Problem

Domination of the shipping industry by transnational corporations

Nature:

International seaborne trade in the major bulk commodities is characterized by a high degree of concentration. The 10 major exporters of dry bulk cargoes and the 10 major importers account for over three-quarters of the tonnage.

The importing countries own a substantial percentage of the world fleet of bulk and combined carriers, and the exporting countries only a minor share. The major bulk commodities all present a natural field for vertically integrated operations by transnational corporations. Thus there is a natural tendency for key firms to control each stage in the chain, from mining (in the case of the metals and minerals) or collection (in the case of grain) to the consumer, either by owning or by holding a controlling interest in the companies performing these operations. Where a transnational corporation controls such a chain, the transportation of the raw material from the exporting to the importing country becomes an "intra-firm" transaction. In broad terms, it has been estimated that over one third of world trade flows are intra-firm transactions of transnational corporations. Even though developing countries own their mines, transnational corporations may still control the chain of marketing and distribution operations. This has been illustrated in the oil industry, where the nationalization of oil wells still left the transnational oil companies in the position of buying FOB under production participation agreements or long-term contracts, and hence controlling ocean transport.

Ocean transport is an important link in the chain of coordination, but it is also a profit-making activity; in fact, where mineral transport involves the "dedication" of specific bulk carriers to specific routes over long periods, the profitability of the shipping operation is virtually guaranteed. The transnational corporations thus have a double reason for becoming involved in ocean transport. An added, and equally important, reason is that in vertically integrated operations ocean transport can be used for "transfer pricing" with respect to freight costs, by which a transnational corporation can minimize tax payments.

Values:
Dominance
Problem Type:
E: Emanations of other problems
Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic GrowthGOAL 10: Reduced InequalityGOAL 12: Responsible Consumption and Production
Date of last update
13.05.2019 – 15:53 CEST