Question

Elaborate on the differences and similarities between the charter and the liner markets. What is "perfect competition" and how does it affect the levels of prevailing freight rates?

Answer 1

Liner market – It operates within a schedule and has a fixed port rotation with published dates of calls at the advertised ports.. A liner service generally fulfils the schedule unless in cases where a call at one of the ports has been unduly delayed due to natural or man-mad causes

Example : The UK/NWC continent container service of MSC which has a fixed weekly schedule calling the South African ports of Durban, Cape Town and Port Elizabeth and carrying cargo to the UK/NWC ports of Felixstowe, Antwerp, Hamburg, Le Havre and Rotterdam..

Liner shipping relates not just to containers, but also to other types of cargoes which have a regular and fixed routing/service like RoRo services, Bulk cargo services on a COA or long-term charter.

Charter market - It has no fixed routing or itinerary or schedule and is available at short notice (or fixture) to load any cargo from any port to any port.

Example : A ship that arrives at Durban from Korea to discharge cargo might carry some other cargo from Durban to the Oakland in the West Coast of USA which is in an entirely different direction.. From Oakland, it could carry some cargo to Bremerhaven..

One of the main differences between Liner and Tramp would be in the type of contract of carriage and Bill of Lading used.

Perfect Competition

Pure or perfect competition is a theoretical market structure in which the following criteria are met: all firms sell an identical product (the product is a "commodity" or "homogeneous"); all firms are price takers (they cannot influence the market price of their product); market share has no influence on price; buyers have complete or "perfect" information – in the past, present and future – about the product being sold and the prices charged by each firm; resources such a labor are perfectly mobile; and firms can enter or exit the market without cost.

The existing freight charges will become floating in a Perfect Competition