Posted: August 14th, 2022

Research on vertical alliance formation between ports and shipping lines: problems and solutions

Research on vertical alliance formation between ports and shipping lines: problems and solutions

Vertical alliances are a form of horizontal operational cooperation between ports and shipping lines that aim to provide global services to shippers. They have become more prevalent since 1994, when the globalization of shippers increased their demand for worldwide coverage (Merk and Teodoro 2022). However, forming and maintaining vertical alliances is not without challenges. This paper reviews the literature on the problems and solutions of vertical alliance formation in the maritime industry.

Benefits of vertical alliances

Vertical alliances can bring various benefits to both ports and shipping lines, such as:

– Cost reduction: By sharing resources and facilities, ports and shipping lines can reduce their operational costs and improve their efficiency. For example, ports can offer preferential tariffs or discounts to their alliance partners, while shipping lines can consolidate their cargo and optimize their routes (Wang and Wang 2022).
– Service improvement: By coordinating their schedules and capacities, ports and shipping lines can enhance their service quality and reliability. For example, ports can guarantee berthing slots or priority handling to their alliance partners, while shipping lines can offer more frequent or direct services to their customers (Zhu 2015).
– Market expansion: By accessing new markets or segments, ports and shipping lines can increase their revenue and competitiveness. For example, ports can attract more cargo or vessels from their alliance partners, while shipping lines can offer more diversified or customized services to their customers (Zhu 2015).

Problems of vertical alliances

Despite the potential benefits, vertical alliances also face various problems that hinder their formation and performance, such as:

– Contract design: Designing a fair and efficient contract that specifies the rights and obligations of each partner is a complex task. The contract should balance the interests of both parties and align their incentives. It should also consider the uncertainties and risks in the maritime environment, such as demand fluctuations, price volatility, or disruptions (Wang and Wang 2022).
– Trust building: Building trust between partners is essential for the success of vertical alliances. Trust can reduce transaction costs, enhance information sharing, and facilitate coordination. However, trust is difficult to establish and maintain due to the asymmetric information, opportunistic behavior, or competitive pressure that may exist between ports and shipping lines (Zhu 2015).
– Governance structure: Choosing an appropriate governance structure that defines the decision-making process and the conflict resolution mechanism is another challenge for vertical alliances. The governance structure should reflect the degree of interdependence and commitment of each partner. It should also be flexible enough to adapt to the changing market conditions or customer preferences (Merk and Teodoro 2022).

Solutions for vertical alliances

To overcome the problems of vertical alliances, several solutions have been proposed in the literature, such as:

– Game theory: Game theory is a mathematical tool that can help analyze the strategic interactions between ports and shipping lines. It can help design optimal contracts that maximize the joint profits of the alliance or minimize the individual losses of each partner. It can also help evaluate the stability and sustainability of the alliance under different scenarios or assumptions (Wang and Wang 2022).
– Relationship marketing: Relationship marketing is a marketing approach that focuses on building long-term relationships with customers or partners. It can help foster trust between ports and shipping lines by emphasizing mutual benefits, communication, cooperation, and loyalty. It can also help enhance customer satisfaction and retention by offering value-added services or solutions (Zhu 2015).
– Network theory: Network theory is a social science tool that can help understand the structure and dynamics of complex systems. It can help optimize the governance structure of vertical alliances by identifying the key actors, roles, relationships, and influences in the network. It can also help monitor the performance and evolution of the alliance by measuring its network properties or indicators (Merk and Teodoro 2022).

Conclusion

Vertical alliances are an important form of horizontal operational cooperation between ports and shipping lines that aim to provide global services to shippers. They have various benefits but also face various problems that require careful design, management, and evaluation. The literature has offered several solutions based on game theory, relationship marketing, or network theory that can help improve the formation and performance of vertical alliances in the maritime industry.

References

Merk O., Teodoro A., 2022. Strategic alliances in container shipping: A review of the literature. Maritime Economics & Logistics write my thesis homework help 24(1): 1-23.

Wang C., Wang L., 2022. Green investment and vertical alliances in the maritime supply chain. Environment Development & Sustainability 25(8): 6657-6687.

Zhu X., 2015. Research on vertical alliance formation between ports and shipping lines: problems and solutions. World Maritime University Dissertations 1588.

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