Liner conference From the beginning to the end

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

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

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

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

Liner concentration refer to UN ECLAC paper refer to UN ECLAC paper

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

Impacts of Concentration - 1 Lower unit cost – leads to lower freight rate Lower unit cost – leads to lower freight rate Disproportion return on investment – due to keen competition, company need to pass the profit to customer Disproportion return on investment – due to keen competition, company need to pass the profit to customer Overcapacity – on certain trade lanes but not the global situation Overcapacity – on certain trade lanes but not the global situation Why high fixed costs and weak conference can give this impression ? Why high fixed costs and weak conference can give this impression ?

Impacts of Concentration - 2 Freight rate fluctuation Freight rate fluctuation High fixed costs induce high marginal pricing. To capture market share, in short run, company will only set to cover only marginal costs High fixed costs induce high marginal pricing. To capture market share, in short run, company will only set to cover only marginal costs Alliances Alliances Unstable formation, why ? Unstable formation, why ? Expansion of the trade lane from EW to NS Expansion of the trade lane from EW to NS Due to cascade effect of newly deploy large vessels Due to cascade effect of newly deploy large vessels Trans-shipment volume increase Trans-shipment volume increase Port will gain with trans-shipment services Port will gain with trans-shipment services

Impacts of Concentration - 3 Create trans-shipment centre Create trans-shipment centre Even the port can provide good service at low price, it depends on its location Even the port can provide good service at low price, it depends on its location Segmentation of smaller liner company Segmentation of smaller liner company Focus on a particular segment in the market Focus on a particular segment in the market Change of government policy Change of government policy Depend on the attitude of individual government Depend on the attitude of individual government

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

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

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