FRENCH-NEW CALEDONIAN COMPANY STARTS PACIFIC SHIPPING PRICE WAR

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Radio Australia Pacific Beat Melbourne, Australia September 17, 2001

Shipping is once again on the agenda in the Pacific, after the decision by French-New Caledonian company Sofrana to resume a shipping route it had abandoned over 33 years ago.

The move has raised some concern in the Pacific maritime industry, with many established shipping operators arguing most routes are already over-supplied, and that constant pricing wars will end up hurting the industry as a whole.

Pacific Beat's James Panichi has the story.

The 300-container carrier, the Sofrana-Bligh, is now once again traveling regularly from Auckland to Tonga, American Samoa, Samoa and Wallis and Futuna, in a shipping route that takes 21 days to complete.

French-Caledonian-registered company Sofrana, which owns the ship, claims the resumption of the Samoan route is proof the industry is healthy enough to make way for some new competition.

But other operators say Sofrana's move has more to do with commercial revenge than economic opportunity, with Sofrana keen to place some pressure on French Pacific shipping giant PDL.

The competition might be good news for the people of the Pacific islands, who are being offered better deals.

But industry experts say Sofrana may have chosen the wrong moment to pick a fight, arguing the route is already over-tonnaged and there are already too many shipping operators offering their services there.

"We're expecting that the trade flows are sufficient to support this service, says Lindsay Allen, Sofrana's commercial manager.

"We will be moving cargo from Australia across to Auckland where it will be translated onto the service, so we'll be loading out of Brisbane, Sydney and Melbourne on a regular basis using the existing trans-Tasman carriers."

So why re-open the route after 33 years? Is the market is stronger now than it might have been before?

"Yes certainly there is growth in the trade and in reality I haven't been with the company for that period of time but I understand the last time we were in the Samoas was about eight years ago," says Allen.

"So what we're seeing really is a resumption of wanting to provide a more comprehensive service to the Pacific both for local exporters from New Zealand and Australia into that region, and also ensuring that we provide opportunities for around the world carriers. And really the other key ingredient for us is we're looking to provide competitive choice and the region is serviced by a number of services but they tend to operate very closely together and we think there is room for an independent line to cater for the customer base."

Competition

But there may be more to Sofrana's latest move than meets the eye.

Cargo company PDL already operates on the Auckland-Samoa route along with other larger Pacific shipping operators.

Just over a month ago, PDL ended a three-million-dollar a year stevedoring contract with Sofrana in New Caledonia.

It's a move, which industry insiders suggest infuriated Sofrana, which was already smarting from fierce competition by larger shipping companies in its eastern routes.

So Sofrana's decision to challenge the status quo in the Auckland-Samoa route could mean it's payback time in the Pacific.

Jean Ravel is one of PDL's main shareholders, and works out of the company's Auckland headquarters.

"Sofrana operates very few shipping services in the Pacific, more or less all of them are running at a loss, especially the one from Australia to PNG.

"And due to this situation Sofrana has to withdraw their vessels from Australia to PNG and only route that they have found to keep these vessels busy is the route from New Zealand to Tonga, Apia and Wallis Island.

"When you are talking about revenge from Sofrana against PDL part of that is also the truth because PDL up to last month was given all their stevedoring operation to Sofrana in New Caledonia, and the contract of stevedoring has been withdrawn. This contract was probably the biggest contract that Sofrana operates, imagine cutting this revenue or putting it away from Sofrana, it's a big loss for them and that has increased their present difficulties definitely," says Ravel.

Pessimism

The pessimism about Sofrana's prospects is largely shared by another one of the larger Pacific shipping companies, the Pacific Forum Line, which was established in 1977 by the member states of the Pacific Forum.

Earlier this year Pacific Forum Line also criticized moves by shipping company P and O Nedlloyd to start operating a new container ship on the New Zealand-Fiji-New Caledonia route.

The argument was then, just as it is now, that more competition in traditional routes will inevitably drive profit levels down - well beneath the levels required to make a line sustainable.

John MacLellan, the Chief Executive of Pacific Forum Line, says recent developments simply prove there is not a large enough market to support more operators in the Pacific.

"The Pacific Island nations they're not huge expanding markets, some areas are serviced by operators trading from Australia and New Zealand through the west coast of USA and they call in at Fiji and Tahiti en route," he says.

"The other nations like Samoa and Tonga they rely on ourselves and a couple of other lines that provide dedicated services out of both Australia and New Zealand to these areas.

"And from time to time because of the strength of the freight rates we get various people come into the Pacific thinking that you know there's a market share that can be taken but sadly that's not the case, and repeatedly we find that these people go away after a short period of time because the way the trade is at the moment is basically balanced and almost in a slightly over covered situation by the present operations.

"There's ourselves, Reef Shipping, Pacific Direct Line, Neptune Line and these other people who have been around for some time, and we're all the time jostling for position and market share and so on and so forth, which is a clear indication that there's not a heap of cargo there for the taking."

A Recurring Theme

With declining populations in many Pacific countries what is the future for the shipping industry in the Pacific?

John MacLellan says there is not a lot of room for growth.

"Certainly if you were going to look to make a lot of money you wouldn't invest in shipping per se, whether it be in the South Pacific Islands or whether it be on the main trunk routes to other areas. It's a static growth basically in the Islands, there is a move to try and develop industry there. A good example is in Western Samoa which is now known of course as Samoa, and they have established a large wiring harness plant there so that's quite a good project because there's cargo moving up there, the raw material which is manufactured into the wiring looms and sent back. So there's sort of a two-way thing and also provides employment.

"There's certain moves with regards to developing the fishing industry, " he says. "Fiji of course has got a lot of industry. It's sort of like a mini, mini Hong Kong. But on the whole there isn't a lot of growth and it's very much a one-way trade in many areas."

But like the other established big lines, John MacLellan is prepared to ride out the latest price war.

"Competitors invariably arrive on the scene, slash the freight rates to try and buy market share, the current operators that have been there for some time they follow these rates all the way down and everybody loses money, the new operator realizes that he can't make money, he runs up huge debts, he moves on and it's left to the old guard to once again maintain the services and of course slowly but surely the rates have to creep back up to an economical level to sustain those services.

"I've lost count of how many times I've seen it in the last 20 odd years that I've been involved with Pacific Forum Line."

For additional reports from Radio Australia/Pacific Beat, go to PACIFIC ISLANDS REPORT News/Information Links: Radio/TV News/Radio Australia/Pacific Beat.

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