Those Ruthless Russians

Which nation is the world's top maritime power? Most people would say the U.S., because it still has the mightiest navy. But the correct answer, when all types of ships are counted, is the Soviet Union. After three decades of feverish shipbuilding, the Russians have the second biggest navy, the No. 1 fishing fleet and--here is the clincher--a rapidly growing merchant marine that has already opened a new era of commercial competition on the high seas.* Soviet shippers are plying routes to every major port, from San Francisco to Dar es Salaam, Hamburg to Mombasa. It is almost as if the Russians were following the turn-of-the-century imperialist dictum: "Trade follows the flag."

Low Operating Costs. Certainly, the Soviet merchant fleet is acting in the old capitalist tradition of clearing out the competition by price-cutting. The targets are tariffs set in "conferences"--international shipping agreements --that cover nearly all commodities on the world's trade routes. A conference member, for example, must charge $52.75 per ton for carrying kraft wrapping paper from the U.S.'s West Coast to the Far East. The Soviet price: $38. Russian ships will haul coffee or sisal from Kenya to Europe for half of the conference rate, machine tools from West Germany to Canada at a 45% reduction, or indeed any product at whatever discount will win the business.

The Soviet shippers can get away with such tactics for simple economic reasons. Their operating costs are low. Russian crews are paid substantially less than Western sailors, and bunker oil, which sells for up to $80 per ton on the world market, costs the oil-rich Russians just $20 a ton. Nor are the state-owned Soviet ships saddled with the interest and financing charges that can account for about half the costs of running a Western vessel. Beyond that, the Soviet merchant marine does not have to show a profit; the state can absorb losses until Western lines cut service, or even abandon unprofitable routes. If that happens, warns A.E. Lemon, director of the British & Commonwealth Shipping Co., "the Russians will be able to raise rates to whatever level they wish."

Pressing their advantage, the Soviets have embarked on a new shipbuilding spree. Nationalistic logic would dictate that the new ships be more tankers to handle the U.S.S.R.'s swelling exports of oil and bulk carriers to haul imported grain and exported coal. But the Russians instead have ordered from their own and other Communist countries' shipyards 100 new dry-cargo vessels and 33 fast containerships--vessels clearly destined for general world trade.

Some British theorists think that the Russians intend the new ships to serve an anticipated boom in East-West trade. The most popular explanation for the shipbuilding surge, though, reflects cold-war logic. The Soviets want the hard currency that their shipping industry can earn--especially U.S. dollars and West German marks--and the prestige that can come from showing the red flag around the world. Adds Karl-Heinz Sager, deputy chairman of Hamburg's Hapag-Lloyd shippers: "The Russians are also learning a great deal about the flows of trade and kinds of goods. That kind of information is invaluable for them politically and strategically."

Western shippers hope that their governments can reach some agreement to penalize the rate-cutting Russians. That seems unlikely. So the conferences are following a strategy of "if you can't lick 'em, ask 'em to join you"; they are inviting the Soviet lines to become members. With little success: so far, the Russians have joined only 14 of the 300-odd conferences round the world.

*The U.S.S.R.'s navy has more ships than the U.S. but less tonnage. Its merchant marine (second in number of vessels) ranks behind Liberia, Japan, the U.K., Norway, Greece and Panama in oceangoing tonnage. The U.S. is No. 10.

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