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Maritime Economics - Essay Example

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Maritime Economics

In the Shipping Industry, many Ship owners have been resorting to strategies like concentration to sort out the problem that are occasioned by freight rate fluctuation. This concentration has allowed them to maximize their market shared, reduce the cost per volume and remain in competition for the industry leadership. There has been a fluctuation demand for shipping services that is also faced with a fluctuation in supply of the shipping services themselves. (Hoffman, 1998, p. 1)
On the demand side, many Shipping firms have believed that the best strategies for concentration will be realized when the merge the ships in order to gain from economies of scale. To that end there have been a series of mergers and acquisition that have lead to an oligopoly of the top 20 leading shippers owning over 50% of the industry business. (Hoffman, 1998, p. 1)
The beginning of 1990s saw the formation of Alliances in the World lines. The progress so far has been 10 big groups controlling more than 65% of the volume transport. With a target of lowering the shipping rates, the millions of containers have been criss crossing the high seas from one port hub to the next with the world inflation also at their trail. It has been estimated that the biggest ship can transport more than 8.700 TEUs. The figure in Exhibit 1 below shows the trends of container ship mergers that were lead by motives of economies of scale. (Hoffman, 1998, p. 1)
Exhibit 1.Effects of demand for technology on the shipping rates



Adopted from Drewry Shipping Consultants, Post Panamax Containerships, London, 1996. Data for 2000 is an ECLAC forecast. (Hoffman, 1998, ...Show more

Summary

There are two major reasons why shipping companies have been merging or forming alliances. The first is to access the bigger market share that come with volume and efficiency. The second is to access reduced shipping rates due to ability to match the supply of ships to the volume demand that will eventually assure the liners of economies of scale…
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