Pricing and Cargo Canvassing with Risk-Sensitive Shipping Lines: A Mean-Risk Analysis

Abstract

This study considers a shipping supply chain consisting of an ocean carrier (OC) and two competing feeder carriers (FCs) in which the OC and FCs can canvass for cargos. We propose two contrastive structures: structure O (the OC canvasses for cargos) and structure F (the FCs canvass for cargo) to study the carriers’ cargo canvassing strategies. We employ a mean-risk objective function to reflect the cargo-canvassing carriers’ different risk attitudes. We find that the cargo canvassing carrier’s risk attitude has an opposite influence on the equilibrium freight rate of the OC and FCs, which is referred to as vertical reverse effect. We identify the horizontal consistent effect, which implies that an FC’s equilibrium freight rate increases in its and the rival’s risk sensitivity coefficient. In a market with high demand volatility, the OC and FCs should set high freight rates when they are risk-seeking, while set low freight rates when they are risk-averse. In addition, we highlight that FCs canvass for cargos can lead to an incentive alignment of the OC and FCs on cargo canvassing. Our analytical results provide the operational strategies for risk-sensitive OCs and FCs to canvass for cargos.