FT p.24 sidenote "competition in the shipping industry":
The shipping industry tends to be cyclic in it's profitability. When demand is high and times are good, the high cost of entering the business ensures that new companies or ships are slow to enter and compete away profits. If demand and profits remain high for long enough, incumbants and new entrants alike may come to believe that this is more than a temporary blip and that demand has permanantly expanded. A larger market means that investment in more ships and port facilities is profitable and new lines may enter the route. Since each competitor wants to grab the new business for itself and SINCE EXPANSION MUST OFTEN BE DONE IN BIG CHUNKS OR NOT AT ALL(E.G. ALL FEEDER ROUTES AND PORT FACILITIES MUST BE EXPANDED TO BALENCE), it is easy to create overcapacity.
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It is the last part I find confusing. Why must expansion be done in big chunks or not at all? Why must all feeder routes and port facilities be expanded to balance?
One person I asked suggested that some markets require so much investment that it isn't worth doing unless one is going for a big stake. For instance China is too far from New England to go there for a load of rice-something like tea or spice is required, and trying for those markets require more investment than rice. Therefore if one is going for the China trade at all, one must put a lot of money into it.
However I am not sure that is the answer. I would like more explanation.
The shipping industry tends to be cyclic in it's profitability. When demand is high and times are good, the high cost of entering the business ensures that new companies or ships are slow to enter and compete away profits. If demand and profits remain high for long enough, incumbants and new entrants alike may come to believe that this is more than a temporary blip and that demand has permanantly expanded. A larger market means that investment in more ships and port facilities is profitable and new lines may enter the route. Since each competitor wants to grab the new business for itself and SINCE EXPANSION MUST OFTEN BE DONE IN BIG CHUNKS OR NOT AT ALL(E.G. ALL FEEDER ROUTES AND PORT FACILITIES MUST BE EXPANDED TO BALENCE), it is easy to create overcapacity.
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It is the last part I find confusing. Why must expansion be done in big chunks or not at all? Why must all feeder routes and port facilities be expanded to balance?
One person I asked suggested that some markets require so much investment that it isn't worth doing unless one is going for a big stake. For instance China is too far from New England to go there for a load of rice-something like tea or spice is required, and trying for those markets require more investment than rice. Therefore if one is going for the China trade at all, one must put a lot of money into it.
However I am not sure that is the answer. I would like more explanation.
