Alliances and concentration: the economic consequences of market structure in the liner shipping industry

Arnold, Michael A.Over the last twenty years a wave of consolidation has swept through the oceanic liner shipping industry, leaving the industry dominated by a handful of large firms, almost all of whom are involved in one of four major strategic alliances. As liner shipping is the dominant form of international transportation this shift in market structure could have a substantial impact of the global trading system. There is surprisingly little attention paid to transportation issues in the extant trade literature and virtually no attention paid to liner shipping. To rectify this gap in the literature, I examine the economic consequences of these changes in the liner shipping sector's market structure. Using a simple model of international trade I show that, given the unique conditions in the liner shipping industry, strategic alliances have an ambiguous effect on trade volume, but that the conditions under which strategic alliances are beneficial to trade are a more plausible description of the industry. I then empirically examine the relationship between liner shipping alliances and trade flows, using a unique data set with a geographic and temporal coverage not available in previous works. The empirical results show that there are some signs that alliances may be utilizing market power but this evidence is not consistent enough to warrant significant regulatory action. A legal analysis of the history of liner shipping regulation supports this conclusion by casting doubt on the effectiveness of the current liner shipping regulatory structure. In short, despite somewhat mixed evidence, there are reasons to believe that liner shipping alliances are beneficial to trade and that regulatory responses are unlikely to be productive.University of Delaware, Department of EconomicsPh.D