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A Critical Review of the Literature on Firm-Level Theories on Ship Investment
Open AccessFeature PaperArticle

“After End-2008 Structural Changes in Containership Market” and Their Impact on Industry’s Policy

1
Department of Maritime Studies, University of Piraeus, 18534 Piraeus, Greece
2
Shipping Division, Business College of Athens, 11528 Athens, Greece
Int. J. Financial Stud. 2018, 6(4), 90; https://doi.org/10.3390/ijfs6040090
Received: 20 September 2017 / Revised: 11 April 2018 / Accepted: 20 June 2018 / Published: 1 November 2018
(This article belongs to the Special Issue Alliances, Mergers and Acquisitions in the Shipping Sector)
The inability of carriers to forecast “demand for containerships” led them to order larger ships. Maritime economists were also unable to forecast it. The new-buildings cut cost per TEU, but “estimated economies of scale” are exhausted with ships beyond 21,000 TEUs, higher than the present. As average cost-AC was not at minimum, carriers did not produce at minimum efficient scale (MES). As larger ships are more competitive, smaller ships led to laid-up, and eventually scrapped. This strategy, however, did not bring the desirable balance between demand and supply. Due to falling demand, following the meltdown at the end of 2008, carriers priced their services at marginal cost-MC, and thus they accumulated losses. As a result, carriers resorted to frequent GRIs (freight rate increases). Supply exceeded demand and average distances fell after 2008. Containership market will remain depressed if economies of scale lead carriers to shipyards. Scrapping—the last hope—removed only 1/7 of the oversupply. Revenue, operating profits, and net profits, due to increased financial expenses, were lower than in the past. Aggressive ship-building programs could not be carried-out, because the depression meant that there are available only limited funds. The estimated funds required for new buildings were as high as $4 billion per carrier. So, the sector is in a vicious circle. The only helpful sign was the reduction in fuel prices after 2011 from $800/ton to $278 (2015). We also showed that ports and canals, through their traditional charging policy on size, penalized containerships for their efficiency—if volume discounts are not provided. Port dues and container handling and canal dues account for as much as 40% of the annualized containership cost. Finally, to study the relationship between concentration (market share) and revenue, operating profit and net profit, we ran three regressions; but only one gave a high correlation coefficient (0.97). This suggests that the containership market is purely competitive. We also showed that the Herfindahl index was 683 units (i.e., <1000) and Lerner’s index was 0.55—both indicating oligopolistic trends. Our model shows that containership market is either oligopolistic or purely competitive. This finding shows the double face of containership markets, which so much confused maritime economists. View Full-Text
Keywords: containerships market after end-2008; structural changes occurred, impact on industry’s policy; market structure; concentration; Herfindahl index; port dues and container handling and canal dues containerships market after end-2008; structural changes occurred, impact on industry’s policy; market structure; concentration; Herfindahl index; port dues and container handling and canal dues
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Goulielmos, A.M. “After End-2008 Structural Changes in Containership Market” and Their Impact on Industry’s Policy. Int. J. Financial Stud. 2018, 6, 90.

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