Strategic planning of inland river ports under different market structures : coordinated vs. independent operating regime

Abstract

This paper addresses the strategic planning issue of ports in an inland river corridor with location-dependent waterway depths, which determine the maximum navigable ship sizes deployed in ports. A vertical-structure model is proposed to capture the interrelationships among port operators, carriers, and shippers. The shippers, who are assumed to be continuously distributed along the inland river corridor, choose transshipment ports to minimize their own full transport cost from origin to destination. The carriers aim to maximize their own profit by determining waterway freight rates and ship fleet (in terms of ship size and number of ships). The port operators determine port capacity and port service charge to achieve their own objective, depending on the port market structures adopted, i.e., coordinated vs. independent regime. Under the coordinated regime, the central government aims to maximize total social welfare of the entire inland river system. Under the independent regime, each local government along the inland river corridor maximizes the local social welfare of individual port inside its jurisdiction. The properties of the models with different regimes are analytically explored. Our study develops a comprehensive model that can be used to analyze the investment and regulatory decisions for an inland river shipping corridor composed of multiple heterogeneous ports. The modelling results suggest that local governments have a tendency to overinvest port capacity beyond system optimum. Therefore, in the choice of regulatory regimes, one needs to balance the costs of regulation vs. the avoidance of excessive investments under central government intervention. Findings specific to the Yangtze River inland shipping corridor are also provided.