Service purchasing and market-entry problems in a shipping supply chain

In the shipping industry, forwarders can purchase a “one-stop” service from an ocean shipping (OS) company or a dual “ocean + inland” service from an OS company and an individual inland shipping (IS) company. Additionally, the OS company can strategically decide whether or not to enter the downstream market for cargo-canvassing, which will form a co-opetition relationship with incumbent forwarders. We investigate a strategy matrix based on the following two questions: “What kind of shipping service should be purchased by the forwarder?” “Is it beneficial for OS company to enter the market?” We find that when the forwarder’s cargo-canvassing effort level is low, a dual-service purchasing strategy will benefit both the stakeholders, while market-entry is a self-interested behavior and hurts the forwarder. Enhancing the cargo-canvassing effort level may help the forwarder to overcome this dilemma. However, with an increasing level of effort, there is a mutual inhibition of dual-service purchasing and market-entry, which hurts both the stakeholders’ profits simultaneously. Interestingly, we show that a win-win situation exists when the forwarder adopts a dual-service purchasing strategy without market-entry. Furthermore, we verify that this win-win situation is Pareto-optimized.