Benefits of in-vehicle consolidation in less than truckload freight transportation operations

Researchers and public agencies have proposed consolidation policies as an alternative to increase truck payload utilization and mitigate externalities produced by freight transportation. Understanding and enhancing the economic mechanisms that lead to freight consolidation can ease the implementation of these strategies, increase profits for shippers and carriers, and reduce freight-related negative externalities. An important mechanism that has recently been studied for cost reduction in the freight industry is combinatorial auctions. In these auctions, a shipper invites a set of carriers to submit bids for freight lane contracts. Carriers can bid for individual lanes or bundles of them according to their operational characteristics. These bids are constructed considering direct shipments (Truckload operations) and several biding advisory models have been proposed for this purpose. However, there are economies of scale that can be achieved if shipments are consolidated inside vehicles, which have not been explored in the construction of competitive bids. This paper investigates such benefits and provides insights on the competitiveness and challenges associated to the development of consolidated bids (suitable for Less-Than-Truckload operations). Consolidated bids are constructed using a multi-commodity one-to-one pickup-and-delivery vehicle routing problem that is solved using a branch-and-price algorithm. The numerical experiment shows that non-consolidated bids are dominated by consolidated bids, which implies that this type of operation can increase the likelihood of a carrier to win auctioned lanes, while increasing its profits margins over truckload companies (non-consolidated bids), and keeping the reported benefits that combinatorial auctions represent for shippers.     

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.     

The rationale behind and effects of Bunker Adjustment Factors

The Bunker Adjustment Factor (BAF) system was first introduced following the oil shocks of the 1970s. The underlying justification for such a system was that shipping lines operating in freight conferences could not otherwise adjust their prices promptly enough to counteract the devastating effect of bunker price increases. Thirty years after its imposition, BAF has always been a bone of contention between carriers and shippers. Ocean carriers contend that it is a necessary evil to reduce their exposure to volatile bunker price, while shippers argue that this risk should either be considered as a normal commercial venture, or dealt with in a more transparent way. When bunker surcharges began to climb in 2003, BAF disputes became one of the main obstacles to the dialog between both parties. To settle the dispute over BAF, the Europe Commission (EC) called for the submission on the issue of surcharges.The European Commission banned carrier conferences on October 17th 2008. The shipping lines now set their own independent BAF rates, which are closely monitored by the EC to ensure no collusion. The fluctuation in oil price in 2008 means that the BAF rates are now coming down, but there are still some wide variations in application. During this period of dramatic change in shipping environment, it has become important to provide a theoretical framework for analyzing the BAF. This paper focuses on examining the rationale behind and effects of BAF. A microeconomic model is made to explore the underlying mechanism of BAF. By examining the trade routes of Asia to Europe and Asia to North America during the period 2003-2008, this study finds the practice of BAF cushions an ocean carrier from the negative effects of bunker price fluctuations, and provides shipping lines a powerful tool to change the incentive structure facing carriers. Despite engineers showing that reducing the speed of vessels can economize fuel consumption evidence shows there has been little change by major shipping lines in their transit time and sailing schedules during the recent period of skyrocketing fuel price. It is apparent they use the BAF as the cushion against the effect of rising bunker prices.     

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.     

Allocating collaborative costs in multimodal barge networks for freight bundling

In order to improve the competitive position and efficiency level of multimodal transport, consolidation of freight flows is often suggested. Bundling networks require cooperation between multiple partners in the multimodal transport chain. In this context, the question rises how benefits may be allocated fairly among the spatially distributed participants in the cooperation. A great deal of scientific literature reports on the behavior of allocation methods in collaborations between shippers or carriers making use of unimodal road transport. However, research on cost or savings allocation methods in multimodal transport is scarce. The main contribution of this paper is thus to provide a first insight in the complexity of sharing cost savings fairly among shippers who bundle freight flows in order to reach economies of scale in multimodal barge transport. By applying four different allocation methods to two realistic case studies, a comparison is made between simple and straightforward allocation mechanisms and more advanced techniques based on cooperative game theory. Special attention is paid to the savings division among coalition partners and collaborative stability. Results demonstrate the influence of cooperation characteristics on allocation outcomes and underline the value of carefully selecting appropriate allocation mechanisms when long-term stability of the multimodal barge collaboration is aspired.     

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.     

Robust grain supply chain design considering post-harvest loss and harvest timing equilibrium

This paper presents a bi-level robust optimization model, where a food company maximizes its profit and minimizes post-harvest loss by optimally deploying grain processing/storage facilities and determining grain purchase price, while a group of spatially distributed non-cooperative farmers determine harvest time, shipment, storage, and market decisions under yield uncertainty and market equilibrium. The non-cooperative behavior of the food company and the farmers is represented by a bi-level Stackelberg leader follower’s game model with mixed-integer decision variables. The proposed model and solution approach are applied to case studies for Illinois and Brazil.     

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.     

Estimating and benchmarking Less-than-Truckload market rates

In this paper, we present a regression-based methodology that can estimate the Less-than-Truckload (LTL) market rates with high reliability using an extensive database of historical shipments from continental United States. Our model successfully combines the quantitative data with qualitative market knowledge to produce better LTL market rate estimates which can be used in benchmarking studies allowing carriers and shippers to identify cost saving opportunities. We identify the main drivers of LTL pricing and reveal the effects of certain industry practices on the final market rates.     

Attributes driving the selection of trucking services and the quantification of the shipper’s willingness to pay

This paper investigates the selection of trucking services by shippers that require the movement of truck shipments. A set of pragmatic attributes are postulated to describe trucking services. They are used in a stated choice experiment that collects data and preferences from shippers. A mixed logit model is estimated in order to test the attributes and quantifying the shipper willingness to pay for them. The results are used to provide meaningful negotiation guidance for truck-related shippers and carriers, a significant contribution to literature in transportation, logistics, and supply chain management. A numerical example illustrates the use of the model.     

Pricing strategies for a taxi-hailing platform

Taxi hailing apps that facilitate taxi-customer matching quickly become popular in recent years. By combining the theories of two-sided market and taxi market, this paper models the taxi market in the presence of a single taxi hailing app through an aggregate and static approach. Based on the equilibrium model, the existence and stability of equilibria are examined, and a partial-derivative-based sensitivity analysis is conducted to quantitatively evaluate the impacts of the platform’s pricing strategies to the taxi market performance. The features of desirable price perturbations that improve social welfare and/or the platform’s profitability are also characterized.     

New SP-values of time and reliability for freight transport in the Netherlands

This paper discusses the methods used in a study on the values of time and reliability in freight transport in the Netherlands. SP surveys were carried out among more than 800 shippers and carriers. A novel feature is that both for the value of time and reliability two additive components are distinguished: a transport cost and a cargo component. Specific instructions were given to make sure that the carriers provide the former and shippers that contract out the latter component. The resulting values that will be used in CBA in The Netherlands are presented and compared against the international literature.     

Principles of micro-behavior commodity transport modeling

This paper presents an agent-based approach to commodity transport modeling. It assesses the effects of behavior-oriented transport policy measures while taking complex logistics reaction patterns into account. It is structured by modules describing company generation, supplier choice, shipment-size choice, carrier choice and tour construction. The behavior of individual actors is simulated using normative logistics models and accumulated market knowledge. Using a bottom-up approach, shippers and carriers interact through simulated auctions of transport contracts resulting in the generation of tours. Simulations using the model prototype INTERLOG calibrated with German data demonstrate the capabilities and limitations of this approach.     

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.     

Price premiums and low cost carrier competition

This study presents a time series examination of price premiums in the US airline industry. Price premiums are defined as price markups due to domination and concentration at the airport and route market levels. The differential effect of these price premium drivers is empirically investigated, and it is shown that the largest components of price premiums are those from airport market share and airport concentration. The effect of low cost carrier competition on the level and composition of price premiums is of particular interest in this study. The results indicate that low cost carriers do not charge price premiums, and that high cost carriers’ price premiums tend to be lower when there is competition by low cost carriers. While the absolute values of price premiums have been fairly constant over the 1992–2002 time frame, the proportion of US passengers subject to price premiums has decreased due to the increasing share of low cost carrier traffic.     

The impact of carrier service attributes on shipper–carrier partnering relationships: a shipper’s perspective

Carrier service attributes are important for developing shipper–carrier partnering relationships. This study used structural equation modeling to investigate the impact of carriers’ service factors––timing-related, pricing, warehousing and sales services––on shippers’ satisfaction from shipper–carrier partnering relationships. Results indicate that timing-related services influence shippers’ satisfaction from such relationships, and shippers’ satisfaction positively influences partnering. However, the four service factors do not directly influence shipper–carrier partnering relationships.     

An agent based model concept for assessing modal share in inter-regional freight transport markets

This paper introduces an Agent based modelling approach to model inter-urban freight transport between two or more trading regions. The use of the model is to ascertain the modal share of competing transport modes (road and intermodal) while taking complex transport service supply–demand dynamics into account. It is structured by modules describing company generation, supplier choice, modal competition and International road freight transport market dynamics. The behaviour of individual actors is simulated using normative agent behaviour and market knowledge. Using the micro-simulation approach, shippers and carriers (primarily road hauliers and a maritime based intermodal operator) interact through simulated contracts resulting in the generation of tours. The service performance of the tours is fed back into the model for decision making during contract deliberations. Preliminary application of model to Mediterranean case study show that market share gains of around 25–30% are obtained with policy interventions of financial subsidies to intermodal services and more frequent shipping services in the intermodal transport respectively.     

The airfare pricing and seat allocation problem in full-service carriers and subsidiary low-cost carriers

This study investigates the competitive market situation in the air transport industry considering full-service carriers (FSC), subsidiary low-cost carriers (LCC) and rival LCCs on the flight-leg level while subsidiary LCCs are established by FSCs against rival LCCs to keep the market share and to make more profit. It is assumed that the demand of economy class for each airline follows a known distribution, and the mean value of that distribution is a function of its airfare and the airfare differences with other airlines. In addition, no-shows and cancellations are introduced to reflect a real situation. Based on this situation, a mathematical model is developed to derive efficient airfare pricing and seat allocation for each airline for maximizing the profit sum of both FSCs and subsidiary LCCs using a repeated game. A repeated game model integrated with a Tabu search algorithm and an EMSR based heuristic is suggested to deal with the proposed repeated game. A numerical example is provided to validate the model and solution procedure with hypothetical system parameter values under two kinds of market situations that show before and after the emergence of subsidiary LCCs.     

An airline's management strategies in a competitive air transport market

Over the last decade, the demand for domestic and international flights in Korea has increased substantially. To meet the strong flight demands, several low cost carriers have begun to offer flight services. In addition, full service carriers have been motivated to establish their own subsidiary low cost carriers to maintain their market share against rival low cost carriers. This paper studies the management strategies of three kinds of airlines - full service carrier, its subsidiary low cost carrier and rival low cost carrier - based on game theory in the competitive air transport market. Each airline is assumed to act as a player and chooses strategies regarding airfare, flight frequency, and the number of operating aircrafts for specific routes while maximizing its own profits. Demand leakages between the airlines are considered in the flight demand function according to the selected strategies of all airlines. Through various game situations reflecting realistic features, this study provides managerial insights that can be applied in the competitive air transport market.     

Responses of air cargo carriers to industrial changes

This study examines how product characteristics, values, inventory cost, shipping charges, shipping distance, and time affect an international firm's choice of air carrier. An individual choice model is constructed by assuming that the shipper in a specific industry chooses the optimal air cargo carrier with the minimal logistics cost. The study further aggregates air cargo demands on different routes for the carriers by considering the spatial distribution of the origin-destination pattern and any temporal changes in the industrial structure. A case study is used to illustrate the application of the proposed model using data from Taiwan Taoyuan International Airport and the industrial economics database in Taiwan. The results show that shippers with high product value and short delivery distance focus on the shipping charge and prefer choosing the air cargo carrier that offers more flights. Further a carrier may achieve a larger market share if its supply attributes match the industrial structure and the product characteristics of the market on the route. Finally, because dynamic changes in the industrial structure and product value have been captured, the results are more accurate than that from the Grey model.