Vertical Integration of Inland Port into Port Network: Case Study of Port Ust-Luga

Vertical integration in the maritime industry is an actively developing trend nowadays. Besides integration within the industry and the rise of mega-carriers, we now face from an interindustry perspective that vertical integration with its ‘visible hand of management’ replaces ‘invisible hand of the price mechanism’ at the port sector as well. For a company in our global economy, integration of logistics processes became as important as the creation and development of competitive advantages. Regionalization of ports and privatization in the port sector, open new opportunities for all parties in their network. Yet, vertical integration of inland ports, for example specializing on dry bulk traffic, into a seaport network is a relatively unexplored field of port studies. Hence, it is important to realize why this trend is happening? What are the drivers of vertical integration into a seaport and what are the issues given the dry bulk focus? How does it influence competitiveness of the integrating parties? To answer these questions, port networks were analyzed from the stand point of bulk logistics, transaction costs analysis was applied to the port sector and a combination of strategic tools is applied to a particular port network. The analysis of this study was then applied on a particular case: a company exporting coal, vertically integrated into the Port of Ust-Luga (which is part of the North-Western Russian ports network). A survey was carried out with companies vertically integrated into the seaport. This empirical analysis allowed to explore 9 factors that had crucial influence on the decision to vertically integrate and 10 factors that were important for such decision. Based on Porter’s ‘extended diamond’, the conceptual framework of a company’s vertical integration into a seaport is proposed.