MICHELIN REJECTS NEED FOR GLOBAL, LONG-TERM CONTRACTS
Michelin, the multinational tire manufacturer, said it prefers informal rate agreements with shipping lines and played down the benefits for shippers of moving to long-term global service contracts.
Brian Moulton, head of global ocean transport of the Michelin group, told an audience of shipping line executives at the Containerisation International conference in London that his company preferred short-term basic contracts. Michelin does not require the sort of more elaborate global contracts promoted by certain ocean carriers, he added, referring to recent comments made by Flemming Jacobs, chief executive of Neptune Orient Lines and APL Liner.
“We are not looking for increased sophistication or more detailed specifications,” Moulton said. The company’s contracts with carriers are “fairly simple, uncomplicated and basic.” Those contracts can vary in length from four to 20 pages, and their contents is restricted to the “bare minimum.” The big tire producer shipped 103,000 TEUs last year with 75 shipping lines worldwide.
With a small team of five senior executives around the world responsible for negotiations with ocean carriers, Moulton said that Michelin maintains very close contact with carriers to react globally, when necessary. “As such, we see no interest in having any global contracts,” he said.
Because Michelin’s cargo flows fluctuate widely over time and are unpredictable, it prefers not to commit to shipping fixed volumes with carriers, Moulton said. “We prefer to work with the companies as partners, and not to be bound by heavy contractual limitations.'
Noting that Michelin is “not perhaps your typical shipper,” Moulton said there are other “shippers with fairly regular flows to economically stable parts of the world from fixed production points.” Those shippers are able, if they wish, to negotiate contracts with realistic quantity commitments and corresponding space guarantees, working with freight rates fixed for six to 12 months, he said.
By contrast, Michelin “cannot go very far with commitments” and has chosen to follow the market trends in terms of freight rates, he said. The company is prepared to renegotiate rates on a monthly basis, to take account of market changes and variations in its cargo volumes.
“One of the downsides of this method is that we have lots of amendments to our contracts, which we would not have in a stable situation,” he said.
Moulton also noted the swings in freight rates in the container shipping market. Michelin's transatlantic eastbound rates dived 65 percent from the first quarter of 1997 to the fourth quarter of 2000.. Westbound transatlantic rates dropped from a reference index point of 100 in the first quarter of 1997 to 65 in the third quarter of 1999, before rebounding to 125 in the fourth quarter of 2000, he said.
Since the beginning of the year, westbound transatlantic rates have decreased 5 to 10 percent, to about $1,150 per TEU, Moulton added, predicting that the delivery of a large number of new containerships this year would put pressure on freight rates.