Impact Analysis of Entry Barriers upon the Coastal Freight Service (in Japanese)

The coastal freight service sector in Japan had been protected by voluntary capacity regulation since the end of the World War II. Under the old capacity regulation scheme, permission to install new freighters was only granted when older freighters of equivalent (or greater) capacity were replaced. However, in 1998, that regulatory scheme was reformed into a new and less restrictive one called the "transitional business scheme (zantei sochi jigyo)". The new scheme still carries a high entry barrier, which imposes entry charges of nearly 40% of installation costs upon new freight ships. In this study, we developed a partial equilibrium model, econometrically estimated using monthly data from 1998-2005, to quantify the impacts of the entry barrier on this market and welfare. By simulating a hypothetical reduction of the entry barrier by 1%, we found that it would lower service charges by 1.2%, increase traffic by 1.9% and improve social welfare by about 90 million yen. From the perspective of global warming prevention, we cannot support existing regulations either. That is, with a hypothetical 10% reduction of the entry barrier, we could achieve a large increase in coastal freight traffic, which would result in comparable target traffic levels considered in the modal-shift program. This would be a double-dividend of the regulatory reform.