Modelling the Impact of Changing the Number of Shipping Lines on Ports’ Charges and Profits: A study of Tauranga and Auckland Container Ports

Abstract

Container ports are utterly important for a geographically isolated nation like New Zealand, especially when international trade accounts for around 60% of the country’s total economic activity. The financial returns of New Zealand ports, however, are unsustainable and insufficient to justify future investment due to intense inter-port competition. The problem appears to be further compounded by the current trend of mergers and alliances among international shipping lines, which reduces the number of shipping lines and makes port operators more dependent on shipping companies. The literature on port competition so far has focused on modelling port competition with one ocean carrier only and neglects the dynamics of competition among shipping lines and how it affects ports’ handling charges. This study, therefore, aims to explore the impact of changing the number of shipping lines on ports’ charges and profits. A two-stage non-cooperative game-theoretic model is developed with two ports and multiple identical shipping lines. At the first stage, the ports decide their container handling charges. At the second stage, the shipping lines make their port of call decision to split cargoes between the two ports. The model is then applied to the case of competition between the Port of Tauranga and the Port of Auckland to draw managerial insights. The results are surprising and interesting. It shows that if the number of shipping lines is reduced, ports’ charges turn out to be increased and vice versa as each shipping line makes their decision to split cargo between the two ports based on its own output, rather than on the aggregate output of the whole market. This study also provides practitioners with a thorough understanding of the effects of many other factors such as hinterland, transhipment volume, fuel costs and congestion costs on ports’ charges and profits.