Vertical Cooperations

We define vertical cooperations as cooperations with other players in a supply chain, e.g., shippers, carriers, freight forwarders, vessel maintenance, etc.

Advantages that could be gained from vertical cooperations are listed and explained below.

Decrease the total service time and waiting time in port

When port operators cooperate with carriers with respect to the sharing of data, e.g. through EDI, and information system integration, remarkable time and cost savings could be expected. For a more detailed and comprehensive literature review see Steenken et al. (2004) whose survey focuses on optimiza-tion of port operaoptimiza-tion processes. Note that there may be arguments why mega ships should choose longer routes and visit highly efficient ports in order to save total service time in ports and waiting time in anchorage grounds (Xu, 1996).

Compete with carriers on bargaining power

On the one hand, the more members an alliance has, or the bigger its fleet is, the stronger oligopolistic economic power and competitive advantages it has when negotiating with port operators (Panayides and Cullinane, 2002). Port operators are supposed to accept and offer a lower wholesale price rather than a higher retail handling price; port operators, as any company in general, are not only concerned with short-term profits but also long-term profits. That is, their objective is net present value maximization (Kamien and Schwartz 1971).

On the other hand, we could also view terminal operations as the centre of the Five Forces Model. Certainly this could lead to another competitive structure. But those structures should be interrelated and useful for both the terminal operators and liner alliances. Based on the above discussion, if port operators cooperate with liners and set up a vertical cooperation, which could be a better means to apply common profits instead of contradictory bargaining powers then both liner companies and terminal operators could obtain a ‘‘win-win’’ result (see Table 5).

Indirect fixed cost Capital cost Vessels depreciation Lending cost

Table 5: Cost Composition of Carriers

When cooperations exist between carriers and port operators, they could sign long-term handling agreements or even port facilities investment and utilization agreements, which benefit both sides. For example, COSCO and HIT set up a new company COSCO-HIT, which is a typical vertical alliance as they combined the carrier COSCO and its terminal service supplier HIT.

Vertical alliances could largely develop international competitive advantages.

Service-oriented district allocation in port

Currently, carriers attempt to provide different transportation services to their customers, shippers, booking agents and cargo owners, including long lane services and short lane shuttling service. Due to the differences between those two services, their service areas should be allocated accordingly in order to reach higher efficiency. Vertical integration between global carriers and termi-nal operators is regarded as a good means of achieving better financial power and technical capability (Midoro et al., 2005). For example, mega ships should choose deep, long berths and big container yards. But as for the average handling rate, those shuttling vessels are more demanding. That is, all of the berths should first set the oriented target customers and set up their values, versions and missions accordingly. Berths without sufficient depths and without sufficiently large container yards should provide fast handling service to shuttle vessels (for considerations regarding hinterland container terminals see Gronalt et al., 2003). Considering the similarity between the airline industry and the liner shipping industry, we could expect those short lane shuttle services to be as successful as some of the so-called low-cost carriers in the airline industry.

Investment in container building and renting

Most of the top liner shipping companies, such as Maersk Sealand, COSCO, CSCL are stock holders of some container building companies. Liner com-panies try to reduce cost and achieve stability to defend against the turbulent market by building containers themselves or renting containers from the companies in which they invest. While the capability to defend against the turbulence is an advantage, there are also some disadvantages. The investment and the complex control of container return usually concerns managers of liner companies. Then there may be a good chance for port operators to attract liners by improving empty container renting and returning services.

Liner shipping companies, in general, bought a number of containers and provided them to those shippers who do not have containers themselves.

Those containers are costly, especially when they cannot be returned in time, delayed in some unknown ports due to inefficient management information systems. To solve this problem to some extent, some of the liner shipping companies, e.g. COSCON and CSCL, even invested in container building factories. On the contrary, the liner shipping companies would save capital if

they did not need to pay attention to and invest in the container building industry. The limited capital should be used to build new mega ships and enlarge fleets, which might bring larger revenues.

Port operators already have experience in storing and handling empty containers which makes it more possible and much easier for them to enter the container building and renting sub-industry. Furthermore, experienced stor-age and handling of full and empty containers make it possible for shippers and carriers to accomplish timely clearance and departure. In short, besides those traditional activities and services (e.g. stores, water, medical aid, tele-phone service, bunkering, ship waste disposal) (Yahalom, 2002, Vanelslander, 2005), investing in the container building and renting sub-industry might also be a good way for port operators to improve services and attract carriers.