Risk management and market structures in seaport–dry port systems

Abstract

As seaborne and inland transport hubs, seaports and dry ports are vulnerable to diversified risks, such as climate-change-related disasters and congestion in daily operations, owing to their special geographical locations and socioeconomic functions in seaborne supply chains. If appropriate investments are made before the risks occur, the probability and potential damage of such risks can be mitigated. We propose a two-stage game to simultaneously study the preventive and adaptive investments of seaport and dry port authorities on diversified risks in scenarios of vertical cooperation and horizontal competition. In addition, in the latter case, the asymmetry between seaports and dry ports, regarding their vulnerability to risks, is taken into account. Findings show that it is not always advisable to pursue close cooperation, as players in a horizontal relationship must consider not only their own vulnerabilities but also those of others when making investment decisions. Finally, we find that port authorities need to pay more attention to the free-riding problem in the process of preventive investments than in adaptive investments.