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Optimal Global Liner Service Procurement by Utilizing Liner Service Schedules

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  • Chung‐Yee Lee
  • Shengnan Shu
  • Zhou Xu

Abstract

For global shippers (i.e., multinational manufacturers or retailers), strategic sourcing of container liner shipping services from ocean carriers is an important element of successful global supply chain management. We study how to utilize information about different ocean carriers’ liner service schedules so that shippers can optimize their sourcing decisions over the selection of carriers to transport container cargoes around the world through multiple shipping lanes. We first introduce a deterministic optimization problem, where cargo demands are given in advance and in which inventory holding costs are included to capture the impacts of liner service schedules on the total operating cost. We formulate the deterministic optimization problem as a mixed integer linear program, which can be simplified by exploiting a totally unimodular property, and can thus be solved directly by a general optimization solver. To further capture the impact of liner service schedules on shippers’ resilience to the uncertainties in cargo demands, we then introduce a two‐stage robust optimization counterpart of the deterministic problem based on a probability‐free demand uncertainty set. As the two‐stage robust optimization problem is challenging to solve, we derive some novel reformulations that can enable us to develop an effective solution method. By exploiting the information about liner service schedules, we show how our proposed models and solution method can help shippers to optimize their liner service procurement decisions.

Suggested Citation

  • Chung‐Yee Lee & Shengnan Shu & Zhou Xu, 2021. "Optimal Global Liner Service Procurement by Utilizing Liner Service Schedules," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 703-714, March.
    • Handle: RePEc:bla:popmgt:v:30:y:2021:i:3:p:703-714
    DOI: 10.1111/poms.13311
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    References listed on IDEAS

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    1. Tao Lu & Jan C. Fransoo & Chung-Yee Lee, 2017. "Carrier Portfolio Management for Shipping Seasonal Products," Operations Research, INFORMS, vol. 65(5), pages 1250-1266, October.
    2. Song, Jiongjiong & Regan, Amelia, 2005. "Approximation algorithms for the bid construction problem in combinatorial auctions for the procurement of freight transportation contracts," Transportation Research Part B: Methodological, Elsevier, vol. 39(10), pages 914-933, December.
    3. Zhou Xu & Xiaofan Lai, 2015. "Purchasing Transportation Services from Ocean Carriers," International Series in Operations Research & Management Science, in: Chung-Yee Lee & Qiang Meng (ed.), Handbook of Ocean Container Transport Logistics, edition 127, chapter 13, pages 399-427, Springer.
    4. Andrew Lim & Brian Rodrigues & Zhou Xu, 2008. "Transportation Procurement with Seasonally Varying Shipper Demand and Volume Guarantees," Operations Research, INFORMS, vol. 56(3), pages 758-771, June.
    5. Chung-Yee Lee & Christopher S. Tang & Rui Yin & Jaehyung An, 2015. "Fractional Price Matching Policies Arising from the Ocean Freight Service Industry," Production and Operations Management, Production and Operations Management Society, vol. 24(7), pages 1118-1134, July.
    6. Andrew Lim & Fan Wang & Zhou Xu, 2006. "A Transportation Problem with Minimum Quantity Commitment," Transportation Science, INFORMS, vol. 40(1), pages 117-129, February.
    7. Tao Lu & Ying-Ju Chen & Jan C. Fransoo & Chung-Yee Lee, 2020. "Shipping to Heterogeneous Customers with Competing Carriers," Manufacturing & Service Operations Management, INFORMS, vol. 22(4), pages 850-867, July.
    8. Hu, Qian & Zhang, Zhenzhen & Lim, Andrew, 2016. "Transportation service procurement problem with transit time," Transportation Research Part B: Methodological, Elsevier, vol. 86(C), pages 19-36.
    9. Alper Atamtürk & Muhong Zhang, 2007. "Two-Stage Robust Network Flow and Design Under Demand Uncertainty," Operations Research, INFORMS, vol. 55(4), pages 662-673, August.
    10. Ruina Yang & Chung-Yee Lee & Qian Liu & Song Zheng, 2019. "A carrier–shipper contract under asymmetric information in the ocean transport industry," Annals of Operations Research, Springer, vol. 273(1), pages 377-408, February.
    11. Remli, Nabila & Amrouss, Amine & El Hallaoui, Issmail & Rekik, Monia, 2019. "A robust optimization approach for the winner determination problem with uncertainty on shipment volumes and carriers’ capacity," Transportation Research Part B: Methodological, Elsevier, vol. 123(C), pages 127-148.
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