Piracy or Profit on the High Seas?

The Soviet fleet flattens the cargo cartels

Few global economic issues have generated so much vitriol as the Soviet Union's drive to win more of the multibillion-dollar business of hauling seaborne international cargo. Since the early 1970s, the Soviets have raised havoc in international shipping conferences--cartels that fix rates on virtually every commodity and allocate cargoes--by cutting rates from 5% to 69%. They are gaining an ever increasing share of trade on lucrative routes, such as those across the North Atlantic and to and from the Far East and East Africa. On U.S. routes alone, the annual dollar value of Soviet-hauled trade has leaped from zero in 1971 to $2.7 billion, or 1.8% of total U.S. trade.

Even more worrisome to non-Communist shipping executives, the Soviets' Tenth Five-Year Plan (1976-80) includes long-range programs for growth in tonnage and better technology that imply an even greater invasion of Western routes.

The Red rate shaving is hurting foreign lines much more than it is the U.S. merchant fleet, whose share of world commerce has long been dwindling anyway. Not surprisingly, condemnation of Soviet tactics is widespread among shipowners. In the U.S., James Barker, chairman of the Moore-McCormack Lines and head of the National Maritime Council, is livid. "In effect, the Soviets are dumping by their price cutting, while there is no serious coordinated policy in Washington," he charges. Managing Director Carl-Thomas Hubrich of the Deutsche Afrika-Linien in Hamburg laments: "We're still there, but our backs are to the wall."

Like shipowners everywhere, the Soviets will make a special effort to haul high-priced cargo. One exasperated New York shipping executive says: "Look, 20% off a $4,000 box [a container] of electronic gear is obviously a better deal for them than cutting a fifth off a $1,500 box of car parts or wastepaper." Western shipping companies consider these tactics predatory, and West Germany, Belgium, The Netherlands and the United Kingdom delivered official messages of protest to Moscow in the past four months. The British also sent a delegation to haggle rather unsuccessfully on a Russian yacht cruising in the Black Sea.

The Soviets, who are members of several conferences, have again agreed to talk about joining others on a conditional basis and have even held some off-the-record conversations. But any efforts to get them to participate may be sunk by a conflict in Washington. In 1975 the Russians bowed to U.S. pressure to enter key North Atlantic price-fixing conferences, but the Justice Department "loused up the deal," in the words of one New York shipping executive, by threatening antitrust action against the American members. Since 1916, U.S. members of shipping conferences have been exempt from antitrust laws, but Justice is making noises about ending that freedom in line with President Carter's deregulation policy. A U.S. pullout from the conferences would scarcely tempt the Soviets to join.

Much of the Soviet maritime marketing effort in the U.S. is bossed by Arthur C. Novacek, 50, a canny Nebraskan of Czech descent who is president of New Jersey-based Morflot American Shipping Inc. Moram, as the company is known, is a Soviet-owned agency for four of the 16 Soviet lines hauling cargo to and from the U.S. A graduate of the U.S. Merchant Marine Academy, Novacek was once president of Grace Line, then executive vice president of Seatrain Lines. He formed Moram in 1976, and now has a crackerjack sales force of more than 33 salespeople. Novacek runs the agency, according to his own account, in the style of any Western company, drawing up an annual plan for approval from his superiors in Moscow. To charges that the Soviets are deliberately running deficits to "buy" cargo business from foreign competitors, Novacek retorts: "This is purely a business arrangement." Professor Joseph Sweeney, a Fordham University authority on maritime law, also believes the Soviets insist that each of their shipping lines and agencies show a profit. Indeed, he thinks the Soviets are "using free enterprise tools" to attack price-fixing cartels.

In the chaotic shipping world, which has far more tonnage than is usable, the Soviets do indeed have some vital economic advantages. They do not have to charge the 12.5% to 15% increases scheduled by the various price-fixing conferences for 1978. Wage costs for their crews are laughably low by U.S. standards--$97 a month for the master, $31 for an ordinary seaman. The vessels are fueled at costs that are fully 75% below those of other nations. Thus, under present circumstances the Soviet ships seem likely to pick up more and more cargo.

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