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.

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