J.FeiAMC

1
International Transport Systems (M08)

• Organisation of this unit

2
International Transport Systems (M08)

• Learning objectives
• Explain the relationship between marketing and
  consumer demand
• Describe market structures such as monopoly,
  oligopoly and perfect competition
• Explain how different modes compete and cooperate
  with each other
• Discuss the trend that transport service
  providers compete between logistics chains as a
  whole
• Describe the effects of strategic alliances on
  competition

3
International Transport Systems (M08)

• The international transport market
• Market structure
• Perfect competition
• Pure monopoly
• Monopolistic competition
• Oligopoly
• Form of competition
• Modal competition
• Competition between logistics chains
• Competition on networks
• Competition and strategic alliances

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International Transport Systems (M08)

• Market structure
• Perfect competition
• A useful concept, but does not exist in the real
  world
• Perfect competition means a market will have
  following characteristics
• There would be many small sellers and no
  individual seller in the market would be so big
  that its actions would affect market prices. And
  there would be such a large number of buyers that
  their individual actions would also have no
  effect on market prices.

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International Transport Systems (M08)

• Market structure
• Perfect competition
• All of the products would be largely homogenous,
  even identical, so that buyers would have no
  reason to discriminate.
• Firms would be free to enter or leave the
  industry as they wished. Labour would be
  completely mobile and able to move from one
  region to another. Raw material would be freely
  available.
• Every participant in the market would have
  perfect knowledge of the relevant economic
  dataprice, availability of goods, level of
  demand and so on.
• Business in a perfectly competitive industry
  are price takers because no individual company
  can influence the price of a commodity or
  service.

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International Transport Systems (M08)

• Pure monopoly
• A market where there is only one seller. For
  some reason, the service or commodity offered by
  a business has no close substitutes in the
  market. If you do not acquire it from that
  particular business, the only choice is do
  without.
• Situations that may give rise to monopolies
• Isolated communities
• Limited financial resources
• Licensing systems
• Patent rights
• Technical barriers
• Monopoly power more common than true monopoly.
  In a market where there are many firms, there may
  be a single dominant one. Example???
• A monopoly is a price maker. It is the market
  and can set its own price.

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International Transport Systems (M08)

• Monopolistic competition
• Lies between perfect competition and a monopoly.
  The basic premise is that all products in a
  market fostering monopolistic competition are
  reasonably close substitutes for each other,
  although they are not all identical. Because each
  product or service is slightly different and
  unique, every company operating in the market is
  a monopoly in itself.
• Monopolistic competition vs. product
  differentiation
• Price is not used to increase sales product
  differentiation is. It is monopolistically
  competitive firms that are the main users of
  advertising and promotion.

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International Transport Systems (M08)

• Oligopoly
• When there are very few suppliers in a market.
• The outstanding characteristics of an oligopoly
  is that the firms are mutually interdependent.
  The actions of any one of the firms will affect
  the others dramatically, and so they relentlessly
  monitor each others activities. They not only
  have to anticipate the reactions of their
  customers to any changes in product or price, but
  also the reactions of their competitors.

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International Transport Systems (M08)

• Oligopoly
• How about the transport industry?
• Collusion rival companies in an industry
  cooperate and coordinate for their mutual
  benefit.
• Cartels when collusion takes the form of a
  written agreement, eg. OPEC.
• Liner conferences where two or more shipping
  lines offer a joint service. The members agree a
  set of tariffs, conference terms and conditions
  of carriage, the number and type of ship each
  member will contribute, and the timetable for
  sailings.
• Price leadership if there is a particular large
  and effective firm in the market, its pricing
  will be the benchmark for the other firms.

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International Transport Systems (M08)

• Form of competition
• Examples competition between ports is
  traditionally influenced by the geography of port
  jurisdiction (the distance between ports and
  their potential to serve a common hinterland).
• Inter-port competition over long distance Hong
  Kong vs. Shanghai Singapore hub airports of
  London, Paris, Amsterdam and Frankfurt compete
  for international air traffic.
• Competition within same transport mode
• Competition with other transport modes

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International Transport Systems (M08)

• Form of competition
• Modal competition
• Modes can compete or complement each other in
  terms of cost, speed, reliability, frequency,
  safety, comfort etc. Cost is once of the most
  important considerations in the choice of mode.
• For passenger transport
• The cost of the transport service
• The affordability of the passenger
• For freight transport
• Distance to be travelled
• Quantity the of shipment
• The value of the goods
• Other factors
• Availability of transport infrastructure and
  networks in a particular area

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International Transport Systems (M08)

• Modal competition
• Distance, modal choice and transport cost

Different transport modes have
different cost functions. Road, rail and maritime
transport have respectively a C1, C2 and C3 cost
functions. While road has a lower cost function
for short distance, its cost function climbs
faster than rail and maritime cost functions. At
a distance D1, it becomes more profitable to use
railway transport than road transport while from
a distance D2, maritime transport becomes more
advantageous. Point D1 is generally located
between 500 and 750 km of the point of departure
while D2 is near 1,500 km. Source Rodrigue, J.
(2005)
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International Transport Systems (M08)

• Modal competition
• Coopetition between transport modes
• The consequences of over competition
  over-invested or repeated infrastructure
  construction, incompatible operation processes
  and management systems, low efficiency of the
  overall transport system
• Over competition ultimately leads to high
  transport costs
• Cooperation between modes intermodalism

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International Transport Systems (M08)

• Competition between logistics chains
• A logistics chain or supply chain may involve
  several transport modes and sometimes all
  available modes with many different companies.
  The common goal and interest within a logistics
  chain is to achieve high efficiency in the
  transfer of goods, therefore being competitive
  over other logistics providers.
• The key element in this process is the sharing of
  information among logistics chain members (the
  right of accessing certain information and the
  responsibility to input relevant information in
  order for other parties to be informed).
• The benefit the high utilisation of resources as
  the resources are pooled from all parties, and
  increased efficiency.

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International Transport Systems (M08)

• Competition on networks
• Competition in networks is different from the
  competition between logistics chains in that
  network competition happens within a particular
  transport mode rather than a combination of
  several modes.
• Networks benefit the users by the provision of
  more available destinations without having to
  change operator, more consistent information,
  likelihood of more compatible timetables and more
  possibilities of making changes to time and
  routes.
• Networks achieve the economies of scale through
  serving a range of destinations more economically
  by one operator rather than by several. Serving
  several routes in common enables the operator to
  use a large fleet, manage it better, and achieve
  high rates of utilisation and lower average
  overheads.

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International Transport Systems (M08)

• Competition on networks
• Direct-link and hub-and-spoke networks
• Direct link networks provide a system with the
  shortest direct link between any two points. The
  structure provides the minimum total number of
  seat-km or ton-km. However, this does not mean
  the cost of the network is the lowest, as routes
  between any two points may not have maximum
  vehicle utilisation because of the limited volume
  of traffic. To achieve high utilisation, the
  frequency of services might be compromised as a
  result.
• In a hub-and-spoke network, the link between A
  and B can be provided at a lower cost via E if
  the economies of scale are sufficiently high and
  result in a lowering of unit costs on AE and EB
  due to the concentration of a higher level of
  traffic than on the direct link between A and B.
  the advantage of this structure are lower unit
  costs and more frequent services. However, there
  are disadvantages to the user in terms of the
  loss of time and the cost of changing vehicles.

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International Transport Systems (M08)

• Strategic alliances
• An important form of cooperation between two or
  more business entities and are prevalent in
  network-oriented industries such as air
  transport, shipping and logistics.
• Medium- to long- term partnership with the goal
  to improve partners competitive advantages
  collectively over their competitors.
• Cooperative activities product development,
  market access and linkages, quality improvement,
  and pricing and capacity coordination.
• Benefits network expansion, realisation of
  economies of scale, and improvement on product
  quality and customer service.