The market structure is the competitive
landscape of a market as characterised by the number of buyers, number of
sellers, level of control on information, uniqueness of services, government
interference and ease of entry and exit (Tiecke, 2011). The main types of
market structures are perfect competition, monopoly, oligopoly and monopolistic
competition. The extreme ends in these types of market structure are perfect
competition and monopoly. Perfect competition is characterised by numerous
sellers and buyers and market forces of demand and supply are solely
responsible for determining the price of commodities (Cowling and Waterson,
2003). However, in monopolies, the supplier is able to wield immense power in
determining price. These and other elements of market structure have been used
in this paper in comparing the market structures for crude oil tanker shipping
and container liner shipping sectors.
Crude oil tankers transport unrefined
oil from extraction points to refinery points. They are ideal for bulk
transportation for liquid cargo. The market structure applicable to this sector
is perfect competition (Lun, et al., 2013). In perfect competition, the market
players wield no power to influence pricing and the forces of supply and demand
play an important role. Provision of identical products and services reduces
competitive edge for individual industry players hence further reducing their
influence on pricing. The other characteristic of perfect competition
structures is the availability of information (Mackenrodt, Gallego and
Enchelmaier, 2008). Information is readily available in perfect competition as
opposed to restricted access to information in monopolies and oligopolies. The
entry and exit barriers should also be relatively low. An analysis of the
tanker market done below confirms that it is a perfect competition.
The ship owners that use tankers provide
identical services when they take crude oil and deliver it to refinery points. The
carriers are the sellers while the shippers are the buyers. The two groups
collectively determine price and capacity. Since the 1990s, demand for shipping
services have more than doubled hence significantly increasing the prices of
shipment (Lun et al, 2013). The information about prices that are charged for
freight services is readily available. The customers can directly contact the
shippers and make their budgetary provisions with certainty. This reduces the
role of brokers and other intermediaries and customers are therefore able to
evaluate the competitiveness of the offers made without inhibition. The cost of
acquiring a ship is very high. However, it is not difficult as there is a
vibrant market for ship building and resale of second hand ships. Besides, the
cost of exit is lowered by the ease of disposal of the ships (Yeongsok, Keunjon
and Jungsoo, 2012). These characteristics affirm the fact that this sector can
be categorised as a perfect competition.
The entry and exit barriers are directly
related to the existence of other related markets within the industry. There
are four markets in the industry which can be categorised into real and
auxiliary markets. Real markets directly impact the existence of the industry
and it includes new ship building and the scrapping market (Hennig et al.,
2011). The new ship building market has the ship builders as the sellers with
industry players as the buyers. The scrapping market on the other hand is
concerned with the disposal of used ships. It lowers the cost of exit as well
as providing an avenue through which carriers can responsibly dispose of old
ships. The auxiliary markets on the other hand include second-hand markets
where the current industry players sell their used ships in order to invest in
purchasing new ones.
The status of the sector as a perfect
competition is however under threat. The prospect of major oil companies taking
control of the distribution process while there has been a trend to consolidate
shipping services (Global Overview: India Bulk Shipping, 2012). The predicted
emergence of giant industry players that can control significant market shares
could threaten the existence of perfect competition in the sector.
The liner shipping industry is part of
the ocean shipping sector that specialises in providing scheduled cargo
transport services and the ships operate on specified fixed routes (Gao and
Yoshida, 2013). There are numerous players in this industry. However, the
largest four players control over 40% of the market. This means that the
largest players can collude to influence freight charges quite effectively. The
schedule for the market shares is as contained in the figures shown below:
The liner shipping industry can be categorised under the oligopoly market structure. Under this kind of market structure, a few players in the market have a very high market share. They are therefore able to work together to impose prices on the market. Focus of players in markets with such a market structure is on consolidation and formation of strategic alliances in order to increase their market share in the market (Sys, 2009; Yeong-seok, 2013). The consolidation also gives them an advantage in controlling the distribution and marketing competencies. As competition intensifies, the dominant market players engage in acquisition of other smaller players in order to boost their market share.
The buyers in oligopolistic markets tend
to have low bargaining power with the dominant sellers exerting their
influence. The buyers are shippers who need their goods shipped to various
locations. These are often numerous and small scale (Kjeldsen, 2009). There are
also a significant number of large exporters such as large corporations. These
tend to use their ability to transact in large volumes to bargain for more
favourable prices while also binding the liner shipping industry players into
long term contracts.
The other element of oligopolistic
market is reduced threat of entry. While the barriers to entry may not be
imposed by law as is the case with monopolies, the presence of large industry
players increases this threat (Grama, 2012). Such dominant players tend to have
large market shares which they actively shield through marketing and other
business strategies. There is also the question of cost. New entrants need a
huge capital outlay that may be difficult to afford. Besides, there may also be
issues with acquiring expert employees who are capable of running an
organisation in the industry. The larger players are on the other hand keen to
actualise in cost leadership and this makes it difficult for entrants to
survive in view of the fact that they may need to price highly to recoup their
initial investments.
Oligopolies can be further categorised
into 2: symmetric and asymmetric. Symmetric oligopolies are characterised by
dominant market players having an almost identical market share while
asymmetric ones are characterised by one player being dominant (Tiecke, 2011).
This market is symmetric. Oligopolies can also be characterised by the nature
of collusion that is common among the members. Collusion can either be formal
or informal. Formal collusions take place through conferences convened at the
industry level where standard charges and operational practices are agreed upon
(Tiecke, 2011). This is quite among the industry players (Shintani, Konings and
Imai, 2012). Tacit collusion on the other hand includes agreements geared at
making operations more efficient. These are also quite common and are often at
the centre stage of moves to drive consolidation within the industry.
The crude oil tanker shipping and the
container liner shipping are different in view of the fact that they can be
categorised under perfect competition and oligopoly respectively. The
categorisation of these market structures can be summarised in the table below
alongside the main elements that characterise market structures.
Crude
Oil Tanker Shipping Versus Container Liner Shipping
|
||
Factors
|
Crude
Oil Tanker Shipping
|
Container
Liner Shipping
|
Overall market structure
|
- Perfect competition
|
- Oligopoly
|
Dominance of main players
|
- Main players do not have a
controlling share of the market
|
- The first five players control over
40% of the market
|
Information control
|
- Information is freely accessible
- Main shippers can easily contact
carriers without intermediaries
|
- Due to diversity of rules and
procedures for different cargo, information is not easily mastered by
customers
- Logistics companies play an
important role in linking the customers to the carriers
|
Buyer power
|
- Customers are many with little power
to impose prices. They however have moderate power due to the presence of
large shippers who could take control of their distribution functions
|
- Customers are numerous. They are
likewise not in a position to impose prices. However, they are sensitive to
price and service quality and can shift shippers from time to time
|
Threat of entry and exit
|
- Ease of entry is high. Even though
capital outlay required is high, the market is fragmented and customers can
easily be captured
|
- Ease of entry is low. The capital outlay is high. Dominant
players erect barriers that are difficult to overcome.
|
From the presentation above, the crude
oil tanker shipping is a perfect competition while the container liner shipping
is an oligopoly. Future trends are likely to see crude oil tanker shipping lose
its perfect monopoly status as players begin to seek consolidation. The
container liner shipping is on the other hand likely to become an even tighter
oligopoly.
The question of sustainability is one
that is often in conflict with the profitability goals of the organisation.
With a world economy that has just emerged from a recession, the costs of
operation have become the centre of focus for players in the global shipping
industry. Grama (2012) explains how the global recession has had on the liner
shipping industry starting with an evaluation of the impact it has on freight
charges and the profitability of the organisations. This article places the
question of costs at the centre of the considerations made by the organisation.
It reiterates the position of Dinwoodie (2012) which is that industry players
only consider the question of sustainability after profitability and the need
to cut costs. This is also the view taken by Wang (2010) whose article
highlight the cost of reduction of Greenhouse gas emissions.
Wang (2010) discusses the cost of
sustainability and the tools embraced by the governments and industry players
to help in reducing the level of carbon emissions. Among the tools mentioned
are Emission Levy, Energy Efficiency Operational Index, and Emission Trading
System (ETS). He points out that these tools increase the cost of conservation
and observes the fact that by the time the industry is able to cut down
emissions by 25%, the efforts will not be economically sustainable (Wang,
2010). Tzannatos (2010) on the other
hand adopts a balanced view where he analyses the costs and benefits of cutting
carbon emissions. He emphasises the need for players in the industry to embrace
measures to reduce carbon emissions holding that the industry is among the
major contributors to environmental degradation. He draws reference from
international convention for the reduction of pollution by ships and cites the
fact that sustainability is imperative if the industry is to play its part in
conserving the environment. Citing Greece as an example, Tzannatos (2010)
emphasises the fact that conservation is imperative as it is the only way
through which quality of life can be assured for the 98% of the population that
lives within 100km distance from the water bodies.
Fuel consumption is among the
considerations made by Dinwoodie (2012). He observes the fact that conservation
and cost cutting goals can be achieved concurrently as ships can reduce fuel
consumption by regulating the speed of the ships while in transit. While
acknowledging its importance, Dinwoodie appreciates the fact that conservation
is not the main consideration made by industry practitioners and that they tend
to adopt it as one of the minor strategies. On the opposite side of the
argument, Tsioumani (2008) showcases the grave importance of the sustainability
agenda by explaining the initiatives taken to push for conservation at the
global level. This importance is reiterated by Nast (2013) who acknowledges
that global climate change is a threatening phenomenon that needs to be tackled
by all players including the shipping industry. He proposes a raft of solutions
which include enhanced controls on emissions and improved engine manufacturing technology.
In conclusion, it is clear that there
are mixed views on the prioritisation of the conservation agenda. This implies
that the challenge of conservation could be related to lack of interest in the
industry. The research issue is therefore to diagnose the level of interest in
conservation and measures that can be taken to improve it.
The research question should be: how can
the level of interest in conservation be improved within the shipping industry?
An analysis of the issue above indicates that the shipping industry players
tend to ignore the need for conservation and only engage in it as a means to
cut costs. This attitude could hamper efforts to achieve greater conservation
as there may be times when meaningful conservation calls for the industry
players to be willing to sacrifice some of their profits for the good of the
society. Relegating conservation to a rank behind saving costs and saving fuel
means that it can always be foregone when the higher priorities are not
achieved.
The objective would be to establish
measures that can be taken to improve the levels of interest in conservation.
It is important to appreciate that there are many legal provisions and laws
that compel organisations to be responsible in their operations to conserve the
environment. However, the law only stipulates the minimum measures realisable.
Generating high levels of interest in conservation is likely to lead to
creative solutions being generated that would ensure that carbon emissions are
maintained at their minimum. It will also explore the perceptions of shippers
on what more needs to be done by government and other agencies in facilitating
conservation.
On the use of CILT to acquire materials for
study, the main ethical issue is on refraining from distributing the material
downloaded illegally. Access to the materials is restricted for use by the
authorised users of the site. Unauthorised distribution would not only be
illegal but also unethical. The administrators of the site expect to be the
ones to distribute the material where they can dictate when certain materials
could be accessed. More importantly, the site is restricted to subscribers. It
is important that access to the materials is obtained through the authorised
subscription method. While it may be possible to use software and applications
that can override the subscription process, these alternative approaches are
unethical. Only access granted by the administrators of the site can be
considered legal and ethical. In the subscription process, it is also expected
that information provided is accurate. This aspect is important as it could be
used by the organisation to develop a profile of its users. The other important
consideration is the need to acknowledge the source accordingly. Failure to do
so would be unethical and would amount to plagiarism and this would be
unethical.
In seeking to demystify the attitudes
towards conservation, it is important to appreciate the fact that business
organisations exist primarily for purposes of making profits and creating
wealth for the shareholders (Wang, 2010). It is also important to note that
businesses are in competition with each other for customers, employees and
investors. This means that the organisation that has a higher profitability is
likely to remain competitive due to its ability to attract talented employees
and investors. In many cases, conservation comes as a cost. For instance,
trading in carbon credits is a direct cost. The benefits are on the other hand
not obvious as they benefit the entire society almost equally. It is even more
difficult where it emerges that only few are willing to make the sacrifice
while their efforts to conserve the environment are reversed by players who may
not have much regard for the environment (Tzannatos, 2010). These
considerations lead to the need for business to transform the conservation
agenda into a source of advantage for the organisation.
The agenda to reduce the level of carbon
emissions ought to motivate the organisations to review their approaches to
operations very significantly. Even though it may be desirable that the
organisation is willing to forfeit some of its profits to advance the
conservation agenda, this sacrifice may not always be necessary (Nast, 2013).
The organisation may only need to be proactive in managing its operation
approaches and also seek for technological solutions. One of the ways that have
been proposed in efforts to reduce emissions is through the adoption of
appropriate technologies. Making use of better engine combustion systems can
greatly enhance the efficiency of fuel consumption. Other measures could
include consolidation of vessel business to ensure that shipments are large and
that smaller ships that make numerous unnecessary trips are removed from the
seas.
There is also need to link conservation
efforts to customer perceptions. Customers are believed to strongly value
conservation especially in light of the emerging threat to global climate
(Nast, 2013). They are therefore likely to perceive organisations that are keen
to conserve the environment very positively. Where this is undertaken as a
supply chain, the organisations within the supply chain can claim to be part of
an initiative and use the synergy to be more appealing to the market. Objective
measures could also be established by independent bodies to rank organisations
according to their level of achievement in conserving the environment. The
market can then be sensitized to purchase more from the organisations under the
group.
The conceptual framework for the
research can therefore be summarised as in the table below:
Independent
variables
|
Dependent
variable
|
Overall reduction of cost
|
Effective contribution to the
reduction of carbon emissions
|
Improvement of technology and
equipment quality
|
|
Generation of good brand image as
green company
|
|
Greater cooperation along the supply
chain
|
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