Is Liner Shipping Supply Fixed?

Abstract

Liner shipping firms have long argued that the task of providing adequate service to shippers while earning reasonable rates of return on capital requires at least some form of limited antitrust immunity. Carriers contend that because scheduling requirements unique to liner shipping firms constrains their ability to adjust capacity to meet market conditions, liner shipping capacity is essentially fixed in the short term while demand is variable. And because individual firms have incentive to minimise unit costs by maximising capacity utilisation on every voyage, the threat of destructive price wars looms large. Consequently, carriers have advocated that governments leave them free to form collusive arrangements called conferences in which members are free to meet to discuss and fix prices. But how rigid is liner shipping capacity? Because of a lack of useable data on prices and capacity, this question has never been resolved empirically. But recently, new data have become available from public and industry sources that permit researchers to look more deeply into this issue. In this paper, those data are used to estimate a partial adjustment, distributed lag supply function for liner shipping services in US trade lanes. The results reveal that, on the major US import trade lanes, liner shipping supply curve exhibits more flexibility than the ‘stylised facts’ of the industry would suggest.