Pre-announcements of Price Increase Intentions in Liner Shipping Spot Markets

Gang Chen, Niels G. M. Rytter, Liping Jiang, Lars Jensen

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Carriers in liner shipping markets frequently make public announcements of general rate increase (GRI) intentions, based on which EU authorities have concerns as to whether this harms market competition. This paper aims to empirically investigate how well the GRI system works from an industrial competition perspective, which will indirectly indicate whether carriers are able to manipulate spot rates following GRI announcements. Taking the Far East–North Europe trade between 2009 and 2013 as an example, the paper first reveals the gradual increase of GRI frequency and size, which reflects carriers’ attempts to restore profitability against overcapacity. However, out of all the GRI events only 28.6% were observed to be successful. Since these GRI successes must be the results of either price collusion (if any) and/or normal rate change by carriers in response to fundamental market developments, the effective collusion, if it exists, is actually lower than 28.6%. Next, we identify eight factors influencing GRI successes. To further assess their impact, we applied an ordered logit regression analysis, which, based on four of the factors involved, yields good predictability for GRI success. The four factors, in sequence of explanation power, are the total capacity of GRI carriers, the idling fleet size, the spot rate level, and the average ship-loading factor. Clearly the latter three factors are market fundamentals, which are unlikely to be influenced by an individual carrier in the short term. In actual fact, the conclusion reached is that there is little evidence that carriers can manipulate and distort spot rates through GRIs
Original languageEnglish
JournalTransportation Research. Part A: Policy & Practice
Volume95
Pages (from-to)109-125
ISSN0965-8564
DOIs
Publication statusPublished - Jan 2017

Keywords

  • Collusion
  • Competition
  • GRI
  • Liner shipping
  • Ordered Logit model
  • Price pre-announcements

Cite this

@article{a2dee8b68aac429790c64baafc8f33d1,
title = "Pre-announcements of Price Increase Intentions in Liner Shipping Spot Markets",
abstract = "Carriers in liner shipping markets frequently make public announcements of general rate increase (GRI) intentions, based on which EU authorities have concerns as to whether this harms market competition. This paper aims to empirically investigate how well the GRI system works from an industrial competition perspective, which will indirectly indicate whether carriers are able to manipulate spot rates following GRI announcements. Taking the Far East–North Europe trade between 2009 and 2013 as an example, the paper first reveals the gradual increase of GRI frequency and size, which reflects carriers’ attempts to restore profitability against overcapacity. However, out of all the GRI events only 28.6{\%} were observed to be successful. Since these GRI successes must be the results of either price collusion (if any) and/or normal rate change by carriers in response to fundamental market developments, the effective collusion, if it exists, is actually lower than 28.6{\%}. Next, we identify eight factors influencing GRI successes. To further assess their impact, we applied an ordered logit regression analysis, which, based on four of the factors involved, yields good predictability for GRI success. The four factors, in sequence of explanation power, are the total capacity of GRI carriers, the idling fleet size, the spot rate level, and the average ship-loading factor. Clearly the latter three factors are market fundamentals, which are unlikely to be influenced by an individual carrier in the short term. In actual fact, the conclusion reached is that there is little evidence that carriers can manipulate and distort spot rates through GRIs",
keywords = "Collusion, Competition, GRI, Liner shipping, Ordered Logit model, Price pre-announcements, Collusion, Competition, GRI, Liner shipping, Ordered Logit model, Price pre-announcements",
author = "Gang Chen and Rytter, {Niels G. M.} and Liping Jiang and Lars Jensen",
year = "2017",
month = "1",
doi = "10.1016/j.tra.2016.11.004",
language = "English",
volume = "95",
pages = "109--125",
journal = "Transportation Research. Part A: Policy & Practice",
issn = "0965-8564",
publisher = "Pergamon Press",

}

Pre-announcements of Price Increase Intentions in Liner Shipping Spot Markets. / Chen, Gang; Rytter, Niels G. M.; Jiang, Liping; Jensen, Lars.

In: Transportation Research. Part A: Policy & Practice, Vol. 95, 01.2017, p. 109-125.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Pre-announcements of Price Increase Intentions in Liner Shipping Spot Markets

AU - Chen, Gang

AU - Rytter, Niels G. M.

AU - Jiang, Liping

AU - Jensen, Lars

PY - 2017/1

Y1 - 2017/1

N2 - Carriers in liner shipping markets frequently make public announcements of general rate increase (GRI) intentions, based on which EU authorities have concerns as to whether this harms market competition. This paper aims to empirically investigate how well the GRI system works from an industrial competition perspective, which will indirectly indicate whether carriers are able to manipulate spot rates following GRI announcements. Taking the Far East–North Europe trade between 2009 and 2013 as an example, the paper first reveals the gradual increase of GRI frequency and size, which reflects carriers’ attempts to restore profitability against overcapacity. However, out of all the GRI events only 28.6% were observed to be successful. Since these GRI successes must be the results of either price collusion (if any) and/or normal rate change by carriers in response to fundamental market developments, the effective collusion, if it exists, is actually lower than 28.6%. Next, we identify eight factors influencing GRI successes. To further assess their impact, we applied an ordered logit regression analysis, which, based on four of the factors involved, yields good predictability for GRI success. The four factors, in sequence of explanation power, are the total capacity of GRI carriers, the idling fleet size, the spot rate level, and the average ship-loading factor. Clearly the latter three factors are market fundamentals, which are unlikely to be influenced by an individual carrier in the short term. In actual fact, the conclusion reached is that there is little evidence that carriers can manipulate and distort spot rates through GRIs

AB - Carriers in liner shipping markets frequently make public announcements of general rate increase (GRI) intentions, based on which EU authorities have concerns as to whether this harms market competition. This paper aims to empirically investigate how well the GRI system works from an industrial competition perspective, which will indirectly indicate whether carriers are able to manipulate spot rates following GRI announcements. Taking the Far East–North Europe trade between 2009 and 2013 as an example, the paper first reveals the gradual increase of GRI frequency and size, which reflects carriers’ attempts to restore profitability against overcapacity. However, out of all the GRI events only 28.6% were observed to be successful. Since these GRI successes must be the results of either price collusion (if any) and/or normal rate change by carriers in response to fundamental market developments, the effective collusion, if it exists, is actually lower than 28.6%. Next, we identify eight factors influencing GRI successes. To further assess their impact, we applied an ordered logit regression analysis, which, based on four of the factors involved, yields good predictability for GRI success. The four factors, in sequence of explanation power, are the total capacity of GRI carriers, the idling fleet size, the spot rate level, and the average ship-loading factor. Clearly the latter three factors are market fundamentals, which are unlikely to be influenced by an individual carrier in the short term. In actual fact, the conclusion reached is that there is little evidence that carriers can manipulate and distort spot rates through GRIs

KW - Collusion

KW - Competition

KW - GRI

KW - Liner shipping

KW - Ordered Logit model

KW - Price pre-announcements

KW - Collusion

KW - Competition

KW - GRI

KW - Liner shipping

KW - Ordered Logit model

KW - Price pre-announcements

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954925581165&rft.object_portfolio_id=&svc.holdings=yes&svc.fulltext=yes

U2 - 10.1016/j.tra.2016.11.004

DO - 10.1016/j.tra.2016.11.004

M3 - Journal article

VL - 95

SP - 109

EP - 125

JO - Transportation Research. Part A: Policy & Practice

JF - Transportation Research. Part A: Policy & Practice

SN - 0965-8564

ER -