Competition in Shipping Industry

Shipping is a competitive industry. The demand for shipping services is a derived one. Shipping services do not have alternative applications. So amongst ship owners competition arises to corner the existing traffic. The causes for the competition are as follows:

  • Freedom of use of a certain highways: The permanent way of ocean being a gift of nature, which is free. It is open to all persons and countries of the world without acquiring any rights to float the ships and steamers. Except for some restrictions in coastal waters of the countries, the ship are free to move anywhere on the sea and it invites international competitors.
  • Small investment: Shipping requires small investment to start the sailings. The capital investment in construction of permanent way, signals, bridges, tunnels, culverts and platforms etc is not there in purchasing a steamer or a ship. The facilities of loading, unloading and harboring are maintained by the port authorities and therefore no investment is to be made by the ship owner. Such facilities become available on payment of port dues. The initial investment being small, it invites many competitors from different corners of the world.
  • Greater mobility of ships: The ships have a great range of mobility. First, the ocean highways are very extensive and entire world routes are available for movement. They are not limited to some routes as is the case with inland waterways and railways. Secondly, the ships are not tied with a particular route like the railways. If one route becomes unremunerative they can be floated on other routes without any loss of capital or time. Hence the greater and frequent mobility of ships makes shipping competitive.
  • High proportion of fixed and constant expenses and fluctuations in traffic: Most of the capital expenditure is made in purchasing the ships and most of the operating expenses are made in upkeep of the vessel, management and insurance which are constant and have no relation with the volume of traffic. Since most of the expenses are constant and are not irreducible in case of less volume of traffic, every shipping company tries its best to acquire more and more business to reduce its cost per unit of operation. In the process of acquiring more business they resort to cut throat competition and sometimes they reduce their rates to the extent that they recover only variable expenses and a little more. Therefore during depression these shipping companies are very hard hit and try to acquire business at any cost and competition , thus tends become suicidal.
  • Freedom of determination of rates: The rates and fares in railways and motor transport are regulated by the government of the country to a great extent, but the rates and fares in shipping are determined under free conditions in the absence of any regulatory provisions. So there are no minimum or maximum limits under which the rates should vary. Therefore rate-cutting and monopoly charging are prevalent in shipping.
  • Competition in tramp services: Because of greater mobility, freedom of movement from any port to any port and at any time unlike the liners which are run on a fixed route and according to a fixed schedule, and their variety of size and speed, the competition in tramp shipping is more serious. They provide quick and prompt service to the shipper and are always ready to offer accommodation according to the needs of the shipper. They are very alert and watchful so that they may reach where they are wanted at a given moment. They try to reap the best of the available traffic. Their whole success depends upon their best employment of the ships and therefore they keep busy in searching new markets and new traffic. So they charge rates according to the supply position of the ships or according to the demand position of the traffic.
  • Competition in line services: In line services is restricted to a considerable extent as compared to tramp services. The main reason is that the line service requires high initial capital investment in maintaining large fleet of passenger and cargo liners. Liners are generally bigger and faster vessels. Moreover to provide safety, comforts and amenities to passengers, a good amount of money is required to be spent. The chances of many competitors in line service are therefore limited. If competition takes place among liners it leads to their collective suicide. Their mobility is limited to certain routes and they cannot take advantage of fluctuations in traffic. The liners, therefore become the members of conferences, go into some formal or informal agreements and they try to eliminate the cut throat competition, avoid unnecessary duplication of services by traffic allocation and advance planning of sailings, try to maintain uniformity and stability of rates by mutual understandings and agreements. So competition in line services is considerably limited due to high initial investment, limited number of competitors and conferences and agreements formed by them for regulating the rates, traffic, and other conditions.

Competition has led to rate wars and collapse of shipping companies. To restore order, consultation amongst shipping companies is needed.