The chemical tanker market : does free competition cause for optimal use of vessels and the lowest possible environmental footprint?

Abstract

In this thesis, I have assessed the impact free competition has on the productivity, costs and environmental footprint of the chemical tanker freight market. My impression is, after an extensive dialogue with participants of this market, that there is a general belief that a consolidation between operators in the market, would allow for a more sensible allocation of cargo, and therefore a more productive use of vessels, as well as a reduced environmental footprint. By comparing the current market situation under free competition with a simulated regulated market under a central planner, using the same input data in the two scenarios, I was able to complete a comparative study examining productivity measures (utilization of vessels and port congestion), changes in cost, and changes in CO2 emissions. Thus, I could ascribe the observed differences to the incorporation of market regulation, as this was the single factor differentiating the two. The simulation of a central planner and the following observations were that utilization of vessels increased, and port congestion, voyage costs and overall environmental footprint decreased under market regulation. In other words, free competition did in fact, based on this assessment, contribute to neither optimal use of vessels nor the lowest possible environmental footprint. However, when that is said, I also shortly evaluated who the beneficiaries of market regulation would be, and examined crucial challenges of implementing a central planner. Though the challenges are many and certainly cause for further research, the most predominant and vital challenge is that of setting the correct freight rate in a non-competitive setting. Assuming that it is possible in an efficient manner to achieve a correct price under market regulation, both ship operator and customers would reap benefits, as free competition in this case, does not cause for the optimal use of vessels and the lowest environmental footprint.