Port Management Essay Sample
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 coverage through cooperation, harmonization, and dovetailing of their members’ operations. So the alliances have made the liner shipping market monopolistic, thereby putting the small firms in a critical corner.
“Alliances have thus emerged to exploit economies of scope among otherwise competing operators, through strategies such as the dovetailing of individual service networks; vessel sharing; slot-chartering; joint ownership and/or utilization of equipment and terminals and similar endeavors on better harmonization of operations” (Haralambides 2007, 620). It’s obvious that global alliances are out to take off the aforementioned features that the conferences and oligopoly share, from the liner shipping market. Further research should be carried out on the area of global alliances impact on the liner shipping market structure.
The Liner Shipping Policy and the Monopolistic Competitive Market:
As contained in Economic Assistance Study on Liner Shipping submitted by ICF consulting; In October of 2004, that market conditions include many factors, which shape the market or the industry, such as consumer demand, market supply, political environment and policy change. In some cases, the effects of policies are direct. Like antitrust laws are intended to halt the spread of monopoly, the result is less mergers behaviors in that industry. Also Wong (2012) stated that, there was a general political agreement to adopt published price-fixing within the Organization for Economic Co-operation and Development (“OECD”) which lent some measures of long-term stability to the liner shipping industry.
Another policy that is actually core to the liner shipping market is the competition policy as argued by Sjostrom (2009), that Models of competition are important for making sense of the role agreements play in liner shipping, and seeing whether those insights can be generalized to other industries. They are also important for competition policy. However, government policies are fundamental I any shipping policy as it overrides their powers, hence most liner shipping policies are independent on government policies.
The Dynamics and Development Strategies of Liner Shipping:
It can literally be understood that dynamism is necessary and in fact, an element in the strategic development of any organization. In the liner shipping market, many development strategies have been studied such as the conferences, antitrust immunity, containerization, internet marketing,
segmentation, merger and global alliances as noted by Haralambides (2007, 619) “the pertinent questions here –entailing significant policy implications – are the degree of capital concentration, carrier coalitions such as conferences and alliances, monopoly power and related pricing strategies”. Here, I shall focus on the most recent or ongoing development strategy, global alliances. The contest of global alliances is were captured by Endo (2010, 12 & 13) as;
• Joint operation: space charter/exchange, revenue pooling, revenue and marketing pooling, code sharing (in airlines), including feeder routes and intermodal freight transport • Joint marketing, sales and promotion and joint venture in logistics operation • Single-roof facility strategy: sharing facilities including cargo and passenger terminals, logistics warehouse, handling, offices, check-in counters and airport lounges • Common procurement in broad range of items, IT platform, management system infrastructure, insurance, oils • Joint effort/development to reduce fuel consumption/CO2 emission Although, it would certainly increase monopoly power: negative impact upon consumers in terms of competition policy, the promotion and carrying all concerned liner shipping along, through supportive measures, ensuring that small firm do not exist the market totally rather find global alliance might just be the perfect strategy.
Another strategy is the customer and market Segment Value as noted by Robinson R. (2005) that, Firms do business with those customers and those market segments that share their value proposition; but unless firms define their value proposition in such a way that it coincides with the customer’s value proposition there will, in fact, be no business done – at least in competitive markets! The scope of this review cannot permit to explore more strategies, but Plomaritou, (2008) identified the following strategies-related to marketing mix as important tools in the competitive market; Product/Service Strategy, Promotion Strategy, People Strategy, Process Strategy, Price Strategy: Paperless Trade Strategy, Physical Evidence Strategy.
As noted before that market structure determines market condition, which automatically controls the market performance. The liner market structure
should seek to evaluate the Market conditions which include many factors that shape the market or the industry, such as consumer demand, market supply, political environment and policy change. In some cases, the effects of policies are direct. Like antitrust laws are intended to halt the spread of monopoly, the result is less mergers behaviors in that industry, Wong, (2012).
The elimination of liner shipping conferences by some countries shifted the market from oligopoly to monopolistic nature, due to mainly the emergence of merger and global alliances. However, the policy submitted by the ICT on the block exemption for liner conferences, as captured above would help in controlling monopoly, in addition to supporting small firms that cannot stand the market to form a substantial alliance. Also the smaller firms can adopt the internet marketing and segmentation strategies to cement their ground in the liner shipping market. Meanwhile, I suggest that further studies should be carried out on the effect of global alliance on the liner shipping market shifting rapidly to monopolistic market.