sentially it is this fixed schedule which sets the liner 
service apart from other shipping services not only 
in terms of the type of service provided, but also, in 
the traditional view, in terms of the fundamental 
economic nature of this segment of the industry. It 
is suggested that it is this unique economic char- 
acter of liner shipping which inevitably leads to the 
adoption of certain competitive practices that Pe 
time tend to destroy competition itself. In turn, 
has been this view which has led t ew which hase he sega 
of this segment of the shipping industry in the United 
States while other segments have been left largely 
unregulated. The philosophical underpinnings of this 
regulatory involvement are briefly outlined in the 
following paragraphs. 
Traditionally, the nonliner_shipping industry has 
been characterized by relatively high variable costs , 
compared to other _capital-intensive transportation. 
modes. That is to say, variable or operating costs 
have tended to be relatively more significant com- 
ponents of total cost than in other transport indus- 
tries, whereas fixed or capital costs tend to be rela- 
tively less significant components of total cost. The 
importance of this characteristic is that it tends to 
ensure the maintenance of a substantial degree of 
competition in this industry. The ease with which 
shipping assets may be shifted in pursuit of new 
trade opportunities and the comparatively low capital 
cost of establishing a new competitive service yield 
a natural environment for relatively free and non- 
destructive competition. 
In the provision of liner_services, however, ibe 
fixed cost/variabl 
operator is see EM suse Seale 
committed to providing regular common 1 carriage in 
compliance with a fixed schedule. Under these cir- 
cumstances committed vessels are no longer free, at 
least in the short run, to simply respond to the im- 
peratives of the marketplace. As a consequence, a 
far_lar. ively fixed for 
the peri liner service is 
offered. °° 
Relatively high fixed costs in the liner industry, in 
turn, present two major problems with respect to 
competition. First, it is suggested that entry into the 
industry or a particular trade is impeded by the large 
ee 
outset. Committing_vessels for an_exte eriod 
to a new service without assurance that the service 
will be remunerative is a major barrier to entry. 
Secondly, where competition in a particular trade 
exists, it is argued that it is likely to be extreme and 
ultimately destructive. Once large fixed-cost commit- 
#0 In recent years, this_high—fixed cost characteristic—of—iner 
ste oprecanlie £9 on Sp reaurenouneed Sade eee 
duct fcontainerization and other-capital-intensive intermodal 
catpoubanaineamrocedires: These new cargo handling systems. 
Oe unas ais Tae EN ee shoreside and 
see agoing equip ne TrEyiaean oe 
ments have been made, competing carriers are en- 
couraged_to_ try to attract cargoes away from one 
another—by_cutting prices, often to the low level of 
variable costs. With the commitment to serve a par- 
ticular trade already undertaken, it becomes natu- 
rally tempting to try to capture a little more cargo 
iS fill any unused capacity by ecucing Sales oes rates below 
ovidin < total costo providing the service, Wo Tong service, so long as 
will lead to serious rate wars and Tae if un- 
retained: to the destruction of competition itself. 
Next, it is suggested that because of the inherently 
C) Swans nature of competition in the liner trades, 
Meccan in the liner industry will privately seek 
ways to limit such competition. In response to this 
need,-the liner conferences emerged as private means 
of controlling predatory competition in the liner 
dadustry sn, sociation of all on someaeiat aay 
Ors in a particular trade, the liner conference 
ests TisTicoral Con monvratel sini Gi seattle 
| bers agree to follow in offering their services 19 the 
trade governed by the agreement. In this way a 
major dimension of competition i removed among 
parties to the agreement and each participant’s chance 
of survival in the trade is improved. Frequently these 
agreements have emerged after major price wars and 
| essentially constituted truce agreements among the 
\ survivors. 
The inherent problem with the conference agree- 
: ment is that while it provides participants in a na Bar 
ticular trade with-a-mefut means of protecting then em- 
selves from each other, the reduction 
~ sociated with the conference agreement itself may 
leave shippers and society no better off than if a 
single Sinm attained a monopoly position in the trade 
Essentially this was the policy dilemma whic n 
o emerge in the early 1900s in the United States. It 
as felt that to outlaw the conference system in the 
US while consistent with the prevailing U-S. 
antitrust _philosophy--wvould-uttimately-teadt-ta-te 
creased competition in ocean shippin er_than 
its protection _as_unrestrained predatory competitive 
practices proceeded to their inevita ion. 
On the other hand, the conference institution itself 
eliminated price competition altogether among its 
members and, uncontrolled, tended to adopt many 
of the socially objectionable practices of opo 
In the face of this growing dilemma, in 1912 the 
House Committee _on Merchant” Marine~and_Fish- 
eries initiated a major investigation—of-the_shipping 
conference system and its impact on-U.S.-trade_and 
the shipping industry.— 
After 2 years of study, the House completed its 
assessment of the conference issue and in 1914 re- 
leased its final report. In that study, known com- 
monly as the Alexander Report, the Merchant 
Marine and Fisheries Committee basically concluded 
SRS EbIe Soe oe the oe variable costs of h ing the € COV- 
aes Inevitably, it is argued, com is Sort 
V-18 
