I started to analyse why supply and demand of the ship never attains the equilibrium. Around 2008, the EU abolished liner conference in order to make freight rates a free market. But still they there was an underground work between shipping countries regarding freight rates. Around June 2013, Maersk , MSC & CMA CGM announced that it will enter into Vessel sharing agreement. This was shocking news for rest of the company. Because the top three companies in container industry trying to dominate the shipping the industry. Again they try to collapse the free market. But let for now we will keep the free market in freight rate aside.
In order to attain ultimate equilibrium, there should be some contribution from the supply side of the shipping industry also. Now let us analyse why does the there is a surplus supply in shipping Industry. Now major ship building nations are China, Korea, Japan & EU countries. Majority of these shipbuilding nations subsidize the shipping Industry. This is where the problem lies. Again restricting the free market. We will see what happens if there is no subsidization in market? The shipbuilders which cannot make operation cost will get washed over the period of time. In the period of time, there will be very few shipbuilding nations. Also there is the chance shipbuilding business can shift to transition economy due to the low cost advantage. Then the demand and supply will settle at optimum equilibrium. The surplus in ship will get reduced. When the shipping building nations stops subsidizing and if they restrict VSA and other form of alliances which controls the freight rate then there is a chance to become perfectly competitive market.
Deepak sekar 