Do shipping alliances affect freight rates? Evidence from global satellite ship data

Abstract

Shipping alliances (SAs) can facilitate their members’ coordination on price and capacity decisions. Although this helps reduce the oversupply of capacity and cutthroat competition during market downturns, the possible freight rate increase due to potential collusion among member shipping lines is another concern. This study aims to empirically investigate the impacts of SAs on container freight rates on nine major shipping corridors for the period from 2015 to 2020. To measure market concentration, data from a satellite-based Automatic Information System (AIS) is used to identify liner shipping companies' services in each market. We propose to use the alliance-level Herfindahl-Hirschman Index (HHI) and Concentration Ratio Index (CR) to measure market concentration. Then we used the simulated market concentration measures as the instrumental variable to address the endogeneity issue between freight rates and alliances’ market share. The main finding is that both alliance-level HHI and CR are negatively associated with freight rates, implying that SAs may help reduce prices. This finding provides new insights for antitrust authorities when investigating alliance applications in the liner shipping sector.