URSABLOG: Perfect Competition In An Imperfect World

I live and work in the world of perfect competition, a sometimes rewarding, often frustrating to be. This world, the world of tramp shipping, has its own rules and conventions, but little active regulation except that when parties in a contract decide to take their disputes to arbitration, and/or to the courts. It is a world where the ships – and some of the trades themselves – are burdened by heavy international regulations, but essentially exist in an ungovernable network of buyers and sellers, owners and charterers, that relies on brokers to identify and execute contracts at prevailing market rates.

Perfect competition is a theoretical concept, but tramp shipping – the market for tankers and dry bulk carriers – is probably the closest thing to it in real life. The theory goes like this:

a)      There is such a large number of buyers and sellers that none can individually effect the market price.

b)      In the long run, resources must be freely mobile, meaning that there are no barriers to entry and exit.

c)      All market participants (buyers and sellers) must have full access to the knowledge relevant to their production and consumption decisions.

d)      The product should be homogenous.

So far so good. There is no shipowner or charterer, or buyer or seller, big enough to control the market or the prices. Resources – the ships – are by definition freely mobile. There is a wealth of information out there which whilst not ‘full’ is pretty close. The internet and gossiping brokers make sure of that. And the product – transport of goods by sea – is certainly homogenous, for which there are few realistic substitutes.

Perfect competition requires a free and open market, where there are no barriers to entry or exit, and where players are free to engage and contract with whoever they wish. And those that service and lubricate that market, the providers of information and opportunities, and those able to execute contracts on behalf of their principals – shipbrokers – cannot possibly ever corner a large enough share of the market to approach a position of monopoly. A free and open market means that the players are free to attack and compete with other players without any legal penalty, and also means that the players are open to attack and competition from other players too. Arbitration and the courts generally decide on contract disputes between parties. Brokers can fall foul of the law – if someone wants to pursue them – through misrepresentation, negligence and acting without authority, but as this approach to business is mostly self-defeating it is attempted far rarely than people think. I cannot remember the last time a shipbroker ended up in court, although my learned friends may disabuse me of this.

I sometimes wonder how I ended up in this world, and why I am still in it. My background shows no sign of a competitive shipbroker in the making. Brought up in Coventry – about as far as you can get from the sea in the UK – educated at a comprehensive school with no academic or sporting pretensions, in fact with no pretensions whatsoever, from a large noisy family whose politics could be best described as soft left, and a fairly unspectacular education – let’s say self-inflicted mediocrity – and absolutely nothing to do with shipping. The only thing I can think of that prepared me for competitive shipbroking was that large and noisy family.

In the world of perfect competition with scarce resources, everyone – companies and individuals – has to define their own USP, a unique selling point, to differentiate themselves from the competition. Let’s be clear, you have to be able to compete, and simply being the best is not enough, because it is not possible. As the prices are set by the market, the question of cost doesn’t really arise. By that I mean that contracts are agreed following negotiations between willing buyers and sellers: there is no shipbroker that can guarantee lower prices for buyers and higher prices for sellers all of the time, or indeed in the face of perfect competition any of the time.

So we tend to specialise in certain market sectors, in geographical areas, with certain clients, in a style of service that optimises our potential – as companies and individuals – with the resources we have at hand. And we are mostly free to decide how and where we do this. This is after all a free market. But the very act of specialisation means that we have to forgo other choices – personally and professionally – that could otherwise be open to us. This is not just about work-life balance, if it is at all, but about backing the right horse, or developing the right team and profile to attract the business we can to be able to compete. That’s usually the strategy anyway, but this can be diverted  or distracted by events, or other opportunities, or any of the other things that life throws in our way. We are free to decide; whether we make the right choice or not is a different matter.

I like the world I live in, even though it is hard for people outside it to understand what is going on, or how it works. I was once in a relationship with a psychiatrist, and in the early days when we were getting to know each other, I tried to explain the symbiotic relationship of competitive shipbrokers with each other.

“Yes, we are competing with each other, but sometimes we work together, so we have to keep our relationships cordial because we never know when we will need each other. We share information, gossip, drinks, and ask each other what business we can do together. But if we are competing against each other we will do our hardest to win,” I said.

“So the people you are fighting against in certain cases, are also potential partners and friends that you will help and assist in other situations?” she asked.

“Yes, it’s necessary to do business, and to survive,” I replied.

“It sounds psychotic to me,” she said.

There were many reasons why that particular relationship didn’t work out in the long run – long days in the office, interrupted dates, weekends and holidays, difficult negotiations and deliveries lasting forever, an inability of being able to plan anything long in advance being amongst them, but by no means the only ones – but this comment still remains with me. Is the market psychotic? Or just hyperactive and challenging? What does success look like? Does competition, perfect or otherwise ever stop?

In answering those questions – for me at least – I have to go back to my large and noisy family. Are large and noisy families psychotic? By no means of course, but there is a competition for time, attention, food (especially when they eat together regularly as we did), which results in tension, arguments, and noise that other people who are not blessed with large, noisy families find, let’s say hyperactive and challenging. Success in our family was measured by sticking together and sharing joy and pain, love, and forgiving each other, continually, which we did. And by the way, the competition between us hasn’t stopped, even as the family has grown larger with new partners, husbands, wives, children, and as the children develop relationships, the potential of even more children.

Competition, perfect or otherwise, is a fact of life, and not just the preserve of sports, business or shipping. Perfect competition is something else however and requires a different mindset. It means an admission, I think, that we as individuals, as companies, are not perfect, and more so – apart from striving to work hard – we have to continually adapt to an ever-changing environment so that we remain competitive, in shipping and in life. I am always wary of people that say they have the perfect solutions, the perfect philosophies or fitness programmes, the perfect diets and ways of living, the perfect films, plays or books. I am also saddened by the those who want perfection from others, and are therefore consequently disappointed.

Perfection is impossible to achieve. As the saying goes, perfect is the enemy of good, and although to be good enough just to compete is challenging, it’s a good enough aspiration for me.

Simon Ward