International -- Asian Business: COMMENTARY
COMMENTARY: SHIPPING IN JAPAN: SO MANY RULES, SO LITTLE REFORM (int'l edition)
Investors inside and outside Japan are eagerly looking for signs that Prime Minister Ryutaro Hashimoto is serious about deregulating Japan's rule-bound economy. But before they get too excited about the prospects of change, they should check out an often overlooked but vital area of Japanese business--the nation's ports. What's going on there belies most of Hashimoto's talk about a brave new world of reform.
Japan's busy harbors may now become the front line in a nasty showdown with the U.S. The Federal Maritime Commission (FMC) is fed up with longstanding Japanese restrictions that keep the costs of shipping to and from Japan sky-high. To force a change, the agency is expected to impose punitive fees of $100,000 every time a Japanese merchant vessel heads to the U.S. The fines would deal a serious blow to Japan's three main shipping lines, which handle many of the autos, electronics, and other goods headed for U.S. markets.
But the Japanese Harbor Transportation Assn. (JHTA), an industry group of companies that handle cargo, is already threatening to hit back with a simple strategy. Rather than just retaliate against the U.S., it plans to stop mediating between all shippers and the hundreds of Japanese unions that operate in the ports. Without the services of the JHTA, foreign shippers will find themselves embroiled in fractious wrangles with the militant unions.
"NO RATIONALIZATION." So far, the Japanese government is doing little to prevent the collision. But that's not surprising. The JHTA, a cartel-like organization, has long served a useful role by keeping labor peace at the ports in a way that also makes importing to Japan prohibitively expensive. Formed almost 50 years ago, the JHTA is supposed to confine itself to mediation, but in practice it also blocks all efforts to lower shipping costs.
The JHTA's rules are endless. All carriers, whether Japanese or foreign, must conduct "prior consultations" with the JHTA on operational changes, from switching arrival times to altering a ship's name. Notification of any changes must be made 60 days in advance, a rule no other country has and that gums up the process enormously. The JHTA backs the unions' policy of working only one shift a day and not at all on Sundays, which leads to costly delays. And unlike in the U.S., shippers to and from Japan must use the services the JHTA assigns them. No wonder Japan supports almost 1,000 port-service companies, many more than in the much larger U.S.
The resulting drag on efficiency is huge. "Unlike other countries, there's been no rationalization," says Hisashi Imai, Asia managing director for the Port of Seattle and chairman of the Transportation Task Force at the U.S. Chamber of Commerce in Japan. Indeed, the average port handling costs for a modern container vessel calling at Yokohama are $36,750, against $12,350 at Long Beach, Calif., and $5,463 at Hong Kong, according to the U.S. government. Any move to lower these costs would help Japanese consumers as well as American shippers.
PROPOSALS. Ostensibly, the Japanese Ministry of Transport could embark on serious reform and so head off a shoot-out between the U.S. and the JHTA. But in classic bureaucratic Japanese style, the MOT says there's little it can do. "If the concerned parties don't agree, we can't solve the problem," says Kazuhiko Omoto, deputy director of the MOT's Port Transport Div. Besides, he adds, the government can't interfere in relations between the JHTA and the unions.
Omoto does stress that the MOT has circulated proposals that would allow newcomers, including foreigners, to set up port operations. But the head of a major Western shipping company in Tokyo dismisses this initiative as full of loopholes and with an insufferably long time horizon. Meanwhile, Washington is getting ready to fight. "There hasn't been a whole lot of movement, so I can't say we are optimistic right now," says Thomas Panebianco, the FMC's general counsel.
A showdown with the JHTA is a good idea. If the FMC can force some meaningful change, it will manage to lower at least one barrier to trade maintained by the Japanese for decades. Even if the FMC fails, that's good, too. It will remind everyone just how protracted the struggle to reform Japan will be.By Robert Neff and Paul Magnusson