Abstract
Recently, the container shipping industry has been witnessing a wave of new mergers and reshuffling of cooperation agreements (alliances), which have heavily affected the market. This development has also taken place among vertically integrated carriers, thus affecting not just the shipping side of the business, but the different supply chains as well. By using non-cooperative merger control games, featuring carriers involved in strategic alliances and competition authorities, this paper analyses the impact of the vertical integration of carriers and terminal operators on the stability of alliances. Starting from a benchmark set-up where carriers and stevedores are separated, we first find that when the integration concerns merging carriers only, alliance stability is undermined because non-merging allied carriers are more likely to register losses due to market share reductions and possibly higher terminal tariffs. However, by assuming that alliance agreements are extended to terminal operations, for all the allied partners, we show that alliances might be more stable, since non-merging carriers are vertically integrated as well and can internalize terminal charges. Given the on-going trends of consolidations in container shipping, this last hypothesis implies that merger waves might still occur without the breaking down of alliances, as long as landside cooperation among carriers along the supply chain, is also considered.
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Notes
Including expenses such as stuffing, stripping, measuring, tallying, cargo inspection, custom examination, documentation, etc.
A more general model should also consider cases in which merging carriers are endowed with asymmetrical capacity. However, this assumption would complicate the mathematical tractability of the model without changing its outcomes. As mergers often occur involving both large companies and major/minor ones, a “defensive” merger would try to obtain a similar aggregate capacity.
For simplicity and without loss of generality, port costs are set to zero.
A notable exception is the Maersk-Cosco terminal under construction at the Savona-Vado port in Italy.
Notice that, given that slight demand shocks are not able to make overall TEUs expand to offset rising sea freight rates, then, in the region for which V/K is between 11 g and 17 g, single mergers are welfare-preferable and thus approved.
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Appendix
Appendix
A. Post-merger equilibrium w/vertical separation (freight rates, profits and terminal charges)
M_{1} | M_{2} | |
---|---|---|
f | \( f_{s}^{1} = \frac{1}{ 1 4}\left( {5V/K + \frac{ 7 3}{3}g} \right) \) | \( f_{s}^{2} = \frac{1}{5}\left( {2V/K + \frac{ 2 7}{4}g} \right) \) |
π | \( \pi_{ 1 5}^{1,s} = \frac{1}{ 1 7 6 4}[5V/K + 2 9g]^{2} \)\( \begin{array}{*{20}c} {\pi_{2}^{1,s} = \pi_{3}^{1,s} = \frac{1}{ 1 7 6 4}[5V/K - 1 3g]^{2} } \\ {\pi_{4}^{1,s} = \pi_{6}^{1,s} = \frac{1}{ 4 4 1}[3V/K - 1 9g]^{2} } \\ \end{array} \) | \( \pi_{ 1 5}^{2,s} = \pi_{ 4 2}^{2,s} = \frac{9}{ 6 4 0 0}(4V/K + 1 1g)^{2} \) \( \pi_{3}^{2,s} = \pi_{6}^{2,s} = \frac{9}{ 6 4 0 0}(4V/K - 2 9g)^{2} \) |
t | \( t_{\text{N}}^{1,s} = \frac{1}{ 2 1}(5V/K + g) \) \( t_{\text{S}}^{1,s} = \frac{1}{ 1 4}(3V/K - 1 9g) \) | \( t_{\text{N}}^{2,s} = t_{\text{S}}^{2,s} = \frac{1}{4}\left( {V/K - \frac{9}{4}g} \right) \) |
B.1 Post-merger equilibrium w/partial integration (sea freight rates, profits and terminal charges)
M_{1} | M_{2} | |
---|---|---|
f | \( f_{p}^{1} = \frac{1}{ 2 0 2}( 5 5V/K + 4 0 1g) \) | \( f_{p}^{2} = \frac{1}{ 3 1}(9V/K + 4 5g) \) |
π | \( \pi_{ 1 5}^{1,p} \frac{ 3 9 9 3}{ 4 0 8 0 4}(V/K)^{2} + \frac{ 9 5 5 9}{ 2 0 4 0 2}gV/K + \frac{ 3 6 4 8 5}{ 4 0 8 0 4}g^{2} \) \( \begin{array}{*{20}c} {\pi_{2}^{1,p} = \pi_{3}^{1,p} = \frac{1}{ 4 0 8 0 4}( 1 1(V/K) - 4 1g)^{2} } \\ {\pi_{4}^{1,p} = \frac{ 1 4 5}{ 4 0 8 0 4}(5V/K - 3 7g)^{2} } \\ {\pi_{6}^{1,p} = \frac{9}{ 4 0 8 0 4}(5V/K - 3 7g)^{2} } \\ \end{array} \) | \( \pi_{ 1 5}^{2,p} = \pi_{ 4 2}^{2,p} = \frac{ 9 5}{ 9 6 1}(V/K)^{2} - \frac{ 2 2 8}{ 9 6 1}gV/K + \frac{ 2 2 7 7}{ 3 8 4 4}g^{2} \) \( \pi_{3}^{2,p} = \pi_{6}^{2,p} = \frac{1}{ 9 6 1}(2V/K - 2 1g)^{2} \) |
t | \( \begin{array}{*{20}c} {t_{N}^{1,p} = \frac{1}{ 1 0 1}(22V/K + 19g)} \\ {t_{S}^{1,p} = \frac{1}{ 1 0 1}(20V/K - 148g)} \\ \end{array} \) | \( t_{N}^{2,p} = t_{S}^{2,p} = \frac{1}{ 3 1}(7V/K - 2 7g) \) |
C.1 Post-merger equilibrium w/full integration (sea freight rates and profits)
M_{1} | M_{2} | |
---|---|---|
f | \( f_{f}^{1} = \frac{1}{6}(V/K + 1 3g) \) | \( f_{f}^{2} = \frac{1}{5}(V/K + 9g) \) |
π | \( \pi_{ 1 5}^{1,f} = \frac{1}{ 3 6}(V/K + 7g)^{2} \) \( \begin{array}{*{20}c} {\pi_{2}^{1,f} = \pi_{3}^{1,f} = \frac{1}{ 3 6}(V/K + g)^{2} } \\ {\pi_{4}^{1,f} = \pi_{6}^{1,f} = \frac{1}{ 3 6}(V/K - 11g)^{2} } \\ \end{array} \) | \( \pi_{ 1 5}^{2,f} = \pi_{ 4 2}^{2,f} = \frac{1}{ 1 0 0}(2V/K + 3g)^{2} \) \( \pi_{3}^{2,f} = \pi_{6}^{2,f} = \frac{1}{ 2 5}(V/K - 6g)^{2} \) |
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Crotti, D., Ferrari, C. & Tei, A. Merger waves and alliance stability in container shipping. Marit Econ Logist 22, 446–472 (2020). https://doi.org/10.1057/s41278-019-00118-6
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DOI: https://doi.org/10.1057/s41278-019-00118-6