s)3)/ 
OCEAN FREIGHT RATES AND THEIR IMPACT 
It has been the traditional practice of major ocean carriers to band 
together in conferences on important trade routes for the purpose 
of limiting competition, and establishing a pattern of rates that will 
insure reasonable profits. Traders have been willing to accept these 
“cartels” because they were offered a regular service at somewhat 
predictable rates. 
In 1916, after 2 years of hearings, Congress found that if discrimina- 
tory steamship practices in the U.S. foreign commerce continued, 
it would lead to possible unreasonable prejudice against the small 
exporter or importer. Following these and other hearings that were 
subsequently held, Congress passed the Shipping Act of 1916 which 
assigned certain responsibilities to the Federal Maritime Commission 
to review all agreements between carriers and approve only those 
that were found not to be unjustly discriminatory or unfair.® In its 
regulatory capacity, the Commission has approved conference agree- 
ments in most of the major U.S. foreign trades. Where competition 
was intense, Congress has provided for the approval of a “dual-rate 
system” that allows the conference carriers to contract with merchants 
for exclusive patronage and in turn to offer regular service at reduced 
rates. Under the Shipping Act this rate differential may not exceed 
15 percent.? 
Historically, these provisions have allowed both conference and non- 
conference carriers to exist side by side. Since the early 1970’s, how- 
ever, a new element has appeared which is now threatening to upset 
this traditional balance: The appearance of large numbers of Com- 
munist Bloc merchant ships in world sealanes. Since 1972, the 
U.S.S.R. merchant fleet has expanded very rapidly and at this stage 
no one can foresee to what extent this expansion will continue or 
where it will end. It is this doubt that leads to a cause for great 
concern in the arena of international shipping. 
On entering new trades, the Soviets have tended to establish rates 
at a level that will attract sufficient cargoes to maximize hard currency 
earnings. The Commission in its studies of rate practices has found 
that the Soviets, in each major trade, have established rate patterns 
which enable them to achieve that objective. The Soviets have 
operated outside of most of the major conferences in the U/S. 
maritime trades, notwithstanding the fact that they have participated 
in numerous discussions with U.S. officials on possible conference 
membership.!° Conversations with Soviet officials indicate that they 
have little intention to join a shipping conference until such time 
as it is clearly to their advantage. 
The failure of the Soviets to participate within the conference 
framework has resulted in an uneasiness on the part of other carriers, 
and a tendency by at least some of these operators to resort to 
a variety of tactics in an effort to secure sufficient cargoes for their 
own vessels. In the Far East trades, in particular, the Soviets are 
® Sec. 15, Shipping Act, 1916 (46 U.S.C. 814). 
® Sec. 14b, Shipping Act, 1916 (46 U.S.C. 813a). 
1 FESCO was admitted to the Far East Conference on July 16, 1975, to implement its new service 
between U.S. gulf ports and the Far East. Black Sea Steamship Co. joined the west coast of Italy, 
Sicilian, and Adriatic ports/North Atlantic Range Conference (W.I.N.A.C.) on July 17, 1975. 
