From the beginning to the end

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Purposes
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Maintain a stable schedule and freight
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Provide optimal capacity
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Consolidate the supply capacity to the trade
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With stable freight income, liners can plan for future expansion and improvement on service

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Borderline
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Control market freight rate
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Incur additional administration charges
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Provide shelter for the least efficiency carrier
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Anti-competition

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USA
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US Shipping Act 1987
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Ocean Shipping Reform Act 1998
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Europe
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Regulation 4056/86 exemption for LC
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Regulation 870/95 exemption for consortia
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EC competition rules
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Failed to promote competitive freight rates

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USA
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Stable rate
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FMC Federal Maritime Commissioner
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Europe
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Chaotic situation
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Freight dropped to lowest rate

refer to UN ECLAC paper

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Liner companies, especially large one, cluster their services around a particular location
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Government’s promotion of port efficiency
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Alliance formation
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Optimal vessels deployed in the trade

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Lower unit cost – leads to lower freight rate
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Disproportion return on investment – due to keen competition, company need to pass the profit to customer
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Overcapacity – on certain trade lanes but not the global situation
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Why high fixed costs and weak conference can give this impression ?

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Freight rate fluctuation
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High fixed costs induce high marginal pricing. To capture market share, in short run, company will only set to cover only marginal costs
Alliances
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Unstable formation, why ?
Expansion of the trade lane from EW to NS
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Due to cascade effect of newly deploy large vessels
Trans-shipment volume increase
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Port will gain with trans-shipment services

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Create trans-shipment centre
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Even the port can provide good service at low price, it depends on its location
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Segmentation of smaller liner company
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Focus on a particular segment in the market
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Change of government policy
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Depend on the attitude of individual government

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Concentration benefit everyone in the industry
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Extend to wide coverage – spreading
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Beware of the vertical integration as it may turn into cartel operation
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How about the smaller players (liner + port) ?

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Liner
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Cooperate or focus on a particular segment of market
Port
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Accept the reality and cooperate with regional ports
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Promote trade, encourage more users to use the port
Regulatory bodies
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Accept the trends in globalisation and privatisation and open up the market for competition

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The abolition of liner conference and results
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Relationship between Liner concentration and short sea shipping
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Impact on port – status of port