Seaport adaptation to climate change-related disasters: terminal operator market structure and inter- and intra-port coopetition

ABSTRACT

With the prevalence of global terminal operators in port operation, the market structure of terminal operator companies (TOCs) becomes more important in shaping intra- and inter-port competition and cooperation (i.e., coopetition). The port adaptation investment to climate change-related disaster might also be affected by such TOC intra- and inter-port coopetition. This paper examines analytically how the TOC market structure could affect ports’ adaptation investment. More specifically, it considers two landlord-type ports within a region that compete with each other. The two ports are subject to uncertain disaster threats and have an asymmetric number of TOCs. The analytical and numerical results suggest that more TOCs at the own port and the competing port have opposite impacts on the port's adaptation investment. An inter-port TOC joint venture would decrease the adaptation at both ports. Moreover, the TOC market structure is found to moderate the effect of disaster uncertainty on port adaptation. That is, TOC intra- and inter-port coopetition can strengthen or weaken ports’ sensitivity to disaster occurrence uncertainty. Finally, the regional welfare is found to increase monotonely with the two ports’ total adaptation. It is suggested that the regulators encourage new TOC entries while restricting inter-port TOC joint ventures. The cases with heterogeneous disaster uncertainties at the two ports are also examined.

KEYWORDS:

• climate change-related disaster
• port adaptation
• terminal operator market structure
• inter- and intra-port competition
• joint venture

JEL:

• Q54
• L91
• R11
• D81

Acknowledgement

We are very grateful to two anonymous referees and two guest editors (Amit Batabyal and Henk Folmer) whose comments have led to a significant improvement of the paper. Financial supports from the Social Science Foundation of Ministry of Education of China (19YJC790136) and the Social Science and Humanities Research Council of Canada (SSHRC) are gratefully acknowledged.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 For more details on the existing analytical modelling work on port adaptation, see the recent review by Randrianarisoa et al. (2020), who specifically compared the similarities and differences among existing analytical studies. They also attempted to reconcile the discrepancies among analytical findings by examining model specifications of the papers.

2 Wan, Zhang, and Li (2018) reviewed theoretical port competition studies, and all of them adopted a duopoly model (two-port competition). They explained the assumption of symmetry service substitutability has to be assumed when expanding to multiple ports. However, the analytical results may not change qualitatively.

3 The port infrastructure includes port land, canals, berths, basins and storage areas, while the superstructure mainly includes cranes, pipes and office buildings. The port superstructure includes cranes, warehouse of TOCs and some other cargo-handling equipment.

4 See Wang and Zhang (2018) for a more detailed discussion about the justification for assuming profit-maximizing PAs.

5 See Wang and Zhang (2018) for more discussions on this assumption.

6 This function $D-I_i$ implies a constant marginal effect of port adaptation to reduce cargo damage in the case of disaster occurrence. It is, however, likely for the port adaptation to exhibit a diminishing effect. Thus, we also tried the alternative functional form $D/I_i$ for numerical investigations. The numerical results suggested that our findings do not change qualitatively, while the equilibrium port adaptation is smaller in magnitudes.

7 Proposition 4.1, and the other propositions stated in this section, are based on the functional forms and parameter values specified in the section.

8 See the review paper by Randrianarisoa et al. (2020) for more details.