The impact of subsidy policy on competitive landscape in the shipping fuel market

As the global green transition accelerates, the shipping industry faces the dual challenge of balancing environmental compliance with cost pressures. To ease this compliance burden, governments employ subsidies to promote the adoption of low-sulfur fuel (LSF). But such a subsidy influences shipping companies’ fuel choices, which in turn affects suppliers’ pricing strategies and changes the competitive landscape of the market. This paper considers a shipping supply chain composed of competitive bunker suppliers and the government. Based on the decisions of shipping companies, bunker suppliers, and the government, a two-stage game model is developed. This study systematically analyzes (i) bunker suppliers’ pricing strategies under government intervention, (ii) the government’s optimal subsidy strategies, and (iii) the impact of government subsidy policies on the competitive landscape of the fuel market. The results show that different levels of subsidy would lead to several different pricing strategies and, on that basis, to five different competitive patterns in the fuel market. In addition, when the environmental impact of high-sulfur fuel (HSF) is low, governments typically provide a moderate subsidy. In contrast, in the case of high environmental impact, the subsidy level is constrained by fuel cost. Notably, the subsidy policy does not necessarily enhance the social welfare, and its effectiveness depends on environmental impact and shipping companies’ preference for LSF. Further analysis shows that both fuel cost and environmental factors indirectly affect the competitive landscape by influencing the subsidy level. As the cost differential between fuels increases, subsidy increases, leading to monopolization by the HSF supplier. Higher environmental impact delays the exit of the LSF supplier, but once the cost differential exceeds a critical threshold, the market returns to a monopoly of the HSF supplier. Finally, this study provides practical insights for governments and bunker suppliers.