Alternative approaches to measuring concentration in liner shipping

Abstract

Shipping has always had a special relationship with competition law and economics. Even if special competition law regimes for the shipping industry continue to exist, most countries nowadays accept the notion that shipping markets should be more competitive. Competition authorities monitor this in a more or less regular fashion, with various market concentration indexes. The liner shipping industry is peculiar in its widespread cooperation schemes between carriers, in the form of vessel sharing agreements, also known as consortia. Carriers engage in cooperation with all of their major competitors in a system of consortia that is highly interlinked. This brings considerable risks of abuse of market power. Yet, the system of inter-linked consortia has never been systematically mapped, nor do competition authorities appear to monitor them. This article addresses this gap, by proposing alternative indicators, in addition to the traditional industry concentration indexes such as the Herfindahl–Hirschman Index (HHI), that take the reality of consortia into account. Here, five possible alternative indicators are considered: the market share of consortia and independent operators; the share of consortia exceeding market share thresholds; the industry market concentration of consortia; a modified HHI that takes consortia into account; and interlinkages between consortia. We analyse the current state of concentration of liner shipping on the basis of these indicators using a new and unique database that contains deployed ship capacity of container carriers on all of their liner services. Based on this dataset we provide an overview of differences in industry concentration across world regions and developments over time. Traditional indicators show an increase in industry concentration. For example, over the trade corridors to and from Northern Europe, the HHI scores in 2006 ranged from 604 to 2463, and from 1164 to 4882 in 2021. The alternative criteria show additional industry concentration. We show that in 2021, 704 out of more than 1500 agreements among carrier consortia had a combined market share of at least 30%, and 102 of them had a combined market share of at least 50%. We also observe that in 2021, the carriers active in alliances operated 85% of the consortia capacity. Although carriers that are in the same alliance operate most of these consortia, it is also noteworthy that carriers that are not in the same alliance operate a considerable part (24%) of the consortia. Our calculations of modified Herfindahl–Hirschman Index (MHHI)indexes that take consortia into account show that industry concentration is higher when consortia are taken into account: for example on the trade corridor Northern Europe-North America East Coast, the MHHI has reached the threshold of 2500 points, despite an HHI score of around 1500. In the conclusion of the article, we put forward ways in which these alternative indicators could be used by competition authorities.

An investigation into the forces shaping the evolution of global shipping alliances

“…The relationship between shipping alliances and market concentration is a hot issue, and research shows that the creation of an alliance results in higher industry concentration (Sys 2009;Hirata 2017;Merk and Teodoro 2022;Matsuda, Hirata, and Kawasaki 2021). In our case, whereby HHI is calculated by treating alliances as a single firm, a higher concentration is in a way self-evident by the reduction in the number of companies.…”

Maritime Data Collection Framework for Container Port Benchmarking

“…14 Data on ship operators were obtained from vesseltracking.net and linked to ship MarineTraffic data using IMO Ship Identification Numbers. 15 Merk and Teodoro [64] performed an alternative analysis including a form of co-operation (consortia), which, however, has much less meaning in the current shipping setting, and which we therefore discard. 16 Note: both axes in the scatterplot are on the logarithmic scale.…”

Performance of Maritime Logistics

“…Consortia can be considered as vehicles for what has been referred to in the competition literature as "common ownership", applied to container shipping. be thus be seen as joint ventures of two or more container carriers that pool ships to provide a jointly operated shipping service (Merk and Teodoro, 2022).…”

“…In order to measure market concentration in the presence of common ownership, Bresnahan and Salop (1986) developed a so-called modified Herfindahl-Hirschman Index (MHHI) to take account such crosscompany ownership in competing companies. O' Brien and Salop (2000) generalised this modification, while Merk and Teodoro (2022) applied the MHHI to container shipping. Their analysis shows the increased relevance of consortia when determining industry market concentration of liner shipping.…”

“…As it happens, consortia with market shares above 30% operate on all 20 trade corridors to and from Europe (Merk, 2021). On many of these trade corridors, consortia with market shares over 30% have been common for a long time: they started to emerge in the 2010s, well before the prolongations of the CBER were decided in 2014 and 2020 (Merk and Teodoro, 2022). The European Commission itself considers that the CBER no longer applies to two of the three global alliances (EC, 2019).…”