China Railway Express Subsidy Model Based on Game Theory under “the Belt and Road” Initiative

Abstract

China Railway Express (CR Express) is an emerging freight transport mode between China and Europe, which provides a new option in addition to air transport and ocean shipping. At the initial stage of development, due to the higher freight costs compared to ocean shipping, the government subsidy provided for the China Railway Express operator plays an important role in the process of market cultivation. The original intention of the government subsidy was to promote the rapid and sustainable development of China Railway Express and the further subsidy scheme should encourage China Railway Express operators to act towards the expected goal of the local government. This research is devoted to modeling and solving the problem of optimal subsidy amount in the operation of China Railway Express. Firstly, a subsidy model is established with the consideration of different objectives of local government and China Railway Express operator, which are affected by the operational effort level of the China Railway Express operator, actual freight rate and the highest freight rate that the shipper is willing to pay. Then, the validity of the proposed model is analyzed in the case study of the China Railway Express line (Wuhan–Hamburg). The effects of different subsidy amounts on the social benefits of local government and profits of the China Railway Express operator are analyzed and the sensitivity analysis is carried on the operational effort level of China Railway Express operator and the highest freight rate that shipper is willing to pay. The analysis results show that the optimal subsidy amount is between 2000 and 2500 USD per Forty-Foot Equivalent Unit (FEU). Finally, suggestions are proposed according to the analysis results. These findings can provide useful references for promoting the sustainable development of China Railway Express.