Vertical structure selection and evolution in shipping supply chains under bilateral bargaining

Abstract

Fierce port competition and asymmetric bargaining power may lead to multiple vertical cooperation patterns between ports and shipping companies. The value analysis of vertical cooperation and structure preference are crucial to the evolution regularity of shipping supply chains. In a two-tier shipping supply chain consisting of competitive ports and shipping companies, we propose three typical vertical structures of shipping supply chain: port-shipping alliance, vertical integration, and cross-berthing. We show that the port-shipping alliance has the advantages of low freight rate and high throughput, but may reduce the overall performance of the shipping system. Although vertical integration helps to weaken service competition and enhance the monopoly of ports, it increases the freight rate and reduces the throughput. Cross-berthing increases the pricing power and throughput of ports, but it will bring fierce internal competition. With the increasing bargaining power of shipping company and the degree of port competition, the vertical structure evolves from the port-shipping alliance and cross-berthing to the structure with only cross-berthing, and finally turns into vertical integration. From the perspective of the overall shipping system, each evolution stable state will achieve the Pareto-optimization.