Market Entry or Outsourcing? Game Analyzing Coastal Piggybacking Within Horizontal Competition

The shipping industry employs various strategies for outsourcing between freight forwarders and ocean shipping (OS) companies, including consignment and turnkey strategies. Freight forwarders often have a competitive edge in cargo canvassing, but many OS companies still engage in this practice. With China’s new policy liberalizing coastal shipping rights, OS companies are presented with two coastal shipping tactics: coastal transition and coastal piggyback (CPB). The interaction between OS companies and freight forwarders in the context of this policy change raises important strategic questions. This study examines the coastal piggyback business model within a three-tier shipping supply chain, involving a freight forwarder and two competing OS companies (OS1, which does not qualify for the coastal piggyback policy, and OS2, which does) using game theory. Through game analysis, we find that CPB may represent a myopic equilibrium. Specifically, when the freight forwarder’s cargo-canvassing capability is higher than a certain threshold, CPB is not advantageous for OS2’s market entry. Conversely, if the freight forwarder’s capability is relatively low, both OS companies can benefit from CPB. Additionally, OS companies enter the market when entry costs are low and avoid it when costs are high. With moderate costs, their strategy depends on the other OS company’s actions. Interestingly, the forwarder can deter market entry by enhancing cargo canvassing and adjusting outsourcing tactics. Notably, OS companies’ market entry may boost the forwarder’s payoffs in a horizontally competitive supply chain. Furthermore, this research examines the economic sustainability of coastal piggyback policy by analyzing its impacts on the profitability of all supply chain members.