Question

Why do firms engage in private water transportation? What are the advantages of such service and what types of firms are likely to have their own fleets?

Answer 1

Firms engage in private water transportation because of the nature of the industry, the industry requires little to no technology to operate making it feasible to enter the industry i.e to say the barriers to entry in this business is very low.

Also, the capital investment in water transportation is very low as compared to other means of transport like railway and pipelines. In water transportation, the government provides the right of way which is not the case in case of rail and pipeline.

The advantage of such sevices is that since the capital requirements are very less more and more firms can start this business who benefit is, in turn, passed on to the consumers as low and competitive price due to competition. This competitive nature of the business influences the rate.

Firms which have lean operations and access to large sources of water are the ones who have their own fleet.