To fill this gap, this study aims to analyze the relationship between market structure and market performance in the case of Busan Container Port. Market structure variables as explanatory variables include concentration of buyers and concentration of sellers. This study looks at the buyer-side market structure and economic performance simultaneously.
Many studies on the relationship between market structure and performance have only considered seller-side market structure and its effects on managerial performance.
Introduction
Background of the Study
Aims and Objectives
However, for now only a few studies have studied the market structure and market performance in the port sector and among those that are hardly considered as the buyer side of market characteristic. To fill this gap, the market structure in this study includes both seller and buyer sides. Generally, in the case of most commodities, the buyer includes all public and it is almost impossible to get the data from them.
In contrast, the buyer in the port sector can be defined as a certain group, which means that the port sector is an adoptable subject to observe the market structure of the buyer side.
Structure
As many classical economic theories pointed out, relative bargaining power of both supplier and demander is a decisive factor in price setting. And given that the criteria for excessive profit or rent is marginal cost, cost is also an important economic performance. However, many studies did not consider these financial performances and focused only on managerial performance.
To fill this gap, market performance in this study reflects both economic and managerial aspects.
Theoretical Background
- Structure-Conduct-Performance Framework
- Shipping Industry
- Industrial Conditions and Structure
- Strategies, Policies & Consequences
- Port Industry
- Industrial Conditions and Structure
- Inter-port Competition
- Intra-port Competition
- Researches on Busan Container Port’s Structure and Performance
Considering that market power implies the ability to set price (Bain, 1968; Koch, 1974), price appears to be a fundamental performance. The consequences of the increased market power of shipping companies must also be considered. Finally, by the point of 'change to interdependence', the industry had transformed from a guessing game oligopoly to a chain monopoly.
The unstable and unfavorable market structure is the main reason for the current problems of Busan port terminal operators.
Industrial Trend in Liner Shipping and Container Port
The Liner Shipping Industry
The main finding of the study is that market structure had a positive effect on market growth (total TEU) in Busan port and Shanghai port, but had a negative effect on market profitability (PCM, ROA and total TEU) in Shanghai port. As Figure 4 shows, two main routes (Trans-Pacific and Europe-Asia-Europe) contributed greatly to the growth of world container trade. After the financial crisis in 2008, the growth of container trade volume on the Europe-Asia-Europe route remains solid while trade on the Trans-Pacific route shows a strong upward trend.
These opposing trends indicate that concentration in the liner shipping sector has increased, putting pressure on route pressure. The concentration ratio of N companies, which is the summed market share of the N largest companies, shows an increasing degree of concentration in liner shipping. Considering that CR8 and CR10 are also up 20%, it can be concluded that the growth in market share of the four largest companies is overwhelming.
As various scientific overviews in Chapter 2 show, the liner shipping sector has turned into an oligopoly. In short, three mega alliances are responsible for the dominant part of the entire liner shipping sector. The arrival of megaships has led to an increase in the degree of concentration of the global liner shipping industry.
However, the overdevelopment of shipping capacity is proving to be the root cause of the current recession facing the shipping industry. Even with the increase in the volume of global container trade, supply has caught up with demand (figure 6).
The Container Port Industry
Although global container port traffic has grown, competition between ports has become fiercer due to the rapid growth of several ports and new entrants who are later exposed as super rookies. In 2016, nine of the ten largest ports are Asian ports, seven of which are in China. This trend reflects that the growth of Asian ports is based on the huge volume of traffic from the hinterland markets.
Larger ships tend to call at fewer ports with lower frequency, causing an imbalance in port operating hours. Much more time is spent entering berths or gates, loading or unloading and handling. Shipping companies have demanded greater productivity from operators or moved to more efficient terminals to reduce time and improve their services.
Port Productivity Index, as shown in Table 10, indicates that productivity in global major ports has improved as a result of efforts to introduce automation equipment and expand port facilities. In order to become one of the smaller ports of call for larger shipping companies or ships, many ports introduced incentives. By expanding coverage through strategic alliances, global liners can afford to introduce direct services.
This was the main cause of the increase in competition between ports, as described in Chapter 2.
Container Terminals in Busan Port
- Inter-port Competition Among Asian Ports
- Increasing Intra-port competition
- Balance of Demand and Supply
- Characteristics of the buyer group
As Table 10 indicates, the results of shift effect among twelve Northeast Asian ports revealed that traffic from Busan port shifted to Chinese ports during 1986-2006 (Kim and Kwak, 2008). In particular, 6 million TEUs were moved to competing ports between 2002 and 2006, which means that Busan Port's competitive position has weakened. Another research that considered twenty-one ports in the East Asian region found that the Busan port lost the competitive position during 2003-2012 (Lee and Kwon, 2014).
A large amount of traffic, which was once transported through Busan Port, no longer passes through Busan Port. As a result of the analysis of the shift effects after 2012 on Northeast Asian ports, which were among the world's top 20 ports in 2016, Busan Port recovered part of its traffic (table 12). Busan port container terminal operators compete unfavorably in the oligopoly market of homogeneous products.
Compared to other Asian ports, more terminals with smaller size compete in Busan Port. The status of supply and demand in Busan Port is generally above 100, indicating that supply is relatively scarce. Overall, Busan Port appears to be in a favorable growth trend, but there is fierce competition at the detailed level.
During the analysis period, it can be inferred that some foreign shipping companies have become major customers of Busan Port. Busan Port container terminal users consist of a small number of large shipping companies and many small and medium shipping companies.
Empirical Analysis
- Research Design
- Market Structure
- Market Performance
- Methodology and Data
- Market Structure Data
- Market Performance Data
- Regression Analysis
- Results of Trend Analysis
- Results of Regression Analysis
The HHI is the sum of the squares of the market share of each market participant, which means that the market concentration is greater when the result is a larger value. There are four market participants in market 2 and 3 respectively, while one company in market 3 dominates more than half of the market share. Comparing the two markets, the HHI for market 3 is higher than for market 2 as a result of the greater difference in market shares among market participants.
Therefore, this implies the need for measures to prevent distortion of the market order due to excessive competition. This is the result of the rapid expansion of the size of the top companies, and the degree of imbalance has intensified. Regression analysis is one of the most commonly used methods to investigate the relationship between an independent and dependent variable.
Through regression analysis, the influence of the independent variable on the dependent variable can be measured. Unit sales are very similar to seller concentration and tend to be opposite to buyer concentration. It can be assumed that unit sales are highly correlated with the degree of vendor concentration.
The result of the regression analysis reveals a positive (+) significant relationship between vendor concentration and unit sales at the significant level of 0.1%. In short, price tends to rise as seller concentration increases, while it falls as buyer concentration increases. It is assumed that the structural changes of the seller's concentration rate have been faster compared to the structural changes of the buyer's concentration.
Second, the relationship between market structure and unit costs was analyzed, as shown in Table 24.
Conclusions
Summary
In terms of operating margin ratio and price-cost margin, both market structure variables were found to positively (+) affect the market performance variables. To improve the operating margin ration or the price-cost margin, a company must set the higher price or cut costs. Considering that the previous result on the two market performance variables, it is verified that a higher concentration of sellers tends to give a higher price and a higher concentration of buyers tends to bring lower costs.
In short, the market structure on the seller's side proved to be significantly affected by the market performance, including sales per unit, operating margin ratio and price-cost margin. And the market structure on the buyer side turned out to be significantly influenced by the costs per
Implications
Further Research
A more comprehensive study with long-term actual data could be an extension of this study. This study used market concentration as a market structure variable and price as a market performance variable. However, in this paper, market behavior factors were not used for empirical analysis due to its difficulty to measure or express by certain indicators.
Even if this study means considering the relationship between market structure and market performance, market behavior is a very important and interesting topic. A Study on the Effect of Market Structure on Market Performance in Korean Container Port, Master's Thesis, Busan: Korea Maritime and Ocean University. Korea Maritime Institute, 2008, A Study on Policy Measures for Establishing Competitive Order in the Container Port Industry, Seoul: Korea Maritime Institute.
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