2020, the year of COVID-19, will be remembered for years to
come by future generations. Production, trade, employment and economic activity
by and large, all saw significant and very worrisome declines; apart from one
industrial sector which, to the contrary, realized handsome profits:
Liner Shipping. This was made possible by the ‘withdrawal’ of shipping capacity
(20-30%) from the main trade lanes (something that has come to be known as ‘blank
sailings’), which allowed carriers to maintain tariffs at profitable levels,
assisted at the same time by low fuel prices.
The withdrawal of capacity from OQc to OQm, and the
consequent maintenance of tariffs at the higher level Pm, rather than Pc (above graph), does not only deprive shippers (and consumers) of a
substantial part of their consumer surplus/welfare (equal to PmPcGB) but,
for society too, it results in a substantial misallocation of resources equal
to QmQcEG (returning ships to their quasi-bankrupt beneficial owners or anchoring
them at a layup berth represent a cost and a waste).
In Industrial Economics, the distance AB is known as Lerner’s
Degree of Market Power. That is, the ability of the carrier to keep tariffs
above marginal costs and thus appropriate part of consumer surplus. In free
competition, this distance would be zero.
The above ramifications of blank sailings would not have been possible with a more pro-active and less lenient Regulator, especially in Europe.
The comments made above should not be taken as an attack to this most
useful of institutions in shipping -global shipping alliances- but only as a criticism
to the Regulator whose role is to ensure that the whatever privileges are rightfully afforded
to shipping (conference price-setting or alliance capacity coordination) are not abused
by inadmissible concerted business practices, even when such practices are deemed
necessary for the ‘survival’ of a sector crucial to our trade and prosperity.
HH
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