Co-operation in liner shipping C. Ferrari Liner shipping: a definition Liner shipping refers to maritime transport services that are provided on a regularly scheduled basis to pre-determined ports.
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Liner shipping refers to maritime transport services that are provided on a regularly scheduled basis to pre-determined ports.
Ships involved in these trades can be general cargo carriers, specialised cargo carriers (e.g. car carriers or refrigerated goods carriers) and/or partially or fully dedicated container carriers.
2001: 2741 vessels for a capacity of 4.99 million TEU
1990-99: containerised trade + 200%; GDP + 50%
Source: OECD, 2002
price-fixing agreements (today about 150) between liners
arrangements between liners aimed at supplying jointly organised services by means of various technical, operational, or commercial arrangements (joint use of vessels, port installations, marketing organisation)
agreements for mutual reservation of part of the vessel’s slots
Co-operative agreements on a global basis among a group of companies
There are about 150 liner Conferences operating throughout the world with membership ranging from 2 to 40 separate lines
In the late 90s Conferences accounted for approximately 60% of the TEU capacity in major trades
Today there is a growing participation of non-conference operators (independent carriers) that have sufficient resources to duplicate the capacity, frequency and level of equipment that has generally been the province of the conference carriers
More External Competition
In the 90s a new form of co-operation among liner companies appeared: the (so-called) strategic allieances
They group companies operating on different routes around the world in order to offer a worldwide service to their clients
Companies belonging to a certain alliance may well belong to different conferences
These agreements cover:
Joint vessel route assignments, itineraries, sailing schedules, type and size of vessels, ports and port relations
They do not cover:
Why strategic alliances are so unstable?
Because the core of the market is empty (Sjostrom, 1991 – Button, 1996)
There is an empty core when capacity – defined as the level of production associated to the minimum average cost – exceeds demand for a price equal to that minimum cost
Competition pushes some firms out of the market, so price goes up
Every time there is an overcapacity in the short run there are few possibilities for a competitive equilibrium
Increases the oligopoly degree of the market
Which effects on relations with port terminals and carriers ?
Does it affect competition ?
Organisation for Economic Cooperation and Development (April, 2002):
“the German liner freight rate index (1995=100) at the beginning of 2000 reached 105 and in the first 6 months of 2001 is around 120.
The widespread adoption of containers allowed for decreased handling costs, more efficient loading and off-loading and greater economies of scale. Normally, one might have expected these changes to contribute to increased productivity and lower shipping prices. However, this is not reflected in this liner price index”.
Co-operation limiting supply guarantees to carriers the existence of a liner service
Moreover, a certain degree of competition still exists in the liner market. In fact, the maritime transport cost has decreased in the long run.
Co-operation is the most effective way that liners have to reinforce themselves and then struggle with competitors.
Or co-operation assures that some competition in the market exist