however competitive con ditions may incline either to place a momentary advan tage before the greater benefit of intelligent coopera tion.

4. Evils of unrestricted a re cent hearing of the House Committee on the Mer chant Marine and Fisheries, an exporter expressed this view, which is held by many of his class : "Our experience during more than half a century as shipping and commission merchants in the export and import trade has brought us to the belief that the old adage of 'competition is the life of trade' is a fallacy, and we are firmly convinced that more firms and comphnies have been driven out of business by competition and cutting of rates than by combina tions." It would be difficult to mention a field in which competition is more severe than in the shipping field. The severest is that between the large lines, and fre quently takes the deadly form of a rate war.

5. Rate "rate war" is carried on by means of rates which bear no relation whatever to the cost of operation. Ships are sent out at a loss sometimes amounting to $15,000 per trip. The logical result of cut-throat competition is the crushing of the weaker, and the establishing of a virtual monopoly for the stronger competitor.

Such wars also result in unfair discrimination be tween the of the lines in consequence of each line trying to tie up the largest shippers by means of long contracts and special privileges and leaving the small and irregular shippers to be dealt with as future circumstances permit, which can only mean paying a higher rate.

6. Conferences, and fight is not always carried to a finish. Usually some kind of understanding is reached. The committee on the merchant marine and fisheries of the House of Rep resentatives in a recent investigation came to the con clusion that conferences and agreements between car riers exist in nearly every ocean route, both foreign and domestic, to and from the United States. There was ample evidence presented to justify the convic tion that a similar condition prevails in respect to routes outside of the United States.

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