Shipping network design in a growth market: The case of Indonesia

This paper investigates the design issues of a shipping network when cargo demand increases rapidly. A gravity-type model for origin-destination (OD) demand estimation is first presented and calibrated based on the current cargo volumes of the Indonesian maritime market. A model for maximizing total social welfare is then proposed to design the shipping network with cargo demand levels forecasted for future years. The results show that for the Indonesian maritime market, a hub-and-spoke network with fully connected hub ports is better than a network with sequentially connected hub ports in terms of total social welfare. The optimal choices for the international gateway and domestic hub ports vary as cargo demand increases over time. The results suggest that a progressive policy can be promising for infrastructure investments in developing countries: government planning and regulations may be introduced in early years to enhance infrastructure utilization and economic return. With increased demand the market may be liberalized to promote healthy competition.