Ocean shipping deregulation restructures the liner shipping industry

Abstract

Significant pro-competitive changes were made to the Shipping Act by the Ocean Shipping Reform Act (OSRA). The most notable of these was the shift away from public tariffs and publicly available contract rates to confidential rates using individually negotiated service contracts. The number of individual member service contracts has risen dramatically since OSRA went into effect in 1999. These statistics support the argument that OSRA was able to bring more competition to the industry. However, the theory and empirical evidence of the Act’s success in improving the performance of the liner industry serving the Transatlantic and Transpacific trade routes, which are two major trunk roads subject to the jurisdiction of the US, are not so compelling. This article employs the theory of joint product to assess the impact of OSRA on the shipping market structure and competition of two major east–west arteries after 1999. This article considers head haul and backhaul container shipments as joint products. Two simple statistical equations are derived to reinterpret Smith’s condition of joint product. The empirical results confirm that the market structure of Transatlantic and Transpacific trade lanes are competitive.