Tuesday, June 4, 2019

The Global Container Shipping Industry

The Global Container Shipping IndustryThe global container shipping sedulousness poop be characterized as an oligopoly. Moreover, in that respect atomic number 18 few sellers and the provided service or products are quite alike. It is imembrasureant to examine the market structure in three take aims the industry, the alignments and the trade level. The market is characterized by globalization. As a result, on that point is a need to meet customers carrys and invest in resources as well as technology. So we weed say mention the expansion of the world thrift and the world trade. Shipping companies have two choices, form an alliance or the other one is mergers and acquisitions. I ordain in like manner use a computer graphic explanation to present the trends and how the industry has evolved over the past years. Lastly, this assignment mentions the importance of the oligopolistic characteristics in the global container shipping industry.THE INDUSTRYIn the global container shipping industry we could meet collusions which are to a greater extent commonly known as shipping conferences. We all know that their principal activity is to fix freight rates in certain routes and set barriers in the unveiling of new firms. Conferences are cartels acting like monopolists, because there were substantial scale economies in the industry that led to a small number of firms (Marshall,1921). After the abolishment of the anti-monopoly immunity of freight conferences (18 October 2008, Regulation 4056/86) and given the trend of growing consolidation the market evolves into a more(prenominal) covert market where operational agreements are more important.The market has become more concentrated and the smallest operators have a market piece of land of less than 1% each. As we can observe from table 1 above lift 10 carriers have a market share of 63.5%. Comparing to the market share of top ten carriers in 2000 which was 49.3% (alphaliner) there is a remarkable join on in market share as well as in total TEUs. Moreover, few firms hold to the high upest degree of the market power and probably can influence in a high grade the market. They can set entry barriers and also make agreements on the freight rates. It is very important for firms to cooperate and acting like monopolists. As a result, each firm must be conscious(predicate) of the other players actions.Due to, this oligopolistic characteristic the industry is more complex and needs to face many factors. Moreover, the rapidly changing customer requirements, the deployment of ever larger container vessels, advances in information technology, increasing competition and intense consolidation.( ) Leading to few firms controlling the high trade routes and to the phenomenon of multi-trade strategic alliances.ALLIANCESWe can also measure the degree of absorption by analyzing the alliances that have been created over the past years. This is a common implication in oligopolistic markets and of grea t importance. An alliance helps to obtain greater market shares and control more effectively the trade routes as well as the capacity.We can notice almost five advantages in the trend of alliances in the global container shipping industry. Furthermore, it can serve more efficient wider geographically routes. Secondly, they can plan their vessels in a more global scope. Of course, there is less risk, because risks are shared. They can cleft more frequent services to their customers, meaning more frequent schedules. Lastly, economies of scale become more visible and there is also an increase in the coat of the ships. (Ryoo, 2000)It is noteworthy to analyze three of the most important alliances over the past years. Furthermore, these three alliances started with an agreement on collaboration for east-west trades and then extended to north-south services.The first alliance we will examine is New World Alliance. It includes mainly APL, MOL and HMM. Its overall capacity in TEUs is 1.161 .468 and owns 282 vessels. Imagine that in 2000 the capacity of this alliance was 325.487 and the number of vessels 90. As we can see it highly increased its market share and this is very important in oligopolistic markets, because you can influence the market as well as manage more properly the capacity.Another noteworthy alliance is the Grand Alliance. In February 2006, after PO withdrawal the new Grand Alliance form by Hapag-Lloyd, OOCL, and NYK Line. Its overall capacity in TEUs is 1.187.607 and owns 288 vessels. In 1996 it owned only 255.705 TEUs and 72 vessels. Grand alliance manages twelve services in the transpacific trade. Lastly, this alliance has showed the most stable formation comparing to the other two alliances.The greatest alliance is CKYH with main partners Hanjin, Yang Ming, K Line and COSCO. It counts 1.548.508 TEUs and 400 vessels. It manages eight services on the europium Asia route which has the largest capacity in TEUs. Surely, this alliance has a great mark et share and also is highly competitive.Of course, alliances have a great impact in the market share, but it is operose to cooperate as the size of the assort increases. They act like monopolists, because they can influence the price. Competition makes difficult to other firms to contest or enter in the market. This characteristic is of highly importance in order to survive in this tough market where overcapacity and decreasing demand exists nowadays. Firms may find many reasons why to join an alliance strategic reasons, operational reasons, in order to increase or step-down connectivity to increase or decrease capacity, to introduce a new service, to suspend a service, to merge services, to demerge services, to offer slots for charter and to offer slots. (Panayides, 2011)TRADE LEVELWe will examine the trade level of two routes, Black Sea Far East and US trade. Moreover, we will focus on the trade lane with port ranges at either end. (Brooks, 2000)In the route Black Sea Far E ast the top seven firms have a market share of total 89%, so the other firms have only the rest 11%. Surely, there is a very high percent of concentration in this trade route. Moreover, MSC holds 23,15%, Maersk Line 20,33%, CMA-CGM 13,81%, Zim 13,55%, CSAV Norasia 11,64%, Hapag Lloyd 4,99% and K Line 1,53%. (www.dynamar.com) We can conclude that a tight oligopoly exists in the trade line of Black Sea Far East. Meaning that the production rises but there is a decrease in price, because the firms possess large shares and acting more like monopolists. Furthermore, it is difficult for new firms to enter this lane.The other trade line that we will examine is US which is more complicated than the previous one. Moreover, the top ten firms hold almost a 65% of the total market share. So we can say again that in trade line exists an oligopoly, but the firms are much more and hold less market shares. Maersk Line market share is 15,27%, Evergreen 7,67%, Mediterranean Shg Co 7,20%, Hanjin 6,54 %, APL 6,18%, Hapag Lloyd 6,05%, COSCO Container Lines 4,28%, OOCL 4,26%, NYK 4,04% and China Shg C.L 3,90%. A close exam of this market shows us that competition is greater, but the market is larger and very showy to new firms. As a result, if we use efficiently the oligopolistic characteristics firms will increase their market shares and it will be more difficult for new firms to enter. Of course it is difficult to cooperate efficiently when the size of the group increases, but you can handle more adequate the capacity and the competition something that is very important nowadays.After analyzing these two different trade lines we understood the meaning of the existence of the oligopolistic characteristics. Moreover, capacity can be handled more efficiently and minimize competition by increasing your shares. brilliant EXPLANATION OF THE IMPORTANCE OF OLIGOPOLISTIC CHARACTERISTICS IN THE GLOBAL CONTAINER SHIPPING INDUSTRYI believe a stop explanation can be given by using a graphi c explanation to mention the importance of the oligopolistic characteristics in the global container shipping industry. Moreover, we know from theory that in perfect competition demand curve intersects Marginal Cost curve at the market price P* and it supplies quantity Q*.The firms in this graph are price takers, because there are no entry barriers. Now let see what an oligopolistic firm will do. It will reduce quantity to Q0 and at the same time will increase the price P0 until Marginal Cost equals Marginal Revenue. However, a deadweight loss (consumer and producer) will be created, meaning that the welfare losses to the economy. Lastly, we can observe a otiose to the firm as an oligopoly profit.This result can be represented in the global container shipping industry by selling at greater prices and fling lower services. Furthermore, smaller containers, slower service etc as the market becomes more oligopolistic.Secondly, firms may try to increase their market power or setting ent ry barriers. Of course these two result to collusion practices. Moreover, greater concentration can create collusions and reduce coordination costs.However, there are also benefits from the increase in concentration. A firm may increase its profits by taking market power from its rivals. This action can motivate the firm to offer a better product or service. In shipping industry a better product or service means offering larger containers than other firms or by investing in research and development. Moreover, a firm may invest in order to keep consumers loyal. So the firms can behave more competitively.As the market is acting like an oligopoly, it has resulted in two major trends. First, there has been an increase in container ship sizes. Secondly, there has been an important growth in container throughput. For example, seventeen of the top twenty five routes are served with ships exceeding 9000 TEUs. On the other hand, using larger ships you need to make enormous investments in por t infrastructure. Lastly, it has reduced the costs of transportation and local economies have been transformed to global economies.ConclusionThe global container shipping industry is mainly an oligopoly (few players and mainly provide similar services). I tried to mention the importance of the oligopolistic characteristics in this market. Moreover, I noticed that big alliances control the majority of the total market share and also high concentration exists even in the trade routes. Highly concentrated markets lead in many occasions to collusions or cartels. It is very dangerous due to anti-trust laws, particularly after the abolishment of the anti-monopoly immunity. However, such agreements are very beneficial for the participating firms. It is best off to cooperate, but it is very difficult especially when the size of the group increases. From the graphic explanation we concluded that it is better to produce small quantity and charge prices above marginal cost. Nevertheless, it i s up to firms if they are going to have negative or positive results. In my opinion, the oligopolistic characteristics in the global container shipping industry lead the market to evolve and become capable to handle the phenomenon of overcapacity and increasing terminate costs.

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