The challenge for policymakers is to ensure that the benefits of lower costs and improved connectivity is passed on to the smaller shippers and ports, while also responding to concentrated markets so that players are discouraged from abusing dominant positions.
But there are several other phenomena shaping shipping in the 21st century that the national watch dogs must also monitor to ensure that trade continues to boost economic progress in developing countries.
Escape from bankruptcy
Hanjin, the South Korean shipping line, had filed for bankruptcy, weighed down by a global economic downturn that had led to overcapacity, lower freight rates and rising debt levels in the shipping industry. The company was eventually wound up and its assets liquidated in the shipping industry’s costliest and most notorious collapse.
To avoid this fate, shipping companies have for many years increasingly merged or bought each other in a classic process of consolidation that is having profound effects on the efforts of developing countries to better engage with global trade.
Mergers shape shipping world
Competition authorities must analyse alliances, mergers and acquisitions in shipping and consider not only horizontal competition between carriers but also vertical integration between carriers and terminals.
For example, when shipping giant Maersk acquired competitor Hamburg Süd, the latter’s services may switch from their previous terminal in Buenos Aires to the one operated by APM Terminals – which belongs to the same group as Maersk.
Pressure on small seaports
The global trade benefits from low freight costs and improved shipping connectivity resulting from economies of scale and technological advances, and the mergers among shipping lines and their investments in ever larger ships, pose a serious challenge to smaller trading nations and their seaports.
Ports are under pressure to dredge, expand yards and invest in ever larger ship-to-shore container cranes, often without any additional cargo throughput. Trucking, train and barge operators will incur additional expenses as vessel sizes and thus peak demand go up.
Port authorities and local governments must carefully consider, the additional dredging and investment in berth, yard and hinterland transport capacity that shipping lines demand is worthwhile.
No access to domestic shipping
Many countries impose restrictions on international operators transporting goods domestically.
Countries find themselves in the scenario where ports in neighbouring countries become the hub ports for their own cabotage or feedering services.
Montevideo, Uruguay, for example, acts as a relay port for services that connect two ports in Argentina. Sri Lanka benefits from cabotage restrictions in India as ships call at the port of Colombo, and from there international feedering services connect to seaports in India.
In response, policymakers should analyse the potential of opening up selected shipping services to international service providers to ensure competitive markets.
Improve inter land connectivity
Inter-port competition should not be limited to domestic seaports, but to neighbouring countries’ ports as well, with the effective instruments for enhancing inter-port competition such as efficient trucking markets, rail and road infrastructure, and transit regimes.
Closer distances usually involve lower transport costs and thus fewer negative externalities. However, in view of the need to fill ever larger ships, and the desire to keep alternative options open for shippers, policymakers may also want to expand each port’s hinterland.
The resulting competitive pressures will encourage port operators to maximize their efficiency and pass on those efficiency gains to their clients, shippers and shipping lines.
Collaborative reforms
Members under the World Trade Organization’s Agreement on Trade Facilitation, as well as the International Maritime Organization’s Convention on Facilitation of International Maritime Traffic, should establish committees in which stakeholders coordinate and cooperate in the implementation of trade and transport facilitation reforms.
Such collaborative platforms should aim at facilitating international trade and its transport. Transit should be facilitated in line with international standards and recommendations, including those of the United Nations, the World Customs Organization and the World Trade Organization.
Review and consideration
Container shipping is a cornerstone of globalization. And we are in a situation where the reduced number of companies on some trade routes create oligopolistic market structures. This poses challenges to importers and exporters, who have less choice with whom to transport their goods.
Larger ships and the combined bargaining power of lines in alliances also pose challenges to seaports which will have to invest ever more heavily in port infra- and superstructure.
National competition watchdogs must monitor market developments and take actions on strengthening the competition through policy and law enforcement against any possible anti competitive practices. This will ensure a healthy market for both international and domestic shipping markets to recover from the detrimental effects on costs, connectivity and economic growth in developing countries.
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Source: UNCTAD
