Container transshipment and port competition

Abstract

The purpose of this paper is to study container port competition for transshipment cargo in duopoly market. We develop the linear container handling demand function which incorporates transshipment traffic, and apply a non-cooperative two-stage game to a vertical-structure seaport market with ports as upstream players and shipping lines as downstream players. The drivers behind port competition are explained through existence of the unique Nash equilibrium which incorporates shipping lines’ port call decisions and ports’ pricing strategies. A port collusion model and social optimum model are then analysed for further insights, and a numerical simulation is conducted to demonstrate the results.

Notes

1. The container throughput data is taken from the official website of Port of Tanjung Pelepas, http:////www.ptp.com.my/history-2000.html and http:////www.ptp.com.my/history-2001.html.

2. The feeder line networks between transshipment port and tributary port have been mentioned in the recent study of Low and Tang (2012) as an example of indirect network effect.

3. ‘Transshipment level’ measures port connectivity, that will affect the decision of shipping lines’ choice of port, thereby affecting port demand.

4. The import container demand is further defined as containers destined for hinterland transportation out of the port after unloading from the vessels, and the export container demand as containers meant for seaborne transfer out of the port.The distinction between gateway and transshipment demand has been discussed in air transport research by Zhang (2003), where ‘gateway’ traffic refers to ‘local and gateway’ traffic, whereas ‘transshipment’ traffic to ‘hub’ (air to air) traffic.

5. As defined by De Borger and Van Dender (2006), congestible facilities are facilities which are prone to congestion when the volume of simultaneous users increases amid constant capacity. Examples of such facilities include seaports, airports, Internet access providers and roads.

6. The separable and constant port operation and capacity marginal cost has been assumed in, e.g. Basso and Zhang (2007) and Wan and Zhang (2013).

7. Cournot behaviour by congestible facility users, such as airlines and shipping lines, has been assumed in, e.g. Lam and Yap (2006) and Zhang and Zhang (2006).

8. The proofs are available upon request.

9. Additional details are available on request.

10. This result is consistent with the comparative statics in Zhang and Zhang (2006) and Basso and Zhang (2007).

11. The proofs are available upon request.