The Ocean Shipping Reform Act: the trans-Atlantic cares

Abstract

For many years, economists have pressed for the deregulation of the shipping industry, with studies purporting to show constant returns to scale in motor transport, and staggering losses inflicted on the economy by regulation. Deregulation is now the order of the day in the US, but during the deregulation process, the Federal Maritime Commission (FMC) struggled with strong pressure to remove anti-trust immunity historically enjoyed by ocean shipping conferences. However, instead of entirely removing this anti-trust immunity, the US Congress passed the Ocean Shipping Reform Act (OSRA) in 1998. OSRA, which came into effect on 1 May 1999, represents a logical continuation of the trend toward deregulation established by the Shipping Act of 1984. Although the Act (OSRA) maintains anti-trust immunity, its creation also established confidential service contracts between shippers and individual lines. Because the actual effect of this Act has yet to be researched and reported in the transportation literatures, this paper assesses the impact of OSRA on the market structure of the container shipping industry. Three major east- and westbound arterial routes, as determined by Drewry Shipping Consultants and Containerisation International, are examined in this study to ascertain whether the markets are competitive or not 12. The trade imbalance existing in all three trade routes (trans-Atlantic, trans-Pacific, and from Asia to northern Europe) provides a basis from which to investigate the pricing structure in the container shipping market. The changing tariff structure of the trans-Atlantic lane in 1999 provides the foremost evidence of the impact of the Act to evaluate the new law's impact on the maritime industry. By examining the traffic volume and freight rates of inbound and outbound trades, this paper found that before the second quarter of 1999, the trans-Atlantic lane's market structure was non-competitive, but it became competitive after the third quarter of 1999. This paper concludes that OSRA did have substantial influence on the market structure of the trans-Atlantic lane since the Act came into effect on 1 May 1999. The Act laid a solid legal framework upon the industry that forced the carriers in the trans-Atlantic trade route to operate competitively.