Vertical integration and its implications to port expansion

Shengda Zhu, Shiyuan Zheng, Ying En Ge, Xiaowen Fu, Breno Sampaio, Changmin Jiang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

5 Citations (Scopus)

Abstract

Over the years many shipping lines have established terminal operation companies, with some set up as independent firms. However, port authorities and local governments have not always welcomed external investment and control with open arms. The economic implications and each stakeholder’s best strategies remain unclear. This study develops an analytical model in order to study the effects of vertical integration, with a focus on shipping lines’ investment in ports’ capacity. Modelling results suggest that vertical integration between terminal operator and a shipping line leads to higher port capacity, port charge, market output and consumer surplus. It also reduces delay costs. All these results suggest that vertical integration can be an important source of synergy for the maritime industry. Although vertical integration increases the participating carrier’s output at the expenses of non-integrating rival shipping firms, our numerical analysis suggests that the overall social welfare is likely to increase. Preliminary empirical tests confirm that vertically integrated ports handle more traffic volumes and are associated with better infrastructure and equipment. Therefore, port authorities and government regulators should carefully review the market competition status as well as port expansion plans.

Original languageEnglish
Pages (from-to)920-938
Number of pages19
JournalMaritime Policy and Management
Volume46
Issue number8
DOIs
Publication statusPublished - 17 Nov 2019

Keywords

  • capacity investment
  • Port and shipping lines
  • vertical integration

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Transportation
  • Ocean Engineering
  • Management, Monitoring, Policy and Law

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