The Expectation for Promoting Full-Fledged Competition in the Coastal Shipping Industry

No.66
December 1999
Research Fellow Tatsuya Kimura

1. Following the collapse of the bubble economy, the regulatory reform of non-manufacturing industries is one effective policy that could pull Japan's economy out of its economic doldrums by improving productivity. Strict regulations have developed around non-manufacturing industries, such as entry restrictions to many fields including transportation and communications. Within such non-manufacturing industries, the need for improving productivity in the field of distribution is very high, and in this sector, regulatory reform would be particularly beneficial. Commercial vehicle transport (the trucking industry) and the coastal shipping industry boast over 40% each in shares by mode of transportation within domestic freight. This report will examine shifts in regulations applying to the coastal shipping industry and the effects on productivity.
2. Regulations for the coastal shipping industry are handled within the framework of the Coastal Shipping Law and the Coastal Shipping Associations Law. The coastal shipping industry had been regulated since 1966 mainly on a tonnage-adjustment basis on the scrap and build principle (S&B adjustment) that required the scrapping of existing shipping capacity before building new ships. The S&B adjustment came to limit competition by serving as a barrier to entry, and amidst the movement for regulatory reform in all aspects of economy and industry, it was changed into a provisional measure for coastal shipping in May 1998. Despite this change, the new provisional method of regulation merely trades the scrapping of old vessels-previously a precondition for building new transport ships-into payment for construction, and thus the barriers to entry remain as high as ever.
3. The trend in productivity of the coastal shipping industry shows an improvement in the rate of change of value-added TFP (total factor productivity) during the periods of 1981-1985 and 1986-1990, but a decline during the period from 1990-1996. Through factor analysis it becomes clear that, excluding the period of the bubble economy from 1986-1990, the improvement of productivity was achieved through reducing labor inputs and intermediate inputs. This improvement was different from that which occurred in the trucking industry, where regulatory reforms had already progressed ahead of those of other transportation fields, and it came from proactive productivity increases resulting from the creativity of service-improvement and service-development businesses. Behind the decrease in the labor inputs and intermediate inputs of the coastal shipping industry lies the comparatively low rate of directly calculated gross capital to current earnings, as compared to other industries. More specifically, the improvement of productivity in the coastal shipping industry resulted from an attempt to raise low profit rates by reducing inputs. Under the provisional measure, this kind of motivation for input reduction will decline, competition will not be promoted, and the current stagnation of productivity improvement will continue.
4. The improvement of productivity in the trucking industry was born of the creativity of individual businesses. In order to witness this kind of improvement in the coastal shipping industry, promoting competition is vital. Four conditions are required for this to be successful: (1) the abolition of the provisional measure, (2) revision of both shipping laws, (3) improvement of coastal trade terminal infrastructure, and (4) stricter enforcement of the Antitrust Act.

More Informations

• Japanese
• Full text is not available in English for this report.
  The original Japanese full text is PDF here [292 KB].
  Please let us know the serial number of this report (66) to submit a request for translation.