Decision-making in container shipping: reactive or proactive?
monopoly profit is a quite life” used to tell me Sir John Hicks many years
ago when, as a student, I was writing my thesis -The Dynamic Stability of
Competitive Equilibrium- based on his book Value and Capital.
In our present
research, Mike and I have tried to say something similar, albeit with different
words: In imperfect markets (collusion, concentration, etc.), mistakes do not
cost that much, and they can be easily corrected. Here, carrier short-run capacity
deployment decisions could be described as ‘reactive’, or as ‘steady as she
goes’. In other words, carriers’ approach is fairly mechanistic: ‘let’s see what we did in the previous years,
or what our competitors our doing, and do the same’. Expectations regarding
future developments in their markets do not matter so much and, in a way,
decisions are made reactively, like someone who tries to drive a car forward by
looking in their rear view mirror. This is the essence of adaptive
On the contrary,
competition obliges you to stand on your toes; to sit on the edge of your
chair; to bite your nails; to look around and ahead and try to fathom every
scrap of information coming your way which could impact your bottom line. Here,
mistakes cost; sometimes they cost a lot, as the bankruptcy of Hanjin Shipping has
taught us. Such a decision-making approach reflects the fundamentals of rational expectations.
Mike and I
therefore thought that if, through the use of shipping capacity deployment data,
we could discover how shipowners form their expectations on future developments
in their markets, i.e. adaptively or rationally, we should also be able to say
something about the structure of their industry (imperfect or competitive).
Such information, particularly today when the European Commission is
considering extending for another five years its antitrust concessions to
international shipping, might be of a certain value.
results are not as strong as we would like them to be, but this is a good thing
and a good starting point for other researchers who would like to follow us.
Wehowever have been able to show that,
in the more competitive Pacific market, carriers may tend to decide rationally;
in the Atlantic market, instead, this could not be established and carriers
there seem to be reactive rather than proactive, forming their expectations
If true, the
latter finding (Atlantic) comes only to validate, for one more time, what we
said 15 years ago in our Erasmus Report:
“the disbanding of liner conferences from European trades has done little to
increase competition in liner shipping”.
 J.R. Hicks (1939) Value and Capital:
An inquiry into some fundamental principles of economic theory. Oxford:
Clarendon Press, 1939.
 See Milton Friedman (1968). The Role of
Monetary Policy. American Economic Review, 58 (1): 1–17.
 See John A. Muth (1961). Rational
Expectations and the Theory of Price Movements. Econometrica 29 (6):
315–335, and Thomas Sargent (1986) Rational Expectations and Inflation.
New York: Harper and Row, 1986.
 The Erasmus Report: Global Logistics and
the Future of Liner Shipping Conferences. DOI: 10.13140/RG.2.1.3225.3200
(Report prepared for the European Commission’s Competition Directorate General
“for assistance in processing public submissions to be received in response to
the “consultation paper” on the review of Council regulation 4056/86)”.