The trend towards fewer carriers is not a severe threat to competition. Despite prolonged low margins, ship owners have continued to (over)invest in new ships in order to facilitate international trade, all the while giving customers sufficient choice.
This was the conclusion reached by maritime analyst, Drewry, in response to a question over whether there was sufficient competition in the container sector as carriers continued to withdraw their vessels from unprofitable routes.
This question was highlighted in a recent report by the United Nations Conference on Trade and Development (Unctad) which pointed to risks to competition in the container sector as more carriers were withdrawing from unprofitable routes.
The Unctad report,‘Review of Maritime Transport 2015’, identifies the growing control of vessel capacity among the leading container lines and goes on to suggest that the search for economies of scale through the introduction of bigger ships explains why there are fewer carriers in individual markets.
According to Unctad’s research there is now an average of 15.7 carriers providing services to each country’s ports, down from 22.1 in 2004. Unctad identified 32 countries (mostly small island states) with fewer than four carriers calling at their ports – up from 22 back in 2004.
“The average vessel size per country will continue to grow and so we expect there will be fewer companies in individual markets, and this is an increasing challenge for the smallest players,” Jan Hoffmann, head of trade facilitation at Unctad, said.
In its latest Container Insight report, Drewry pointed out that while it agreed with the basic premise that, in general, countries would be served by fewer carriers in the future, it disagreed with the drivers of this trend as proposed by the Unctad report.
“The rise of the mega-ships does not explain why smaller countries such as Samoa or Iceland are less well served as these ships were never intended to call at these more remote outposts. They simply lack sufficient volumes to attract more than a handful of lines,” said Drewry. And, it added, several carriers were now considering entering the African trades, as volumes increased and as the number of competitors decreased.
The maritime analyst contends that the move towards big ships has certainly reduced the number of vessel operators in the major deep-sea trades, but the industry nonetheless remains extremely competitive, which has contributed to the downward trend in freight rates
“The biggest risk to competition within the industry in our opinion comes from the sustained low freight rates that produce extremely thin profit margins and are forcing some carriers to cut their cloth accordingly. Some carriers no longer want to be global carriers,” said Drewry.
