Abstract: The port industry is going through rapidexpansion in some developing countries, and regional port systems (RPS) are gaining importance in its regional and nationaleconomies. Commodity-handling capacities of ports within a port system havesignificant impact on efficiency of commodity flow within the system. Thispaper develops a bi-level optimization model that captures the interactionbetween the decisions of port capacity and commodity flow.In this model, a social planner optimize the whole system by determiningthe capacity of each port from to minimize the regional logistics cost, takingaccount that shippers in demand-generating hinterland regions determine theamount of shipments to each port based on many factors, including thecapacities of ports. A heuristic is developed to solve the lower-levelshipper-choice problem. This heuristic is based on discrete choice but alsofactored in port capacity constraints. Genetic Algorithm is applied to solvethe upper-level capacity-determination problem. The model is successfullyapplied to a port system containing 15 ports and 13 hinterland regions in Jiangsuprovince of China.

Keyword: Regional port system (RPS)  Bi-level optimization  Port Capacity

INTRODUCTION

In the past decades, global production networks (GPN) haveled to opening of new ports and capacity-expansion of existing ports indeveloping countries. Many regional port systems (RPSs) have emerged, some ofwhich are characterized by multiple emerging direct-service non-hub terminals^[1],which is distinctly different from the evolution path set by Hyuth^[2].

These booming RPSs promote the global trade andregional development but also generate various externalities such as trafficcongestion, increased energy consumption, land shortage and negativeenvironmental impacts^{[3] ,[4] ,[5]}. Price war between the ports inone RPS^{[6], [7]}, uneven use of port resources^[8], andlack of efficiency make things worse. Many strategies, coming out of Europeanor North American ports, have been proposed to alleviate the negative impacts.These strategies included building dry ports to shift freight volumes from roadto more energy efficient traffic modes^[9], developing collaborativecompetition strategy between container ports to carry out a win-win objective^[10]，or application of lean enterprise to improve seaport operations^[11].But these are not nearly enough for the port industry in developing countries,which lack a mature system of law and supervisory experience^[12],[13].