Oil Tanker Economics: A Case of Oligopsony or of Perfect Competition?

Abstract

This chapter examines the economic structure and organization of the tanker industry, past, and present. It helps reader to understand the nature of the competition in the tanker industry. We therefore study: (a) the nature of the competition, (b) the structure of the industry, and (c) the practices adopted by oil companies as monopsonist in oil transport and as oligopolists in tanker ownership, and in the demand for tanker space. Many maritime economists believe that the supply of tankers operates under perfect competition. We may remember that ‘Pure competition’ means the complete absence of monopsony and monopoly or oligopoly and oligopsony, which means, therefore, that the tanker market is far from being purely competitive. According to economic theory, perfect competition implies perfect knowledge and frictionless capital mobility, neither of which is present in the tanker business either. Using Herfindahl index and the percent of world tonnage owned by the four biggest shipping companies, this paper shows that ownership is over-concentrated to be a competitive market. It is therefore concluded that the tanker market is monopsonistic.