Tanker Markets in the 21st Century: Competitive or Oligopolistic?

by Prof. N. Shashikumar, Ph.D., Master Marine

Introduction
Oil tankers are believed to operate in a market that closely approximates the perfectly competitive model. However, there are increasing concerns about the relevance of this model in contemporary tanker markets. The variety of reasons that have contributed towards this predicament include the descent of oil majors and the ascendancy of OPEC state-owned oil companies in global petroleum trade, and the increasing preponderance of short and medium-haul crude oil movements.

Such developments, along with the endemic overtonnaging in the market, created a prolonged period of low freight rates for all tankers and the larger ones in particular. Simultaneously, the extent of institutional interventions in tanker shipping has exacerbated in the 1990s to the point where the cost of regulatory compliance has become somewhat of a nightmare for entrepreneurial independent shipowners. There is an increasing tendency to fix tankers secretly today. Furthermore, there are ongoing attempts to create pools of tanker owners. These and other developments such as horizontal and vertical mergers are raising barriers to entry in tanker markets. All indications are that independent tanker owners in the 21st century will be of a different breed, and that future tanker markets will exhibit fewer features of the competitive ideal and more those of an oligopoly.

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