Strategic Alliances in liner shipping: Efficiency versus market power Cariou Pierre University of Nantes France IAME Conference - September 2002 - Panama
General objective and organisation of the PhD • I. Analysis of horizontal motivations • Economies of Scale (cost) • Operational synergies (quality) Allocation model Queuing model (DT’s) • II. Analysis of vertical motivations • Port synergies (co-ordination/bargaining power)
Horizontal motivations Objective function ATCkij Annual Total cost for ship-owners k operating i-type vessels on route j Rotkij Number of yearly operating use of vessel i ACkij Average cost in $/teu of a i-type vessel allocates on route j Xkij Number of i-type vessels for ship-owner k Constraints Demand Weekly Frequency Availability Empirical Allocation Model
Horizontal motivations Strategic alliances 13 Ship-owners-517 vessels on East/West Trade in 1997 (000’ teu)
Horizontal motivations Strategic alliances Economies of density Economies of scale ACi is the average cost in $/teu/day for a i-type ship CTKEi is the total capital and crew costs in $ per day for a i-type vessel I&Mi is the insurance and maintenance cost per day in $ for a i-type vessel CCi is thetotal fuel cost per day in $ for a i-type vessel teui is the total capacity for a i-type vessel ACij is the average cost in $/teu for a i-type vessel on route j nij is the Number of days (including time at sea and in port) ACi is the average cost in $/teu/day Portij is the number of days in port Distj is the nautical miles for route j Speedj is the speed in nautical miles per day for a i-type vessel
Horizontal motivations Strategic alliances Economies of density (000’ $/day/teu)
Horizontal motivations Strategic alliances Economies of scale ($/day/teu on Europe/Far East trade)
Horizontal motivations Strategic alliances Europe/Far East Transatlantic Transpacific Total Independant 38% 14% 48% 100% 4 alliances 37% 15% 47% 100% Reality (%) 32% 23% 45% 100% Independant 151 61 274 486 (-18) 4 alliances 111 130 227 468 (-45) 13 independent – ATCkij = 2.97+5 $ / 4 SA – ATCkij = 2.43+5 $ • Aggregate fleet lead SA to a better specialisation of vessels (ES on longer • maritime route) • SA composition can correspond to different case e.g.: • Grand Alliance: Equal positioning • Maersk/S-L: two leaders on transpacific
Conclusion Horizontal effects Results are not new but originality was to try to show it through an empirically tested allocation model and to integrate cost and quality considerations • Open questions: • Other combinations (SA composition) could have lead to better results? • Nationality influence? • Increasing return to scale (port responsiveness and link with vertical effects)? • Cost minimisation hypothesis (profit, IRR…)? • Barriers to entry (ES + Number of vessels)?
Vertical motivations Strategic alliances - DTs • Port Responsiveness to changing demand: • port investments + transhipment facilities • dedicated facilities (operated or not)
Vertical motivations DTs From the port’s point of view, the effect of moving from the first (pure multi-user) to the second situation can be assessed by comparing the respective occupancy rates (1) and (2): From the point of view of all users in the system, the desirability (overall effect) of a DCT can be derived from the value of queuing time with and without a DCT
Vertical motivations Optimal pricing rule • DACd: direct cost of providing exclusive access; • CTport: total cost for the port; • 1: initial occupancy rate of the port; • 2: occupancy rate of the port following the choice of DCT; • 1: initial global service rate of the port ; • 2: service rate of the port following the choice of DCT; and • VTusers : value of time of users. • The second term in the right hand side gives the losses or gains born by the port, • and the third term, the losses or gains for all port users.
Conclusion vertical effects General conclusion • From a societal and collective welfare perspective, the gains to carriers • through vertical integration must be contrasted with potential losses • from the reduction of competition and from the presence of externalities. • Lack on commercial and supply-chain issues • Lack on link between capacity/pricing strategies