Over the years many shipping lines have established terminal
operation companies, with some set up as independent firms.
However, port authorities and local governments have not
always welcomed external investment and control with open
arms. The economic implications and each stakeholder’s best
strategies remain unclear. This study develops an analytical
model in order to study the effects of vertical integration, with a
focus on shipping lines’ investment in ports’ capacity. Modelling
results suggest that vertical integration between terminal
operator and a shipping line leads to higher port capacity, port
charge, market output and consumer surplus. It also reduces
delay costs. All these results suggest that vertical integration can
be an important source of synergy for the maritime industry.
Although vertical integration increases the participating carrier’s
output at the expenses of non-integrating rival shipping firms,
the overall social welfare is still improved, which is indicated
through the numerical analysis. Therefore, port authorities and
government regulators should carefully review the market
competition status as well as port expansion plans.