Transportation Research Part E 55 (2013) 74–83

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Transportation Research Part E

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Shipping design for compliance and the performancecontingencies for shipping firms

1366-5545/$ - see front matter � 2013 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.tre.2013.03.004

⇑ Corresponding author. Tel.: +852 27667920; fax: +852 23302704.E-mail address: mike.lai@polyu.edu.hk (K.-h. Lai).

1 An international treaty agreed by the United Nations Framework Convention on Climate Change (UNFCCC) for prevention of global warming.

Kee-hung Lai ⇑, Christina W.Y. Wong, Y.H. Veus Lun, T.C.E. ChengShipping Research Centre, The Hong Kong Polytechnic University,Hung Hom, Kowloon,Hong Kong,PR China

a r t i c l e i n f o a b s t r a c t

Keywords:Shipping

Environmental managementContingency theoryPerformance

Increasing number of shipping firms adopt green shipping practices that emphasize envi-ronmental management throughout their operations. To balance productivity with theenvironment, the design of shipping activities in compliance with energy saving andresources conversation is an important part of greening efforts by many shipping firms.This study investigates how the green practices on shipping design for compliance (SDC)adopted by shipping firms is related to their financial and service performance with therole of company policy and procedures and shipper cooperation examined. We find thatSDC is beneficial for the financial and service performance of shipping firms. Based onthe contingency theory, we argue further that company policy and procedure as well asshipper cooperation differentiates the performance outcomes of shipping firms in theirSDC for environmental management. Our empirical findings show a positive relationshipof SDC with service performance particularly when their company policy and procedureand shipper cooperation are characterized at high than low levels in the process. However,such strengthening effects are not found for the relationship between SDC and the financialperformance of shipping firms.

� 2013 Elsevier Ltd. All rights reserved.

1. Introduction

Shipping is one of the world’s most globalized industries playing a fundamental role in supporting international tradethrough transport of cargoes in a cost effective manner (Lun et al., 2013). While serving such an imperative role in facilitatinginternational cargo movement, carbon emission by the shipping industry is estimated to increase in 20 years by 72% in 2020by the International Maritime Organization (IMO) as world trade volume continues to grow (Vidal, 2007). Even though theshipping sector is not subject to the emission reduction requirement under the Kyoto Protocol,1 shipping transport isacknowledged as a significant source of CO2 emissions. Considering the potential harms caused to the environment, the ship-ping industry needs to curb the environmental damages arising from their activities, both locally and internationally. Theimportance of environmental concern has led many shipping firms to respond by embracing green shipping practices (GSPs)to improve operations efficiency while preserving the environment. Such development is driven and supported by giants in var-ious business sectors, e.g., Carrefour, Home Depot, LUSH, IKEA, Marks and Spencer, Tesco, Wal-Mart, and so forth, to reduceenvironmental harms through improving routes and scheduling, modal shift, using alternative fuels. Container shipping firmssuch as Maersk Line have also committed to provide constant care for the environment with environmental protection policy tobetter utilize resources, improve operations, and reduce wastes. In addition to the industrial efforts, the IMO imposes protocolto prohibit deliberate emissions of environmentally depleting substances by ships (e.g., CO2). Although compliance to the pro-

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tocol is expected, knowledge about the performance impact of such compliance is seriously lacking, and most importantly, un-der what conditions would such compliance be beneficial to business performance. This omission in the shipping literature ishighly undesirable as it remains uncertain for shipping firms as to whether they may benefit from financial and service perfor-mance due to the compliance.

While shipping is closely related to logistics and supply chain management, prior studies on environmental managementhas primarily focused on logistics management as management practice (Lai and Wong, 2012), closed-loop supply chain(Wong et al., 2012a; Zhu et al., 2008b), and reverse logistics (Kocabasoglu et al., 2007). Until recently, there are studies exam-ining CO2 emission from international shipping (Heitmann and Khalilian, 2011) and marine energy consumption (Chang,2012). Indeed, there are increasing public attentions on the link between transport and pollution in particular CO2 emissioncaused by shipping activities. For instance, the European Commission has made a joint statement on emission from shippingon 1st October 2012. The Commission recognizes shipping as a global industry that needs global solutions to tackle the resul-tant environmental footprint. It plans to develop a system to monitor, report, and verify emissions on the basis of fuel con-sumption to embark on this green shipping initiative in 2013. There is also an Energy Efficiency Design Index (EEDI)developed by the IMO for application to new ships from 2015 onwards targeting to reduce their emissions.2 The EEDI is atechnical measure aiming to promote the use of more energy efficient (less polluting) equipment and engines from the designphase. Indeed, the IMO considers reduction of Greenhouse Gas (GHG) emissions by ships a high priority to address and developsthe Energy Efficiency Operational Indicator (EEOI) as a voluntary tool for monitoring the operational transport efficiency ofships.3 For reduction of CO2 emission and consumption of fuel oil, the IMO has also adopted the Ship Energy Efficiency Man-agement Plan (SEEMP) as an approach for shipping firms to better manage ship and fleet efficiency performance over time.4

Ship owners and operators need to consider new technologies and practices when they seek to improve the performance ofa ship under the SEEMP. Other than the concerns on CO2 emissions, the IMO also has sulfur oxides (SOx) and particulate matteremission controls applicable to all fuel oil with the upper limit set at 1% level on July 2010 with stricter requirement at .1% levelon January 2015 respectively inside the Emission Control Areas.5 These different regulatory controls suggest that GHG emissions(CO2, SOx, NOx, etc.) by shipping activities are pollution sources and the shipping industry has been responsive undertakingdifferent measures to enhance energy efficiency, reduce fuel consumption, and control emissions. The importance of energyuse and emissions in the international shipping sector receives increasing attention in a recent report on maritime transportby the United Nations.6

In view of the concerns on CO2 emissions, scholars have established a transport cost model to determine whether to shipor produce locally from Korea to supply the automotive supply chains in the United States and European markets (Nie-uwenhuis et al., 2012). The results show the local option rather than seaborne sourcing from home country is more prefer-able for lower emission. Other than shipping emission, fuel consumption is also an important challenge for the shippingindustry to address (Qi and Song, 2012). These studies reflect that environmental harms are attributable to shipping activ-ities and the problems should not be ignored. Therefore, it is timely to investigate greening for shipping activities that areimportant parts of global supply chain operations and how far these activities are friendly to the environment and to thebottom-line of shipping firms.

In environmental-based shipping research, past studies are confined to environmental technologies adoption to improveecological efficiency of ships (Viana et al., 2009). Studies have also been conducted on the use of biofuels in shipping (Ben-gtsson et al., 2012). To mitigate shipping emission, (Chang, 2012) advocated a focus to enhance energy efficiency in designingships engines and hulls. There are also investigations on environmental management in shipping contexts (Yang, 2012; Lun,2011b; Wuisan et al., 2012). Nevertheless, little empirical knowledge is available on the performance impact of shipping de-sign for compliance as well as the organizational conditions favorable for the greening effort on the design for compliance byshipping firms to bring performance outcomes. Such compliance in shipping pertains to energy saving shipping equipmentdesign, shipping equipment reuse, recycling of waste, recovery of waste, and reducing environmental damages. This studyanswers two important research questions, ‘‘What are the performance benefits of shipping design for compliance? Under whatorganizational conditions such greening effort on shipping design for compliance will bring better performance outcomes to ship-ping firms?’’ The objective of this study is to investigate the performance impact of shipping design for compliance (SDC), whichis concerned with the design of operations and equipment in conformance with the control of energy consumption, waste,and pollution in shipping. SDC is valuable for shipping firms to reap performance gains by saving energy, reusing shippingequipment, recycling, and recovery of waste.

In answering these two questions, we examine both internal and external organizational attributes as they relate to theperformance outcomes of SDC from the contingency theory perspective. The contingency theory suggests that performanceis conditioned to the ‘‘fit’’ between the strategic practices of firms and their internal and external environmental conditions(Van de Ven and Drazin, 1985). This theoretical perspective views firms as an open system where firms face conditions andfactors that may or may not be controllable. Firms will adapt their structures to strive for a ‘‘fit’’ with the different contextual

2 (http://ec.europa.edu/clima/news/articles/news_2011071801_en.htm).3 IMO (2009), Guidelines for voluntary use of the ship energy efficiency operational indicator (EEOI), MEPC.1/Circ.684.4 IMO (2009), Guidance for the development of a Ship Energy Efficiency Management Plan (SEEMP), MEPC.1/Circ.683.5 Emission Control Areas (ECA) include Baltic Sea area, North Sea area, North American area, and United States Caribbean Sea area. The upper limit control

outside the ECA is set at 3.5% level on January 2012 and at .5% level on January 2020, respectively.6 Review of Maritime Transport 2012, United Nations Conference on Trade and Development, United Nations, New York and Geneva, 2012.

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factors to attain better performance outcomes (Donaldson, 2001). This study examines the two contingency variables thatmay influence the performance outcomes of SDC in shipping firms. Specifically, we investigate company policy and proce-dure as a contingency variable in support of the greening efforts of shipping firms for performance gains. Company policy andprocedure (CPP) is referred to as the corporate policy and control that supports and governs the management practices offirms, e.g., environmental management. CPP can be considered as an internal factor to establish collective efforts acrossdepartments and business units to influence the adoption of GSP. Such factor helps to provide directions and common goalsfor organization-wide environmental management initiative to succeed. Furthermore, we examine if shipper cooperation asanother contingency variable, which is an external factor that is less controllable by shipping firms, affects the performanceoutcomes of SDC. The cooperation involves activities such as eco-design of products, cleaner production, and green packag-ing (Zhu et al., 2008a). In shipping context, Shipper cooperation in GSP is concerned with the extent to which shippers areinvolved in related practices such as eco-design for cargo handling and transportation, pursuing environmental objectives,and adoption of cleaner delivery.

This study makes several theoretical advancements to the shipping literature in environmental management. First, it con-tributes to the environmental compliance-business value paradox by empirically examining the relationship between SDCand business performance. Our findings reveal the business value of compliance to environmental protection in shippingmanagement. Second, using the contingency theoretical lens, we investigate the internal and external factors that may befavorable or detrimental to the business value of SDC. In addition to the CPP, shipping firms working closely with shipperswho are part of the transport logistics chain is important for supporting the performance of shipping firms (Lai et al., 2002).In particular, we explain how shipper cooperation is related to the performance of greening efforts of shipping firms withempirical evidence advancing knowledge on the important role of external partners such as shippers in closing the loopof the greening efforts in shipping (Zhu et al., 2008b).

2. Theoretical background and hypotheses development

While international trade depends heavily on the shipping industry, the emissions of CO2 from fuel consumption inthe voyage has proliferated (Lun, 2011a). This situation has led many shipping firms to undertake proactive actions suchas adoption of environmental technologies and shipping design to comply with the growing concerns of environmentalprotection in cargo transport (Lai et al., 2011b). The need for ecological modernization, which is concerned with imple-menting innovative management practices to reduce ecological impacts while reaping operational gains, has becomepopularized in the logistics and shipping context (Zhu et al., 2011). In this regard, GSP are increasingly pursued by ship-ping firms to achieve environmental improvements while maintaining financial and service performance gains. In han-dling and distributing cargoes, these green practices are useful for shipping firms to reduce wastes and conserveresources in the processes. There are various forces (e.g., corporate social responsibility encompassing economic, legal,ethical, and other related expectations from stakeholders in the shipping community) that pressurize the adoption ofGSP by shipping firms. Among these forces, regulatory environmental requirements, industrial institutionalized normson environmental protection, and the environmental requests from customers are most salient (Lai et al., 2011b). Com-pliance with environmental requirements of these various stakeholder groups seem to suggest the way forward for ship-ping firms to compete. An emphasis of SDC highlights a preventive focus to mitigate the environmental harms caused inshipping operations.

According to the natural resource-based view of a firm (NRBV), which advocates the importance of organizational capa-bility in building environmentally friendly procedures and operations to prevent pollution (Hart, 1995), design of shippingoperations is an important part of pollution control for shipping firms. Previous studies have also identified the importanceof eco-design, which will contribute financial as well as quality benefits to manufacturing enterprises (Wong et al., 2012a). Areduction in environmental damage focus is also found important for greening the value chain in service sector such asretailing (Lai et al., 2010). Following this logic, SDC in shipping context helps to control and prevent emissions and effluentsin compliance with environmental regulations for performance gains.

SDC forms an operational basis that facilitates environmental management in shipping activities. The aspects of compli-ance involve energy saving, shipping equipment reuse, recycling, and recovery, targeting to mitigate environmental damagesdue to shipping activities. SDC improves financial performance by reducing operating costs in new energy saving shippingequipment and related materials (Grove et al., 1996). SDC is also useful for improving operations efficiency through wasteelimination in the shipping processes (Hart and Ahuja, 1996), increasing cost savings through reusing of shipping equipmentand reducing redundant processes through effective waste management. Such improvement enables shipping firms tostreamline processes for higher operations efficiency. As a key practice for greening, SDC plays a gatekeeper role to ensureresources conservation and pollution prevention in shipping activities, facilitating the development of green shipping chain.This practice allows shipping firms to better utilize resources and prevent pollution, contributing to environmental protec-tion. Accordingly, shipping firms are better able to respond the stakeholder environmental requests, save operations costs,and reduce damages caused to the environment in their shipping services. Thus,

H1. Shipping design for compliance is positively related to (a) financial performance and (b) service performance of shippingfirms.

Fig. 1. Research framework.

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3. The contingent role of company policy and procedure

Although SDC is seemingly beneficial for the performance of shipping firms, its implementation needs a fit with organi-zational structure and environment (Hart, 1995). According to the contingency theory, business performance depends on theprocess design as well as organizational structure in support of the processes implementation (Thompson, 1967). The con-tingency theory predicts that variations in performance outcomes of organizational practices such as SDC can be caused byvariations in fit with different contingency variables. While SDC is valuable for improving operations efficiency, the companypolicy and procedure (CPP) provides a structure that guides and directs the implementation of SDC. CPP facilitates the imple-mentation of SDC by providing necessary management support across departments as well as standards to carry out GSP inaddition to monitoring the performance outcomes for improvement. Thus, we argue that company policy and procedure sup-ports SDC in achieving financial and service performance.

H2. The relationship of shipping design for compliance with (a) financial performance and (b) service performance inshipping firms is strengthened by their company policy and procedure.

4. The contingent role of shipper cooperation

Cargo movement service is a major business of shipping firms. It is characterized with a production-and-consumptionactivity that requires customer involvement (Fitzsimmons and Fitzsimmons, 2004). Shipping firms require shipper involve-ment to incorporate green practices such as SDC. For instance, ‘‘OOCL Carbon Calculator’’ is a useful tool for shippers to mea-sure the carbon emission and to determine the transport modes, routing, and other shipping decisions. Therefore, shippercooperation is an important factor influencing the performance outcomes of SDC. Shipper cooperation (SC) includes partic-ipation in eco-design of shipping equipment for cargo handling and transportation, aligned environmental objectives, andcleaner delivery services. Shipper involvement in GSP facilitates shipping firms to comply with environmental regulationswhile achieve their environmental goals by sharing views and combining efforts in environmental protection. Accordingto the Environmental Leader,7 ‘sustainable shipping practices are vital to securing procedure contracts at the world’s largestretailers, including Wal-Mart and Home Depot’. Fig. 1 depicts the research framework of this study. Hence,

H3. The relationship of shipping design for compliance with (a) financial performance and (b) service performance inshipping firms is strengthened by their shipper cooperation.

5. Methodology

5.1. Sample and data collection

This study focuses on the shipping industry in Hong Kong, which serves as a major international shipping hub in supportof trade and cargo flows around the world. Container ports in Hong Kong are one of the busiest in terms of cargo volume

7 Source: Wicker Scott, June 2, 2010, ‘How Greener Shipping Can Make You More Green’, Environmental Leader http://www.environmentalleader.com/2010/06/02/how-greener-shipping-can-make-you-more-green/

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servicing the global manufacturing base in China and the world market. While the shipping industry encounters escalatingpressure and public concerns about their environmental impact, shipping firms (e.g., Maersk and CMA CGM) increasinglydevote efforts in greening their operations. As such, it is timely to conduct a large scale survey to investigate the performanceimplications of shipping design for compliance and the performance contingencies. A sample of 500 shipping firms were ran-domly selected from a population of 1266 shipping firms listed in Shipping Gazette, a biweekly magazine published by theshipping industry in Hong Kong to examine the hypothesized relationships. Key informants, who are general operationsmanagers of the sampled companies, were invited to participate in the survey. A survey package containing a cover letterexplaining the purposes of this research study, a copy of the questionnaire, and a postage pre-paid return envelope were sentto these sample shipping firms. Second mailing was administered to the non-respondents after 1 month of the first mailing.A reminder letter was then sent to the non-respondents 2 weeks afterward reminding the importance of their participationin this research. The survey data collection process was completed in 2012. As a result, 107 usable questionnaires were re-ceived with a response rate of 21.4%, which is comparable to other studies with key-informant research design collectingdata at organizational level (Wong et al., 2012b, 2011–12). Table 1 summarizes the portfolio of respondents.

5.2. Measurement development

Following the guidelines recommended by Jarvis et al. (2003), we operationalized the constructs (i.e., shipping design forcompliance (SDC), company policy and procedure (CPP), shipper cooperation (SC), financial performance and service perfor-mance) as reflective measures. Based on prior studies and insights from 12 professionals in an international shipping forum,we generated a list of measurement items for each construct variable and other variables on GSP for a larger study.8 The mea-surement items for this study are summarized in Table 2. The respondents were asked to assess these items by indicating theextent to which the practices are implemented in their company on a five-point Likert scale, where 1 = very low, 2 = low,3 = moderate, 4 = high, and 5 = very high. A panel comprising five shipping and logistics scholars and five industry professionalswas invited to review the relevancy and clarity to ensure face validity of the measurement. The panel was also asked to com-ment on the measurement scales for their understandability, completeness, and ambiguity. Based the feedback, the measure-ment scales were refined by improving the wording.

A pilot test was conducted with 30 managers who attended a postgraduate master’s programme in international shippingand transport logistics. The managers were asked to comment on the wording and seminal meaning of the measurementitems for content validity. The measurement items were then refined based on the feedback. In 2012, the finalized surveyquestionnaire was administered to the 500 sample shipping firms for data collection to examine the relationships betweenSDC and performance as well as the role of company policy procedures and shipping cooperation.

5.3. Measurement validation and reliability

Confirmatory factor analysis (CFA) was conducted using the maximum likelihood estimation with SPSS AMOS 20.0 to as-sess the unidimensionality of the theoretical constructs. The CFA results summarized in Table 2 show that the comparativefit index (CFI) and incremental fit index (IFI) are above the recommended threshold value of .90, and the root mean squareresidual (RMR) is below the recommended threshold value of .10. We tested the convergent validity of the measurement byfollowing Fornell and Larcker’s (1981) recommendation to calculate average variance extracted (AVE). The AVE of each con-struct exceeds the recommended minimum value of .50, suggesting convergent validity. Table 3 summarizes the means,

Table 1Respondent profile.

Sample characteristics Percentage

Number of years doing business1–5 years 13.16–10 years 20.611–15 years 18.716–20 years 12.121–25 years 12.126–30 years 8.431–35 years 1.936 years or above 13.1

Number of employees1–10 32.711–50 37.451–100 10.3101–500 12.1>500 6.5Missing .9

Table 2Measurement scales.

Factors Measurement items

Company policy and procedure (CPP)(Goodness-of-fit indices: v2 = 33.16, df = 8, p < .001;CFI = .96; IFI = .96; RMR = .03; Cronbach’s alpha = .92;Composite reliability = .91; AVE = .62)

Senior management support for GSPMid-level management support for GSPCross-departmental support for GSPCompany policies in support of environmental protectionEnvironmental Management Systems such as ISO 14 001 in support ofGSPCorporate Environmental Performance Report in support of GSP

Shipper cooperation (SC)(Goodness-of-fit indices: v2 = –, df = –, p < –; CFI = –;IFI = –, RMR = –; Cronbach’s alpha = .94, Compositereliability = .94, AVE = .85)

Shippers are involved in eco-design for cargo handlingShippers are involved in eco-design for cargo transportationa

Shippers are involved in pursuing environmental objectivesShippers are involved in cleaner delivery

Shipping design for compliance (SDC)(Goodness-of-fit indices: v2 = 26.25, df = 5, p < .001;CFI = .96; IFI = .97, RMR = .03; Cronbach’s alpha = .96,Composite reliability = .96, AVE = .77)

Compliance for energy saving shipping equipment designCompliance for shipping equipment reuseCompliance for recycling of wasteCompliance for recovery of wasteCompliance for reducing environmental damages

Financial performance(Goodness-of-fit indices: v2 = –, df = –, p < –; CFI = –;IFI = –, RMR = –; Cronbach’s alpha = ., Compositereliability = .92, AVE = .96)

Our company has improved performance in terms of profitability overthe last 3 yearsOur company has improved performance in terms of sales growth overthe last 3 yearsOur company has improved performance in terms of operation costreduction over the last 3 years

Service performance(Goodness-of-fit indices: v2 = –, df = –, p < –; CFI = –;IFI = –, RMR = –; Cronbach’s alpha = ., Compositereliability = .81, AVE = .61)

Our company has improved performance in terms of customersatisfaction over the last 3 yearsOur company has improved performance in terms of unforeseenproblem-solving ability over the last 3 yearsOur company has improved performance in terms of environmentalperformance over the last 3 years

a Item is eliminated in hypotheses testing.

Table 3Mean, standard deviation, and correlation.

Factor mean sd 1 2 3 4 5

1. SDC 2.93 1.03 .882. CPP 2.94 .97 .59*** .793. SC 2.12 .95 .65*** .52*** .924. Financial Performance 3.05 .86 .35*** .41*** .22*** .985. Service Performance 3.18 .75 .46*** .52*** .34*** .77*** .78

Square root of AVE is on the diagonal.Note: SDC = shipping design for compliance, CPP = company policy and procedure, SC = shipper cooperation.*** p < .001.

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standard deviations, and correlation, of all the constructs. The bivariate correlations of SDC, CPP, SC, and performance out-comes range from .34 to .77, significant at p < .001, indicating acceptable criterion validity (Nunnally, 1984). The discrimi-nant validity of the constructs is assessed by examining the AVE estimates. As shown in Table 2, the square root of theAVE of each construct was greater than the correlation between constructs, suggesting the items share common variancewith their hypothesized constructs more than with other constructs.

5.4. Bias issues

Following Armstrong and Overton (1977), we detect non-response bias by testing mean differences of the responses fromthe first and second mailing. The test results suggest that there is no significant difference (p < .05) in the mean value of theresponses between early and late respondents. Thus, non-response bias does not seem to be an issue in this study.

We also took a number of steps to detect if common method variance is a threat to this study. At the data collection stage,we divided the survey questions into different sections based on their respective variables in the model, e.g., dependent andindependent variables. Second, we followed prior environmental and shipping studies (Wong et al., 2012a; Lai et al., 2011b,2012; Lai and Wong, 2012) and conducted the Harman’s one factor test to detect any single factor accounts for the majorityof the covariance between the dependent (performance outcomes) and independent (SDC, CPP, SC) variables. The analysis

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found no factor explaining more than 40% of the variance, suggesting that common method variance does not seem to be aproblem in this study. Lastly, following Lindell and Whitney’s (2001) guideline, we tested if there is a relationship between amarker variable and the variables in the model. A marker variable is the one theoretically not related to any variable in thisstudy. We used firm ownership as a marker variable and found it has no significant relationship with any of the variables inthe model, providing further evidence that common method bias is not a threat to this study.

5.5. Hypotheses testing

We developed a structural equation model to test the hypotheses. Firm size in terms of number of employees is added ascontrol variables as larger firms tend to be more resourceful in developing green practices to reduce their environmentaldamages. The overall fit of the structural model is good with CFI = .91, IFI = .91, and RMR = .06. SDC is positively and signif-icantly related to financial performance (b = .27, p < .01) and service performance (b = .35, p < .001), lending support to H1.

To examine the moderating role of CPP and SC on the relationship between SDC and the performance measures, we con-ducted multi-group analysis (Wong et al., 2011b). We created a two-group model for each moderator by dividing the sampleinto high CPP (n = 58) and low CPP (n = 49) groups, and high SC (n = 45) and low SC (n = 62) groups. We conducted multi-group and structural path analyses using SPSS AMOS 20.0. Table 3 summarizes the results of the multi-group analysis forthe moderating effect of CPP on the relationships of SDC with financial and service performance. We found significant dif-ferences in the v2 test between the baseline model (where the model parameters varied freely across the high and low CPPgroups) and the constrained model (where the model parameters are constrained to be equal across the two CPP groups).This result suggests variance of the model under high and low CPP groups. Then, we tested the equality of the paths betweenhigh and low CPP groups by v2 difference test, such that a significant v2 difference (Dv2 with p < .05) indicates a moderatingeffect of CPP. The results indicate that the relationship between SDC and financial performance is invariant under high andlow CPP groups (p > .05), hence failing to lend support for H2a. We repeated the analysis for the equality of the SDC on ser-vice performance path. The v2 difference test indicates that the relationship between SDC and service performance is variantunder different levels of CPP. The results further indicate that the SDC on service performance relationship is positive andsignificant under high level of CPP (b = .34, p < .01), and insignificant under low level of CPP (b = .04, p > .05), lending supportfor H2b. Table 4 summarizes the multi-group analysis for the relationship of SDC with financial and service performance un-der high and low levels of CPP.

Table 5 summarizes the multi-group analysis for the relationship of SDC with financial and service performance underhigh and low levels of SC. We found a significant difference in the v2 difference test (p < .05) between the baseline and con-strained models. However, the findings of the equality of paths indicated that the SDC-financial performance path is invari-

Table 4Results of multi-group analysis – moderating effect of CPP.

Hypothesis description v2 df v2/df RMSEA IFI CFI Dv2 Ddf p High CPP Low CPP Hypothesis

Panel A: Multi-group analysis with CPP as moderatorBaseline model 181.60 96 1.89 .08 .91 .91Constrained modela 294.14 125 2.35 .10 .81 .82 122.54 29 <.05

Constrained pathSDC ? financial performance 182.41 97 2.23 .08 .88 .87 .81 1 n.s. .22b (1.68)c .04 (.27) H2a not supportedSDC ? service performance 185.72 97 2.41 .08 .86 .85 4.12 1 <.05 .34 (2.36*) .04 (.78) H2b supported

n.s. Not significant.a Factor loading, covariance, variance, and measurement errors constrained equal.b Standardized coefficient.c t-value.

* p < .05.

Table 5Results of multi-group analysis – moderating effect of SC.

Hypothesis description v2 df v2/df RMSEA IFI CFI Dv2 Ddf p High SC Low SC Hypothesis

Baseline model 198.82 96 2.07 .08 .90 .90Constrained modela 263.31 125 2.11 .10 .85 .86 64.49 29 <.05

Constrained path:SDC ? financial performance 198.83 97 2.05 .10 .89 .89 .01 1 n.s. .21 (1.45) .23 (1.83) H3a not supportedSDC ? service performance 202.43 97 2.42 .10 .86 .86 3.61 1 <.05 .38 (2.30*) .26 (1.87) H3b supported

n.s. Not significant.b Standardized coefficient.c t-value.

a Factor loading, covariance, variance, and measurement errors constrained equal.* p < .05.

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ant under different levels of SC, suggesting that the SDC and financial performance path is not moderated by SC. This resultfails to support H3a. On the other hand, the path from SDC to service performance is variant and strengthened under highlevel of SC (b = .38, p < .01), lending support for H3b.

6. Discussion of results

In view of the increasing quest for environmental protection in the shipping sector, greening is helpful for shipping firmsto control pollution arising from their operations processes. Previous environmental studies on shipping are mostly relatedto the operational and technical aspects such as fuel use (Qi and Song, 2012), energy consumption (Chang, 2012), and shipspeed (Wang and Meng, 2012). Environmental studies focusing on the shipping industry are also conducted with respect totemperature changes (Lund et al., 2012), climate (Eyring et al., 2010), energy technology (Dedes et al., 2012), ocean econom-ics (Wilkinson, 1979), and regulations (Schinas and Stefanakos, 2012). Contributions of this research are unique from thosestudies with a focus on management practices and the performance value. Specifically, this study seeks to examine how GSP,in particular SDC, relates to the financial and service performance of shipping firms and the role of CPP and SC in the per-formance link. Our results provide empirical evidence to show the performance impact of SDC with high and low variationsof CPP and SC. The NRBV suggests that eco-design is useful for waste reduction and pollution control, contributing financialand non-financial benefits to the adopting organizations (Hart, 1995; Wood, 1991). Consistent with our arguments in H1, thetest results show that SDC is beneficial for the financial and service performance of shipping firms. Compliance for energysaving shipping equipment design, shipping equipment reuse, recycling of waste, recovery of waste, and reduction of envi-ronmental damages are useful green practices for shipping firms to reap performance gains. Such compliance emphasizes aprevention focus on wastage, lowering the need to acquire new equipment and facilities via the practice on reuse, recycling,recovery, and reduction to lessen the environmental damages due to shipping operations. The financial performance canthus be improved with SDC. Furthermore, the compliance emphasis allows better problem-solving ability through clearguidance on environmental management issues. Therefore, shipping firms are able to better satisfy customers and the envi-ronmental requests of different stakeholder groups with higher problem-solving ability, improving service performance withSDC.

The results show further that SDC has significant positive influence on the service performance, but not on the financialperformance, of shipping firms particularly when the CPP is implemented at high than at low levels. One plausible explana-tion for the lack of strengthening effect of CPP on financial performance is the non-existence of effective environmental gov-ernance structure in the shipping community. Financial performance in terms of profitability, sales growth, and operationscost reduction may require years of efforts to realize. Nevertheless, CPP reinforces the SDC on service performance path sig-nificantly and there are improved service performance in terms of customer satisfaction, unforeseen problem-solving ability,and environmental performance for shipping firms. The strengthening effect is more apparent when the related policies andprocedures are implemented more intensively.

We also find that SC is crucial for the performance effect of SDC on service performance, but not on the financial perfor-mance, of shipping firms. Perhaps, shipping firms need time to realize the operational benefits of SDC due to shipper coop-eration. A possible reason for the insignificant effect of SC is that eco-design for cargo handling and cargo transportation aswell as shipper involvement in cleaner delivery and environmental objectives require both the parties (i.e., shipping firmsand shippers) to learn, adjust, and improve before attaining the financial performance benefits. This finding is consistentwith the report of the United Nations that ‘‘freight transport is still in its infancy and most stakeholders are still in the learn-ing phase’’.9 It is also plausible that many ship owners receive their vessels which were ordered before the financial tsunami in2008. With more ship capacity at slower international trade growth in recent years, shipping firms may encounter difficult timeto reap financial gains from their greener ships and related activities. The resultant falling freight rate may even discourageshipping firms to invest in SDC if the rate reaches to unprofitable levels. Nevertheless, lower freight rate due to excessive ship-ping supply is beneficial for shippers and for the global trade to rebound. In the long run, joint efforts with different parties inthe international shipping sector are needed to strengthen the common goal of reducing emission, saving costs, enhancing theefficiency and service performance of shipping activities in support of the globalizing trade and development.

Despite the lack of influence for SDC to bring financial performance, it is desirable for shipping firms to emphasize CPPand SC though the financial benefits may need time to realize. The management support together with the procedures suchas environmental performance reporting and monitoring are useful for reinforcing the compliance for energy saving andachievement of the 4Rs, i.e., reuse, recycle, recovery, and reduction, in shipping activities. Shipper involvement in SDC alsoplay an important role in strengthening eco-design of activities in shipping firms to enhance customer satisfaction, problem-solving ability, and environmental performance.

7. Limitations and future research directions

There are several limitations of this study and we leave them for future research. First, we only examine the influence ofSDC on the performance of shipping firms. Although design and compliance is an important aspect of GSP beneficial for

9 Review of Maritime Transport 2012, United Nations Conference on Trade and Development, United Nations, New York and Geneva, 2012, p. 135.

82 K.-h. Lai et al. / Transportation Research Part E 55 (2013) 74–83

improving performance in shipping context, there are other GSP such as shipping documentation, shipping materials, andshipping equipment that can contribute performance to shipping firms. Their direct effects as well as moderating role onthe SDC-performance link can be a promising topic for investigation in future research. Other contingency factors such asgovernment regulations and business environment conditions under which SDC would contribute positive performance out-comes can be worthy topic for further research. On the other hand, the research design of this study is cross-sectional wherecausal SDC-performance path can be better established by a longitudinal study in future research. Particularly, the role ofCPP and SC as they relate to the financial performance outcomes of SDC should be further examined with temporal evidence.Lastly, this study only examined the SDC of shipping firms, but not their upstream and downstream parties, in the transportlogistics chain. Future studies of SDC involving these chain partners can help better understand their role in contributingperformance to shipping firms.

The different environmental initiatives by the IMO such as the development of EEDI reflect the need for greening in theshipping industry. As the shipping activities are expected to increase due to expansion of global trade, shipping firms need asolution for productivity improvements as well as a balance on the environment. While the EEDI can be a cost-effective toolfor reducing emission from new ships, there are many other aspects of GSP with potential for shipping firms to achieve theirenvironmental objectives with performance gains. Our study result shows that SDC as a green practice by shipping firms canserve such purpose. They should also pay attention to CPP and SC which can strengthen the service performance link. Whilethe importance of CO2 emission reduction in shipping is recognized and there exist measures such as EEDI and SEEMP, thisstudy contributes knowledge with empirical evidence on the performance value of greening shipping activities. As the envi-ronmental awareness of the shipping industry increases, this study provide useful references on GSP for shipping firms toembark on their environmental initiatives and for researchers an avenue to extend environmental management based ship-ping studies.

Acknowledgements

We are grateful to three reviewers for their helpful comments on earlier versions of our paper. This research was sup-ported in part by The Hong Kong Polytechnic University under Grant numbers J-BB7L and A-PM32, and by the Central PolicyUnity of the Government of the Hong Kong Special Administrative Region, China, under Grant number PolyU 5005-PPR-09.

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