Accessorial value-added services in inland river port: Self-operating or outsourcing?

This paper addresses the investment decision issues of accessorial value-added services in an inland river port. We present a vertical structural model that considers the interactions among shippers, port operator, government, and outsourcee (if any). Using this model, we analyze the effects of the accessorial value-added services in an inland river port on the stakeholders’ behavior, port profitability and social welfare. We identify the critical conditions that the port operator would like to provide the value-added processing services via self-operating or outsourcing. We also determine the optimal subsidy policy of the government for introducing such services. The results show that: (i) the introduction of value-added processing services leads to a decrease in the price of regular services but an increase in the associated cargo volume; (ii) when potential market size and government subsidy are low, the port operator tends to outsource but not self-operate the processing services; and (iii) the government subsidy plays a critical role in the decision on the operating mode of port processing services, and a reasonable subsidy can achieve a “win-win-win” outcome for the shippers, port operator (including outsourcee, if any), and the society. This paper provides an important and useful methodology for modeling the game behavior among stakeholders and for design and evaluation of port operator’s operational strategies and government’s regulatory policies in the inland river system.