The effect of high fuel costs on liner service configuration in container shipping

For shipping activities, not least container shipping, bunker fuel is a considerable expense. In the last 5 years, bunker prices have risen considerably. An increasing bunker price in container shipping, especially in the short term, is only partially compensated through surcharges and will therefore affect earnings negatively. This paper deals with the impact of increasing bunker costs on the design of liner services on the Europe–Far East trade. The paper assesses how shipping lines have adapted their liner service schedules (in terms of commercial speed, number of vessels deployed per loop, etc.) to deal with increased bunker costs. The paper also includes a cost model to simulate the impact of bunker cost changes on the operational costs of liner services. The cost model demonstrates for a typical North Europe–East Asia loop that the current bunker prices have a significant impact on the costs per TEU even when using large post-panamax vessels. The model also shows shipping lines are reacting quite late to higher bunker costs. The reasons that explain the late adaptation of liner services relate to inertia, transit time concerns, increasing costs associated with fixing schedule integrity problems and fleet management issues.     

Cooperation through capacity sharing between competing forwarders

In this paper, we consider a shipping system consisting of one carrier and two shipping forwarders who compete on price for businesses from potential shippers. The carrier may quote different prices or a single price to the two shipping forwarders who will then order shipping capacity from the carrier and set the selling prices to the shippers before market uncertainties are revealed. Inspired by cooperation between competing parties in many industries including the maritime shipping industry, we propose a new model under which the shipping forwarders are allowed an opportunity to purchase shipping capacity from each other after they order capacity from the carrier but before they set the selling prices and satisfy demand, referred to as the capacity reservation model. We show analytically that capacity reservation between competing forwarders benefits both the carrier and the forwarders, leading to a win–win situation under various market conditions. Furthermore, capacity reservation can offset the negative effect of a carrier’s pricing power which enables the carrier to charge discriminatory shipping prices to squeeze more profits out of the forwarders.     

An empirical test of modal choice and allocative efficiency: Evidence from US coal transportation

A generalized shipper transportation cost function is estimated to test whether coal shippers achieve allocative efficiency with respect to market prices when facing limited access to the full range of transportation services. Findings indicate that allocative efficiency with respect to market prices is achieved when shippers have access to all major transportation modes. In contrast, the condition for allocative efficiency is not met with respect to market prices when shippers’ modal choices are limited to trucking and rail services. Findings for the sample of shippers who face limited shipping choices is interpreted as suggesting an over-use of trucks relative to the use of trains due to price distortions of transportation services.     

Stable vessel-cargo matching in dry bulk shipping market with price game mechanism

This paper proposes a model of stable vessel-cargo matching with price game mechanism in the dry bulk shipping market. The research aims at mimicking the bid of disadvantaged participants in the process of matching preferred objects. The matching equilibrium and price equilibrium are formulated between the shippers and carriers. A price game mechanism based Gale-Shapley algorithm is developed. Three scenarios of market dominated by shippers, market dominated by carriers, and equilibrium market are discussed in computational experiments. It is showed that if disadvantaged participants bid with the price game mechanism, they may gain more surpluses even in the negative position.     

Sailing speed optimization for container ships in a liner shipping network

This paper first calibrates the bunker consumption - sailing speed relation for container ships using historical operating data from a global liner shipping company. It proceeds to investigate the optimal sailing speed of container ships on each leg of each ship route in a liner shipping network while considering transshipment and container routing. This problem is formulated as a mixed-integer nonlinear programming model. In view of the convexity, non-negativity, and univariate properties of the bunker consumption function, an efficient outer-approximation method is proposed to obtain an ε-optimal solution with a predetermined optimality tolerance level ε. The proposed model and algorithm is applied to a real case study for a global liner shipping company.     

Bunker consumption optimization methods in shipping: A critical review and extensions

It is crucial nowadays for shipping companies to reduce bunker consumption while maintaining a certain level of shipping service in view of the high bunker price and concerned shipping emissions. After introducing the three bunker consumption optimization contexts: minimization of total operating cost, minimization of emission and collaborative mechanisms between port operators and shipping companies, this paper presents a critical and timely literature review on mathematical solution methods for bunker consumption optimization problems. Several novel bunker consumption optimization methods are subsequently proposed. The applicability, optimality, and efficiency of the existing and newly proposed methods are also analyzed. This paper provides technical guidelines and insights for researchers and practitioners dealing with the bunker consumption issues.     

Container freight rates and the role of surcharges

This paper demonstrates that the structure of ocean container freight rates has become more complex. A growing number of surcharges are being imposed by the carriers on their customers, surcharges that are not only adding significant extra costs but are highly variable over time. These elements are examined based on a data set of export rates from ports on the Northern European Range that have been compiled from a major global carrier. The paper compares the surcharges to the base rates and discusses some of the implications for shippers who face increasing uncertainty in planning supply chains. Some of the issues for academic research on freight rates is also examined and points to the need to clearly identify what is included in the freight rate data employed. In addition, questions are raised concerning the suitability of many of the variables traditionally used to explain or predict freight rates.     

The impact of slow ocean steaming on delivery reliability and fuel consumption

With a dominant volume of global transportation being conducted by sea, ocean container transport greatly impacts the global economy. Since sea vessels are drastically more fuel efficient when traveling at lower speeds, slow steaming has become a widely adopted practice to reduce bunker costs. However, this leads to a longer transportation time, which together with the unpredictability of the delay has been a big challenge. We propose a model to quantify the relationship among shipping time, bunker cost and delivery reliability. Our findings lead to a simple and implementable policy with a controlled cost and guaranteed delivery reliability.     

Shipping route choice across geographies: Coastal vs. landlocked countries

This paper investigates how geography and transportation costs influence the decisions by shippers of which port of export to use. Using a large sample of disaggregated shipments originating from several countries in Europe, we show that European logistics networks exhibit a low level of international integration that affects shipping route choice. Furthermore, we find significant differences in shipping behaviors across landlocked and coastal countries, with shippers in landlocked countries avoiding long land transportation, crossing borders readily, and placing more value on transportation infrastructure. These findings have implications in designing port competitiveness strategies and economic development policies in landlocked countries.     

Valuation of freight transportation contracts under uncertainty

This paper applies concepts from the theory of Real Options to hedge uncertainty in transportation capacity and cost using derivative contracts, called truckload options. We make three contributions. First, we provide a closed-form pricing formula for basic truckload options when the truckload spot price on a given lane follows a simple mean-reverting process. Second, since only monthly statistics about truckload spot prices are currently available, we provide an approach to estimate the parameters needed to value truckload options. Finally, a numerical illustration based on real data shows that truckload options could be valuable to both shippers and carriers.     

The value of information sharing for truckload shippers

This study explores the potential value to shippers of sharing load offers with carriers and obtaining carriers’ responses in advance of the scheduled pickup date. Using a private transactional dataset from a large national shipper, we find that truckload spot prices increase considerably as the lead time before pickup decreases. As an extension of this empirical analysis, we develop a method to estimate near-real-time market prices, which does not currently exist in the truckload industry. A key insight is that market prices persist through time, meaning that current prices are good predictors of future prices.     

The potential economic viability of using the Northern Sea Route (NSR) as an alternative route between Asia and Europe

The Arctic Ocean has been greatly affected by climate change. Future predications show an even more drastic reduction of the ice cap which will open new areas for the exploration of natural resources and maritime transportation. Shipping through the Arctic Ocean via the Northern Sea Route (NSR) could save about 40% of the sailing distance from Asia (Yokohama) to Europe (Rotterdam) compared to the traditional route via the Suez Canal. However, a 40% reduction in distance using the NSR does not mean a corresponding 40% in cost savings due to many factors, including: higher building costs for ice-classed ships, non-regularity and slower speeds, navigation difficulties and greater risks, as well as the need for extra ice breaker service.The main purpose of this study is to investigate the economic potential of using the NSR as an alternative route between Asia and Europe by taking all the main factors into consideration. It focuses on economic aspect of the NSR, therefore navigation/ environmental/cultural/legal issues are not discussed.The economic study is conducted by a case study in which 4300 TEU container ships (both non-ice classed and ice classed) are employed to make year round service. The annual profit gained from regular service by a non-ice-classed ship via the Suez Canal for the entire year is compared to the annual profit gained from an ice-classed ship taking the NSR during the navigable months and Suez Canal for the rest of the year. There are three factors that influence the NSR the most: the navigable time of the NSR, Russian NSR fees and bunker prices. To make this study flexible, three scenarios for navigable time, three scenarios for Russian NSR fees as well as three scenarios for bunker prices are proposed. These assumptions are all combined with each other and the profit under each condition is then calculated. The overall comparison is made in order to see under which conditions the NSR is competitive with the Suez Canal.     

Liner shipping cargo allocation with service levels and speed optimization

The cargo allocation problem is a key strategic problem that determines the profitability of a liner shipping network. We present a novel mixed-integer programming model for this problem that introduces service levels for transit time requirements and optimizes the vessel speed on each leg of a service. These extensions to the cargo allocation problem greatly increase its realism and value for carriers. We evaluate our model on realistic data from the LINER-LIB and perform a sensitivity analysis of transit times versus bunker costs. Furthermore, we show how carriers can use our model to make data driven decisions in their operations.     

Evolution of regional inequality in the global shipping network

Global shipping is a backbone of the global economy, and as such, it evolves alongside the development of trade and the elaboration of commodity chains. This paper investigates the evolution of regional inequality in the global shipping network by analyzing the changing positions of world regions during the period from 2001 to 2012. This was a period of both prosperity and recession in maritime shipping. Using data on inter-regional flow connections, the positions of seventeen regions in the global shipping network are analyzed in terms of their traffic development, centrality, dominance and vulnerability. The East Asian, Northwest European and Europe Mediterranean regions have consistently held the highest positions, while East African and North African regions have held the lowest positions. By commanding the largest flows in the network, East Asia assumes a dominant position. The Australasian, North American West Coast, Northwest European and Southern African regions show an increasing dependency on East Asia. The analysis also identifies a few emerging regions that have had the highest growth rates in total traffic volume and connectivity for the studied period, namely South American North Coast, South American East Coast, West Africa, Southern Africa and West Asia. The empirical results of this paper supplement existing research on global shipping network evolution. One implication of the analysis is that the traffic growth of East Asia does not imply that, there is an equivalent improvement in its position in the global shipping network. The paper also shows that indicators from network analysis may be used to provide a more nuanced understanding of port-regional development than existing measures based solely on total traffic volume.     

A quality function deployment approach to improve maritime supply chain resilience

Being international and involving numerous organizations as the basic nature, maritime supply chains are exposed to various natural and man-made risks. This paper aims to develop an original quality function deployment approach to enhance maritime supply chain resilience, taking both customer requirements and maritime risks into consideration. The empirical analysis is carried out through in-depth studies of three major shipping lines and their respective major shippers. The top three resilience measures are contingency plan, monitoring and maintenance, and supply chain relationship management. The study also unveils the relatively low visibility and integration in maritime supply chains.     

A fuel surcharge policy for reducing road traffic greenhouse gas emissions

This paper proposes a car pricing policy based on fuel surcharges in substitution of car ownership taxes for reducing greenhouse gas emissions by cars. The aim of the proposed policy is to change some (fixed) costs of car use that are not perceived at each trip into (variable) costs. The amount of fuel surcharges and the effects of their application on fuel consumption and on GHG emissions are estimated by a model that is able to relate gasoline and diesel consumption with fuel prices. The effects of the proposed policy on fuel consumption and on GHG emissions are estimated for Italy. The results show that car users prefer to shift towards more efficient fuel vehicles than to public transport, producing a significant, but less than expected, reduction of GHG emissions.     

Analyzing private communities on Internet-based collaborative transportation networks

The establishment of private communities on Internet-based transportation networks is a relatively new trend that has met with mixed success. Within industry, there has been uncertainty over the costs and benefits of these communities to shippers and carriers. Through a theoretical model based on assumptions derived from industry executives, this paper suggests that shippers may indeed benefit by establishing private communities. Further, the results show that in high-trust relationships carriers may be no worse off by cooperating with shippers in their private communities.     

An analysis of profitability of the world’s major airlines

This paper analyses airline profitability through an examination of the changes in their productivity growth and the ability to markup prices above costs. A yearly panel data of 22 major airlines over the 1986–1995 period is used. Despite the fact that the European carriers were subjected to a more rapid rise in input prices and a faster decline in airfares than their North American counterparts, they achieved a faster growth in profitability since the early 1990s thanks to their higher productivity growth caused largely by the increased competition in Europe. Although overall profitability of the industry has improved during the 1990s, there are significant variations across airlines because of their differential capabilities to deal with the increasing competition and input prices.     

Dynamics of liner shipping network and port connectivity in supply chain systems: analysis on East Asia

The study of ports in supply chain systems is an emerging area of importance which has drawn more attention from researchers in recent years. This paper presents a new perspective in this research area by examining the calling patterns of container shipping services in order to understand the dynamics of port connectivity and inter-port relationships in the supply chains. Empirical evidence is drawn from four major ports in East Asia, namely Shanghai, Busan, Kaohsiung and Ningbo. The study identifies the shipping capacity, trade routes and geographical regions connected to the ports, shipping lines involved, and the extensity and intensity of inter-port relationships among the four container ports from liner shipping network’s perspective. The findings show that most of the shipping capacity employed on the major east–west trade routes became non-exclusive and involved calls at two or more of the four ports. Port planners, terminal operators and carriers could capitalise on opportunities through exploitation of complementary relationships that exist among the selected ports, such as offering a package for shipping lines to call at a portfolio of terminals owned by the same terminal operator. Policy and research implications as well as recommendations are discussed for various stakeholders concerned with port planning and regional development.     

Container Ocean-transportation System Design with the factors of demand fluctuation and choice inertia of shippers

This paper introduces an optimization model (COSDM) for a Container Ocean-transportation System with the objective of maximizing the revenue of a liner company while taking into account the seasonal fluctuation in transportation demand and the choice inertia of shippers. The COSDM optimizes shipping network design and fleet deployment simultaneously, and it optimizes plans for changing the shipping network and for distributing slots in ships based on the fluctuation in demand and the characteristics of the shippers’ choice inertia. To solve COSDM, a heuristic algorithm is created that combines Genetic Algorithm and Simplex Method. The results show that the COSDM gives an optimized design scheme of the system that takes into account the stability of transportation services and improves the user experience of shippers while increasing the revenue of the liner company. Moreover, the results also reveal new explanations for the increasing size of container ships.