Cooperation among freight forwarders: Mode choice and intermodal freight transport

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    has not joined the coalition. However, user surplus is negative in all coalitions, which shows that the

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    other transport providers. In this role, the freight forwarder acts asa principal rather than an agent. The United Nations Conference onTrade and Development (UNCTAD, 1995) has categorised freightforwarders in ocean-based Multimodal Transport Operators(MTOs) or Vessel Operating Multimodal Transport Operators

    as they must adapt and provide more value-added logisticsactivities in order to respond effectively to the ever-changingneeds of customers logistics requirement. This has led freightforwarders to effectively become third-party logistics serviceproviders (3PLs), particularly with regard to internationalfreight logistics services. In order to compete, many 3PLs haveutilised price competition and sales-inuenced strategies. Asa result, only arms-length relationships between 3PLs andtrading rms are developed (Banomyong & Supatn, 2011).

    * Tel.: 47 (0) 71214234; fax: 47 (0) 71214100.

    Contents lists available at

    Research in Transpo

    .e l

    Research in Transportation Economics 42 (2013) 77e86E-mail address: naima.saeed@himolde.no.tional freight forwarders sector. Most denitions imply that freightforwarders play the role of the intermediary in international trans-port. Common denitions portray International freight forwarders(IFFs) as logistical specialists for export shipments (Cateora &Keaveney, 1987). Other views, however, indicate that IFFs provideboth export and import services (Pope & Thomchick, 1985).

    In the recent past, however, freight forwarders have assumedanother role, not only helping the parties get the goods transported,but also undertaking to have the goods transported by their ownmeans of transport (truck/train/ship) or making arrangements with

    while very few freight forwarding companies deal with railwaytransport, even casually (Kokkinis, Mihiotis, & Pappis, 2006).

    Undertaking the arrangement of the routing and choice ofmode for the customer, together with any ancillary service suchas customs clearance or packing. This level of involvementintroduces a higher level of expertise, which the shipper maynot always be able to provide.

    Offering stand-alone ancillary services, such as warehousing,customs clearance, packing and port agency.

    Moreover, freight forwarders must work closely with shippers1. Introduction

    Freight forwarders have long pcommerce and the international carrifreight forwarder has been the link beand the carrier, and provided forwarforwarderacted as the agent for theow

    Researchers have failed to agree0739-8859/$ e see front matter 2012 Elsevier Ltd.http://dx.doi.org/10.1016/j.retrec.2012.11.005an important role ingoods. Traditionally, thethe owner of the goodsr clearing services. Thef the cargo or the carrier.nition of the interna-

    (VO-MTOs), and those that do not operate vessels eNon-VesselOperating Multimodal Transport Operators (NVO-MTOs).

    Some of the functions included in the freight forwardersactivities are:

    Acting on the customers behalf to procure the most suitablemode/combination of transportmodes, be it road, rail, sea or air.However, road, sea and air transport is most commonly used,Bertrand modelCoalitionservice providers. 2012 Elsevier Ltd. All rights reserved.Intermodal-transportGame theory

    establishment of these kinds of cooperation is not benecial (in terms of prices) for the users of theseCooperation among freight forwarders:transport

    Naima Saeed*

    Department of Economics, Informatics and Social Science, Molde University College, Sp

    a r t i c l e i n f o

    Article history:Available online 26 November 2012

    Classication codes:R40L91

    Keywords:Freight forwarders

    a b s t r a c t

    The objective of this paperThe paper analyses three frst two players are truckown ship. For the purposesbest form of cooperation ilition with the ship-operabetter payoffs in the form

    journal homepage: wwwAll rights reserved.ode choice and intermodal freight

    ised University in Logistics, 6402 Molde, Norway

    o compare vertical and horizontal cooperation among freight forwarders.ht forwarders (players) with two different means of transportation. Therating freight forwarders. The third player is a freight forwarder with itsanalysis, the paper applied a two-stage game. The results revealed that thee one in which the large truck-operating company would establish a coa-company; that is, vertical cooperation. This cooperation would generaterot, not only to the members of this coalition, but also to the player that

    SciVerse ScienceDirect

    rtation Economics

    sevier .com/locate /retrec

  • completion. According to (Chu, 2005) there are two incentives forinvolving a subcontractor. Firstly, when the total demand is greater

    have large volumes of cargos to transfer and will therefore beable to negotiate better agreements with the carriers, load their

    forwarders can also provide value-added services to theircustomers, which will yield economies of scope.

    Moreover, one of the disadvantages of sea transport (secondplayer) compared to road transport (rst player) is lowfrequency. In order to offer a satisfactory level of frequency andexibility in service, sea transport needs a certain volume ofcargo critical mass. The formation of a coalition will help thesea transport to achieve this critical mass.

    Other disadvantages of sea transport (second player) are slowspeed and low exibility. However, there may be room toimprove these drawbacks by combined transport solutions,using faster modes of transport on part of the journey. This isillustrated by an example of a differentiated set of transportalternatives between Kobe, Japan and Amsterdam. A customercould choose pure sea transport, which would take 28 days butat a very low cost. A faster alternative would be the landbridgesolution of transporting the cargo by train over the USA. Aneven faster alternativewould be a combined air-sea alternative,

    tatiothan the overall capacity of owned trucks, logistics managers mayconsider using outside carriers. Secondly, integrating the choice offullment mode into transportation planning may bring signicantcost savings to the company because better solutions can begenerated in an extended decision space. This extended problem isknown as integrated operational freight carrier planning.

    A freight forwarding companys prot is the difference betweenthe price that the customer is obliged to pay for the requestexecution and the costs of request fullment. These costs resulteither from fullment by the companys own transportationcapacity or from the external processing of orders as a consequenceof involving a subcontractor (Krajewska & Kopfer, 2006).

    As globalisation proceeds, large international freight forward-ing companies have a competitive advantage over small companiesdue to their wider portfolio of disposable resources and marketpower position. This leaves medium- and small-sized carrierbusinesses with the option of establishing coalitions in order toextend their resource portfolios and reinforce their market posi-tions (Krajewska & Kopfer, 2006). Moreover, the structure of largefreight forwarding companies often assumes autonomously oper-ating subsidiaries that should cooperate in order to maximisebusiness overall prot.

    The purpose of having freight forwarders cooperate is to ndequilibrium between the demanded and the available transportresources within several carrier entities by interchanging customerrequests (Kopfer & Pankratz, 1999).

    1.1. Players

    In this paper following three players are dened:

    1. A freight forwarder with its own means of land transport(trucks). This is assumed to be a large truck-operating company.

    2. The second player is a small truck-operating company that alsoworks as a freight forwarder.

    3. The third player is a freight forwarder with its ship. This type ofplayer is known in the literature (see UNCTAD, 1995) asa vessel-operating multimodal transport operator (VO-MTO).VO-MTOs are ship owners that have extended their servicesbeyond carrying the cargo from port to port to include carriageover land and even by air. They may or may not own the othermeans of transport, in which case they arrange for these typesof transport by subcontracting with such carriers.

    1.2. Different combinations of coalitions

    Various combinations of coalitions are possible in this situation(see Fig.1).

    1.2.1. Coalition between players 1 and 3 or between players 2 and 3For instance, if player 1 or player 2 cooperated with player 3, this

    wouldresult inan intermodal freight transportation situation. This typeof cooperation is considered vertical cooperation because it involvesMany enterprises outsource transportation tasks by entrustingindependent freight forwarding companies with their trans-portation activities. The forwarding company is allowed to choosethemode of fullment; that is, it can use its own vehicles to executethe corresponding entrusted tasks (self-fullment), or an externalfreight carrier (subcontractor) receives a fee for the request full-ment (subcontracting). The subcontractor receives independentshipment contracts of different types and specications for

    N. Saeed / Research in Transpor78two different means of transportation; that is, trucks and ships.means of transport to capacity, and decrease costs. In so doing,they will achieve economies of scale by transferring largequantities per cargo.

    Economies of scope: Having established cooperation, freight1.2.2. Coalitions between players 1 and 2Similarly, players 1 and 2 could cooperate with each other. This

    is considered horizontal cooperation because it involves twoplayers with the same means of transportation; that is, trucks.

    1.3. Expected incentives to form coalitions

    The following are some of the expected benets from theformation of coalitions:

    Potentially higher prot due to improved service quality: Aftercollaboration, freight forwarders will gain a competitiveadvantage that will increase the prot margin. Even if pricesincrease, customersmay appreciate the corresponding increasein service quality. Many researchers have found that customersselecting freight forwarders place greater emphasis on factorsother than price, such as travel duration, reliability, and qualityof transportation (Bardi, 1973; Bell, 2000; Gibson, Rutner, &Keller, 2002; Lambert, Lewis, & Stock, 1993; McGinnis, 1979).After collaboration, players will be able to improve the servicequality in terms of travel duration, reliability, etc.

    Economies of scale: Freight forwarders that form a coalitionwill

    Fig. 1. Different combinations of cooperation among freight forwarders. Source:Author.

    n Economics 42 (2013) 77e86or an air-only transport alternative.

  • tatio Formation of coalition/coalitions, especially involving player 3,will help to reduce the congestion in roads because cargo willbe shifted from road to sea.

    The objective of this paper is to compare vertical and horizontalcooperation among freight forwarders. A two-stage game is appliedfor the purpose of analysis. In the rst stage, the three players haveto decide on whether to act singleton or to enter into a coalitionwith any other player (Fig. 1).

    The decision at this stage should presumably be based on thepredicted outcome for the second stage. The second stage is heremodelled as a Bertrand game with one outside competitor and thecoalition. Since the rst stage decision (when players have to decidewhether to join the coalition or not) depends on the predictedoutcome for the second stage, the problem will be studied bybackward induction. Furthermore, the stability of these suggestedcoalitions will be checked with the help of concepts of coalitionalrationality of the cooperative game.

    The rest of the paper is organized as follows: Section 2 presentsa number of research works related to the application of coopera-tive game theory to the freight forwarders sector, and the differ-ence between this research and previous research. In Section 3,a model for a Bertrand game for the second stage and its parame-ters are presented. Section 4 constitutes a numerical analysis and isfollowed by a conclusion and policy implications in Section 5.

    2. Literature review

    Krajewska and Kopfer (2009) presented a model for collabora-tion among independent freight forwarding entities. They arguedthat, in todays highly competitive transportation branch, freightforwarders reduce their fullment costs by exploiting differentexecution modes (self-fullment and subcontracting). The freightforwarders use their own vehicles to execute self-fullmentrequests and forward subcontracting orders to external freightcarriers. Competitiveness can be further enhanced if the freightforwarders cooperate in the form of coalitions in order to balancetheir request portfolios. Participation in such a coalition providesadditional prot for the entire coalition and for each participant,which reinforces the market position of the partners. Their paperintroduces the integrated operational transport problem, as well asexisting collaboration approaches.

    Moreover, themodel proposed by Krajewska and Kopfer (2009) isbased on the combinatorial auction theory, as well as on the opera-tions research game theory. The models main strength is that eachparticipant generates no losses as a consequence of the collaborationand has a realistic chance of increasing its prot by participating inthe coalition. The collaboration-advantage indexes have been chosenin such a way that enables all participating coalition members toexpect positive payoff vectors. Therefore, each partner has strongincentives to join and tomaintain the coalition towhich they belong.

    Ting (2009) described the logistics service (even freightforwarders with no independent means of transport) as a type ofoligopoly market because a small number of logistics serviceproviders (LSPs) always compete to win a shipping contract. Theyare interdependent in the sense that the prot that each providerearns also depends on the others actions. Ting (2009) use a gametheoretic approach including the Cournot, Collusion and Stackel-berg models to study the cooperative and competitive behaviouramong the oligopolistic competitors.

    Cantos-Sanchez, Moner-Colonques, Sempere-Monerris, andAlvarez (2010) developed a theoretical model for freight transportthat is characterised by competition between means of transport(the road and maritime sectors), where modes are perceived as

    N. Saeed / Research in Transpordifferentiated products. Competitive behaviour is assumed in theroad freight sector, and there are constant returns to scale. Incontrast, the freight maritime sector is characterised by oligopo-listic behaviour, whereby shipping lines enjoy economies of scale.Themarket equilibrium inwhich the shipping lines behave as protmaximisers provides a rst approximation to the determinants ofmarket shares, prots and user welfare.

    Moreover, the results show that maritime freight increases afterthe merger, in cases where the merger enta...

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