Prospects for Full-Fledged Competition in the Coastal Shipping Industry

Tatsuya Kimura

Coastal shipping is a vital form of transport that accounts for 41.7 percent of Japan's freight volume (FY 1997). Since the industry consists mainly of small and mid-sized operators， ship-ping capacity has tended to be excessive relative to transport demand. To curb this tendency， a scrap and build (S&B) scheme was implemented in 1966 which estricts new shipbuilding in many cases to replacing but not expanding existing tonnage capacity.

However， extended use of the S&B scheme also produced negative effects such as restricting the growth of ambitious operators and blocking out new entrants. Moreover， the ship building permits that ship owners obtained by scrapping old capacity acquired value as assets that could be traded or used as collateral for bank loans.

Amid growing demand throughout the economy to reduce distribution costs， calls to deregulate coastal shipping and introduce market principles， in May 1998 the S&B scheme was replaced by a new framework called the coastal shipping provisional measures business. However， barri-ers to entry remain high and free market principles have yet to take hold.