Impact of Hinterland Access Conditions on
Rivalry between Ports
Anming ZhangApril 2008

De Borger, Proost & Van Dender (2008)

Port A
Volume: XA
Capacity: KfA

Hinterland A
Volume: XA + YA
Capacity: KhA

X=XA + XB

X=XA + XB
Hinterland B
Volume: XB + YB

Port B
Volume: XB
Capacity: KfB

Capacity: KhB

De Borger, Proost & Van Dender: Main results
1. Investment in port capacity reduces prices &congestion at both ports, but increases hinterland
congestion in the region where the port investment ismade
2. Investment in a port’s hinterland is likely to leadto more port congestion & higher prices for port
use, and to less congestion and a lower prices atthe competing port
3. Imposing congestion tolls on the hinterland roads
raises port capacity investment

• The present paper: Hinterland access conditions the port and port competition• Port congestion & capacity investment abstractedaway• Bottleneck of the logistics chain shifted to theport/inland interface• e.g. hinterland connection; inland transportation• 2nd objective: Link port competition with corridor
capacity & urban mobility• Corridor capacity:
Rail connection: Inland terminal (e.g. theAlameda corridor)
Rail competition: Monopoly or oligopoly?
BargeBorder crossing• Urban mobility: Trucking for final, local delivery
Road capacity
Road pricing

Model• Like De Borger, Proost & Van Dender:
Two seaports, labeled 1 & 2, share the sameoverseas customers and have each a downstream,
congestible transport network to a common
hinterland• Unlike De Borger, Proost & Van Dender:
1) Port & its hinterland belong to a single region,ensuring coordination in their decisions2) Imperfect substitutes: allow both overlappingand captive hinterlands

Total (generalized) cost faced by users:

ipi

DCi ( K Ci ) DLi (Vi , K Li ) ti ,i 1,2(1)• Corridor delay cost falls as the corridor capacity (Kci)increases• Road used by both cargo shipments Xi and local commuters
Yi, we have Vi= Xi+ Yi• Road delay cost satisfies:
DLi
Vi0,

DLi
K Li

20,

DLi

Vi2

20,

DLi
Vi K Li0(2)• Increasing traffic volume (V) raises road congestion whileadding capacity (KLi) decreases road congestion, and theeffects are more pronounced when there is more congestionTotal cost of local road traffic:
t i DLi ( X i Yi , K Li )Li (Yi )

i 1,2

(3)

(a) an increase in road toll reduces local traffic;(b) an increase in cargo traffic decreases local traffic;(c) an increase in road capacity increases local traffic;(d) an increase in cargo traffic will, while reducing local traffic,increase overall road traffic.

• Each port’s demand depends on both its total cost andtheirival port’s total cost: j
X 2 X 2 ( 1, 2 )X1 X1( 1, 2 ) ,(5)• Inverting (5) yields:(6)
11( X1, X 2 ) ,22 ( X1, X 2 )*• Using (1) and Yi Yi (t i , X i , K Li ), equations (6) can bewritten as, for i=1,2:pi
DCi ( K Ci ) DLi (Vi , K Li ) t i pi ( X 1 , X 2 ; K Ci , K Li , t i ) (7)i (X1, X 2 )• Each port’s revenue as:
ipi ( X 1 , X 2 ; K Ci , K Li , t i ) X ii( X 1 , X 2 ; K Ci , K Li , t i )(8)

Main results• Port competition: Competition between alternate
intermodal chains; while hinterland access conditions
represented by corridor facilities and by inland roads• When the ports compete in quantities, an increase incorridor capacity will:a) increase own port’s outputb) reduce the rival port’s outputc) increase own port’s revenue

Main results (cont.)• Port competition results in higher level of corridor
capacity investment than would be in the absence ofcompetition• This capacity competition between regions/countries
improves social welfare, but the generalized costs
are still too high compared to social optimum• This capacity competition between regions/countries
may lead to a Prisoner’s Dilemma

Main results (cont.)• An increase in road capacity may or may notincrease own port’s output and profit, owing tovarious offsetting effects• Road pricing may or may not increase own port’soutput and profit• The above over-investment result is weakened if themode of port competition is in prices

Further research1. Empirical work:a) Which model of competition is “correct” for ports?
• Cournot: Firms (here, ports) commit to quantities,
and prices then adjust to clear the market implying
the industry is flexible in price adjustments, even in
short run
• Bertrand: Capacity is unlimited or easily adjusted in
the short run.
• Some industries behave like Bertrand and others
Cournot; as such, which model of oligopoly isapplicable to a particular industry (here, the portindustry) is of an empirical questionb) Empirical test of the theoretical predictions:Hard given lack of datac) Correlation of annual container throughput growth (marketshare, respectively) and changes in urban area mobility –LA/Long Beach, 1995-2006

Delay per
Total delay
peak traveler(person-hrs)(person-hrs)
LA+LB
container
throughput
growthLA+LB
container
market share

Traveltimeindex

Congestion
Total
cost percongestion
peak
cost ($)
traveler ($)-0.683*(0.029)-0.649*(0.024)-0.716*(0.020)-0.684*(0.029)-0.642*(0.045)-0.414-0.353-0.301-0.405-0.367(0.235)(0.318)(0.398)(0.246)(0.297)

Oakland

Delay per
Total delay
peak traveler(person-hrs)(person-hrs)

Traveltime index

Congestion
Total
cost percongestion
peak
cost ($)
traveler ($)

Throughput
growth

0.368(0.295)0.426(0.220)0.449(0.193)0.461(0.180)0.478(0.163)Market share

0.198(0.584)0.243(0.500)0.301(0.398)0.355(0.314)0.401(0.251)

Portland

Delay per
Total delay
peak traveler(person-hrs)(person-hrs)

Traveltime index

Congestion
Total
cost percongestion
peakcost ($)
traveler ($)

Throughput
growth

0.164(0.650)0.019(0.959)0.062(0.864)0.039(0.914)-0.131(0.718)Market share

0.144(0.692)0.016(0.965)0.103(0.777)0.022(0.951)-0.154(0.671)Seattle

Delay per
Total delay
peak traveler(person-hrs)(person-hrs)

Traveltime index

Congestion
Total
cost percongestion
peak
cost ($)
traveler ($)

Throughput
growth0.201(0.577)0.244(0.498)-0.103(0.778)0.210(0.561)

0.242(0.501)Market share

0.165(0.648)0.204(0.571)-0.126(0.729)0.181(0.616)0.216(0.549)

2. Organizational coordination• For an intermodal chain: port, corridor & road may belong todifferent, separate organizations• Each maximizes own interest, which may not be the sameas the interest for the entire chain’s

A
1Complements

Complements

3CB
24
D

Two (potential) functional integration or alliancechains12‘North’ Chain

34‘South’ Chain

3. Overlapping & captive hinterlands• Although the captive hinterlands do not subject to immediate
competition, they play an important role in port competition• How?
• If both the overlapping and captive markets are
considered, important interactions between the twomarkets & their impact on port competition need to beanalyzed• This involves an explicit derivation of demand functions

Modal Structure

Port B(Port of Antwerp)

Port A(Port of Rotterdam)

0-z

Hinterland(e.g. Germany)
Users are distribute alongz