Some economic aspects of Conference and non-Conference wool shipping

Abstract

It is suggested that the freight rate that an alternative wool shipping service could offer will influence the Conference rate for wool shipped from New Zealand to Europe. Data are presented showing that wool freight rate increases over the past five years have been less than freight rate increases for dairy products and meat, the possibility that wool freight rates may have been held back due to the threat of an alternative service in the form of bulk carriers is suggested. Freight rates for a hypothetical specialised wool service are estimated and compared with Conference rates. These comparisons show that the Conference rates in 1972 and 1976 were very close to the estimated rates for the specialised service. It is also shown that the estimated rates are sensitive to a number of assumptions regarding the specialised service. It is concluded that alternative systems of shipping wool warrant closer investigation in order for the wool industry to move towards the most efficient system for shipping wool to Europe. Whilst it appears quite feasible for wool to be carried by an alternative service within the context of the current wool marketing system, it is likely that the economics of an alternative service would benefit substantially from changes in various aspects of the wool marketing system. In addition, it is probable that a specialised wool service could be geared closely to the wool industry and would permit change and improvements to be effected more easily than the present liner service where wool is viewed as a general cargo. The proposition that the withdrawal of wool from the current liner service would create higher freight rates for other export cargoes may be true in the short term. It is quite probable that the liner service would adjust in the longer term to the new cargo mix so offsetting the need for higher rates of freight, this is especially so since a withdrawal of wool would reduce the high imbalance, by weight and by volume, of the northbound/southbound trades. Apart from detailed investigations into alternative shipping systems, other fruitful areas for study suggested are; (i) Cross subsidy effects between products of freight rates set by the Conference should be identified so that Government policies on protection/subsidisation can be formulated more rationally. (ii) The requirements of wool importers in Europe should be researched more fully, especially with respect to frequency of service and order delivery times. (iii) Further research and investigations are required into how the withdrawal of wool would affect the overall efficiency of the Conference service. Whether cargoes other than wool are best serviced by a shipping service that includes or excludes wool should be investigated in the national interest.