Revenue-sharing in the alliance of inland river and sea carriers: Formulation and a case study

This paper investigates the market dynamics and welfare implications when river and sea carriers may compete and collaborate in an inland river market. A vertical-structure model that considers the interactions among ports, river and sea carriers, and shippers is proposed. The port operator sets port service charges to maximize social welfare of the river-sea transport system. The sea carrier maximizes own profit by determining the inland river ports to collaborate and the waterway freight rates for the river-sea and seagoing transport services. The river carrier maximizes own profit by determining its waterway freight rates for the inland river transport services and the revenue that it shares with the sea carrier. Two cases are considered: (i) the competition case in which the river and sea carriers compete with each other; and (ii) the alliance case in which the river and sea carriers share revenue with each other. The results suggest that there are markets where the alliance between river and sea carriers can make both of them better off (i.e., win–win outcome), which also increases the social welfare of the system. However, port charges may need to be adjusted to balance carriers’ pricing, although the waterway freight rates paid by shippers may not be changed. Due to waterway depth limitation, the win–win outcome tends to be more difficult to achieve in upstream ports with more shallow waterways, whereas increased transfer time at transfer ports favors direct sea-river shipping services. The river and sea carrier alliance has potential to benefit the shipping industry and the public. However, such an alliance may not be feasible to form for all inland ports, and government intervention on port service charge may be justified.