Port Management

Topics: Monopoly, Oligopoly, Competition Pages: 5 (1462 words) Published: August 8, 2013
Literature Review on Liner Shipping Market: Strategies to Overcome the Monopolistic Nature.

Introduction:

Before going into the liner shipping market, it’s vital to understand what liner shipping is all about. According to Sjostrom, (2009) Liner shipping is the business of offering common carrier ocean shipping services in international trade. “Liner shipping is geared to the provision of regular services between specified ports according to time-tables and prices advertised well in advance” (Jansson and Shneerson 1987, 16), Haralambides (2005).

Far back as the 17th century before the emergence of liner shipping conference, there was competition in the liner shipping market especially in the area of pricing as observed by (Wong & Bamford 2010, 2 ) “the inter-carrier agreement (i.e., the conferences), was formed to end price wars and as a result, excessive shipping capacity built up. Carriers developed a multilateral conference system under which participating carriers operating in specific trades co-operated to reduce price competition”. The coming on board of liner shipping conferences may have brought about oligopolistic market structure, but controlled the monopolistic competitiveness. Now, the question is how can liner shipping market demonstrate the structure, policy, market dynamics and development of shipping lines strategies to overcome the monopolistic competitiveness that is surfacing since the abolishment of the conferences?

The aim of this literature review is to identify ways to overcome the monopolistic competitive nature of the liner shipping market. At the end, the following objectives should have been achieved: examine the liner shipping market structure, policy, and market dynamics; and evaluate the development strategies in the competitive market.

This review shall be divided into sections; first, the structure of liner shipping market will be examined. Secondly, the liner shipping policy and how it can help in the monopolistic competitive market shall also be looked into. Then, the dynamics and development strategies shall be evaluated. Finally the conclusion of the review shall be drawn.

The Liner Shipping Market Structure:

The liner market structure is typically a fixed or programmed kind of market, as observed in the ship routes, cargoes, timing and ports, hence, its dynamism is hard to come by. As such market structure can be defined as “… a set of characteristics which give definition to the supply-side of the market, such as the nature of the firms which produce a product, the production cost and entry, the relative size and number of producers” Wong, (2012, 6 ). Wong continued on emphasizing the effect of liner conferences on the market structure by stating that; the capital intensive nature in Liner shipping operations gradually forced the industry to evolve into the market structure of an oligopoly. The oligopolistic market structure of liner shipping is characterized by the existence of a few sellers and inter-firm rivalry. He also identified other characteristics of an oligopolistic industry as follows: 1. High entry barriers to new-comers due to huge capital investment. 2. Little difference in service.

3. A few carriers that account for the majority of total supply. However, the above market structure could be considered to be effective until the conferences were abolished. The market structure of any firm or organization brings about conduct, which invariably determines its performance. This calls for restructuring which gave birth to the current merger and alliance era, which now shifted the market to a monopolistic one as highlighted by Haralambides (2007 ), that due to the phenomenon of global shipping alliances, which are also coalitions of carriers but, contrarily to the route-based character and price-setting objectives of conferences, alliances are not involved in price setting and one of their main objectives is to offer shippers global geographical...
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