Australia's international trade is of major importance as an engine of domestic economic growth. Sea transport is a means of facilitating this trade. The cargo liner component here, consisting mainly of scheduled containerised services, carries the major proportion of Australian exports and imports by value. This important transport sector is dominated by overseas liner firms, characteristically organised into collusive groupings (trade route cartels) known as conferences.
Cartelised operation on Australian liner shipping routes has been officially sanctioned by explicit exemption under the "overseas shipping provisions" of the Trade Practices Act 1974-77 and its immediate predecessors. Perceived inefficiencies and inequities voiced by Australian cargo interests (shipper/users) led to a recent Inquiry into this vexed industry policy, and in particular, into the efficacy of the
"watchdog" regulatory body concerned with its implementation, the Australian Shippers' Council. This official review, which found for a continuation of the status quo, was an inadequate analysis of this important policy area. This thesis attempts, as one major aim, to review this official inquiry and to throw light on any deficiencies of economic analysis that might be involved.
Furthermore, a less protective domestic trade policy stance is seen as increasingly imperative in the light of changing growth patterns and trade opportunities arising from the pace of development of neighbouring Pacific Basis economies. Contrary to this developing emphasis on trade integration, however, liner conferences' monopolistic pricing practices act to slow this process.
In addition, conflict of present Australian liner policy with U.S. Anti-Trust Statutes is currently souring U.S./Australian relations. Where U.S.
authorities see their commerce adversely affected by official Australian government support for (and participation in) liner conferences serving them, these authorities act to impose severe penalties unilaterally. U.S. action of this type could have severe economic and political repercussions. Since present Australian policy, implemented in uncritical support of cartelised liner shipping per se, exacerbates this conflict, a thorough review of any such cartel enfranchising initiatives is necessary.
Three frames of references were focussed on in the performance of this task:
(i) Given Australia's specific interests, are conference cartels necessary or desirable?
(ii) If not, what industry organisation might best replace them?
(iii) Provided change is appropriate, how might a transition to the desired policy state be effected?
The study initially examines the spectrum of theoretical
"justifications" commonly advanced in the literature to underwrite a policy advocacy of liner industry cartelisation. None of these theoretical underpinnings is able to substantiate any such position. The erroneous economic analysis underlying the advocacy of the official Grigor/Heaver inquiry is also made apparent. It follows from this analysis that Australian "bilateral monopoly" policy of regulating liner cartels with a countervailing shipper bargaining body is inappropriate. Indeed the conduct and performance of the cartelised liner trades (with or without such "regulation") is revealed as extremely wasteful and inimicable to the interests of Australian shippers, who are shown to bear the costs of cartel excesses in both the export and import trades.
In order to proceed with question (ii) it is necessary initially to deal with the plethora of impediments seen by conference proponents as invalidating
the possibility of a competitively structured liner industry arising. The analysis reveals that no legitimate economic impediment exists which could prevent competitively provided liner services.
The focus of the study then concentrated on answering question (iii) : whether, and in what circumstances, and under what policy specifications, might desirable competitive functioning be provided in the Australian liner trades? Specifically a policy of "competition for the market" rather than "competition in the market" is seen as appropriate. It is suggested that a bidding system of awarding carrying rights could be instrumental in bringing about competitive functioning within the line-haul ocean passage. However, this one-stage policy initiative is not the complete answer. To guarantee an unequivocal welfare gain, the analysis reveals that a two-stage contracting procedure is necessary. An
extension of the contract award system to the complementary stevedoring services sector is mandatory.
The arguments used here to advocate the initiation and maintenance of a competitive liner industry are supported by recent research arising from a new theoretical development. Applying potential competition pressures to force "competition for the market" as has been espoused in this thesis, is in full accord with engineering contestants to bid for "contestable markets". Thus Baumol's newly articulated "theory of structurally contestable markets" provides further underlying support for the optimality claims advanced in support of this policy.