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Long–term Business Relationships between Consignor and Trucking Carrier in Japan

Listed author(s):
  • Norihiro KASUGA

    (Nagasaki University)

  • Akio Torii

    (Yokohama National University)

In this paper, we have empirically analyzed the factors that lead to longer business relationships in the logistics industry. The main conclusions of this paper are summarized as follows. First, the terms of relationships observed between the consignors and the trucking carriers that receive consignment of the transportation of the consignor’s main products have significantly positive associations with the level of information exchanged and consignments of distribution processing operations proposed by the consignee. Transaction cost economics implies that long-term relationships facilitate investment in relation-specific assets so as to improve efficiency. Then, we have sound reason to assume that the content of the shared information and the equipment for distribution processing have a significantly relation-specific nature, and accumulation of the related human capital, such as skill in workers and know-how, is important to improve efficiency of the whole logistics system. At the same time, these assets may function as hostages to maintain the long-term relationships. In regard to all of these points, the same mechanism is at work as in the commercial distribution market. The second conclusion is that the long-term business relationship is affected by the demand volatility of the consignor’s product. Consignors who belong to industries with a large volatility of demand tend to rely on transportation services procured from spot logistics markets with a shorter contract term. This finding is also consistent with previous research in the commercial distribution market. These results suggest that the mechanism to minimize transaction costs by establishing long- term business relationships is likely to exist in the logistics market. This is the same mechanism which is pointed out in the commercial distribution market. Generally, assets consisting of a system with a network structure tend to be sunken. Therefore, in order to save coordination costs which are incurred to make the whole distribution market function efficiently, long-term business relationships are indispensable. Thus, relationships between companies in the logistics market are likely to be affected by the shortening of the delivery time in the commercial distribution market.

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Paper provided by EconWPA in its series Industrial Organization with number 0504009.

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Length: 25 pages
Date of creation: 08 Apr 2005
Handle: RePEc:wpa:wuwpio:0504009
Note: Type of Document - pdf; pages: 25. Crew, M. and P. Kleindorfer ed., Current Directions in Postal Reform, Kluwer academic publishers, pp.413-438.
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References listed on IDEAS
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  1. Pirrong, Stephen Craig, 1993. "Contracting Practices in Bulk Shipping Markets: A Transactions Cost Explanation," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 937-976, October.
  2. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
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