Product bundling in global ocean transportation

Abstract

There are over 20 'components' in an international door-to-door transportation, ranging from warehousing and distribution, to forwarding, documentation, transportation, customs clearance, etc..As tariffs in ocean transportation tend to converge due to competition and service homogenization, carriers, in competition with third party logistics service providers, strive to integrate door-to-door services under their control. In doing so, and among others, they invest heavily in logistics rather than ships that can nowadays be easily chartered in from institutional investors.Integration efforts however have been met with varying degrees of success in the face of skeptical and suspicious shippers requiring cost break down and more transparency. With the use of game theory, this paper attempts to develop winning service bundling strategies for ocean carriers, i.e. global supply chain solutions under all-in prices. Preliminary results show that, under certain conditions, bundling can be an equilibrium strategy for one or more carriers, and despite leveraging around captive liner services and potentially enhanced profits, bundling does not necessarily lead to a loss in social welfare.bundling;integrated logistics;liner shipping;vertical integration