Interconnection and Co-ordination: An Application of Network Theory to Liner Shipping

Significant changes in the world economy, mainly linked to the increased internationalisation of the economy, have induced container shipping companies to rethink their strategies to face demand. Traditional forms of co-operation, generally based on route-related agreements, have been substituted or integrated with more articulated forms of alliances, the so-called global alliances, and a wave of mergers and acquisitions have taken place in the sector. The rationale behind the new strategies of the operators is that of extending market coverage globally. Global strategic alliances, alongside with more traditional agreements and with mergers, contribute towards establishing the interconnection of individual companies' networks; however, the former respond more directly to the need to extend the geographical scope of business and to offer higher quality services. The scope of this work is to investigate, within an analytical framework based on the recent literature on network theory, the functioning and the evolution of forms of co-operation in liner shipping; in particular of global strategic alliances. It is found that, while the exploitation of network externalities is the main scope of shipping network integration and one of the most important elements in determining their optimal size, co-ordination costs are often of such strength that nullifies their effect. This appears to be the main cause of the instability of such agreements and of the permanence of business integration initiatives alongside forms of network connection. Furthermore, it is shown that the potential cost saving advantages of interconnection are, often, not fully exploited due to the frequency with which restructuring takes place within the industry.International Journal of Maritime Economics (2002) 4, 231–248. doi: 10.1057/palgrave.ijme.9100044