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Increased consolidation among carriers driven by a continued oversupply of vessels could bring some order to the market, however, the recent mergers and mega alliances may lead to oligopolistic structures, UNCTAD warned in its latest report on maritime transport.

“A slower demand than earlier projected, coupled with a large influx of vessels, has led to a continued oversupply of shipping capacity,” said UNCTAD Secretary-General Mukhisa Kituyi.

The consolidation and pooling of cargo could improve economies of scale and reduce operating costs, UNCTAD said, stressing that the transition is posing certain risks.
Namely, shipping lines may exert market power, limit supply and raise prices in the long run and once the industry reaches stability. Furthermore, the growing concentration of the market has increased the risk that fair competition may become distorted which might impact freight rates and shippers.

“The risk is that growing market concentration in container shipping may lead to oligopolistic structures,” says Shamika N. Sirimanne, Director of the UNCTAD Division on Technology and Logistics. “In many developing countries’ markets, there are now only three or even fewer suppliers left. Regulators will need to monitor developments in container shipping mergers and alliances to ensure there is competition in the market.”

It has been pointed out that, as a result, revisiting the rules governing consortiums and alliances may be necessary to determine whether these require new regulations to prevent market power abuse and to balance the interests of shippers, ports and carriers.

The report further indicates that world container ports face mounting pressure from ever-larger ships. In addition, they must cope with the cascade of vessels from main trade routes to secondary routes, as well as growing cybersecurity threats.

“Although investment is key for ports to improve, the amount needed to accommodate ever larger ships may not be worth the extra cost, unless the bigger vessels guarantee more cargo. Otherwise, ports will have invested in larger yards and additional equipment to handle the same total volume,” the report adds.

Between 2000 and 2016, a total of USD 68.8 billion in private investment was committed across 292 port projects aimed at improving port infrastructure and superstructures.

What is more, the Review of Maritime Transport 2017 says that, on average, transport and insurance costs account for about 15% of the value of imports, but that this is much higher for smaller and more vulnerable economies; on average 22% for small island developing states, 21% for the least developed countries and 19% for landlocked developing countries.

The persistent transport cost burden on many developing countries stems from lower efficiency in ports, inadequate infrastructure, limited economies of scale and less competitive transport markets, UNCTAD noted.

“Helping developing countries improve the factors behind high transport costs is therefore key for economic development. This can be done through soft measures, such as providing training and facilitating reforms, or hard measures, such as upgrading infrastructure and improving equipment,” the report concludes.

Source: worldmaritimenews.com