Carrier-shipper risk management and coordination in the presence of spot freight market

Kelly Yujie Wang, Yuan Wen, Tsz Leung Yip, Zuojun Fan

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

The spot freight market in the liner shipping industry has developed significantly in recent years and interplays with the long-term contract between carriers and shippers. Under this background, this paper presents a Stackelberg games model by taking into account both the carrier's long-term decision (on freight rate) as well as the shipper's long-term decision (on shipment capacity procurement amount) and spot market supplementary procurement decision. The shipper is risk-averse facing market uncertainty. Three basic shipping structures are considered: procuring only from carrier with long-term contract, only from spot market, and from both of these channels. We show that dual channels play different roles for the shipper. Although the spot market is not favourable for the carrier, it increases both the shipper's utility and the carrier-shipper's overall performance. Risk-aversion reduces the shipment capacity procurement amount, which protects the shipper but jeopardizes the carrier's and the carrier-shipper's overall performance. Fluctuations of market demand and spot freight rate have different (sometimes even opposite) impacts on the carrier and the shipper. Correlation of market demand and spot freight rate brings more uncertainty for the shipper but grants more leverage for the carrier. Coordination initiated by the carrier improves the carrier-shipper's overall performance substantially, but full coordination is not feasible owing to the shipper's aversion to risk. Quantity-discount rather than two-part tariff contract works.

Original languageEnglish
Article number102287
JournalTransportation Research Part E: Logistics and Transportation Review
Volume149
DOIs
Publication statusPublished - May 2021

Keywords

  • Coordination
  • Freight rate
  • Liner shipping
  • Risk-aversion
  • Spot market
  • Stackelberg games

ASJC Scopus subject areas

  • Business and International Management
  • Civil and Structural Engineering
  • Transportation

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