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Contract design in ocean shipping market: A performance credit leveraged mechanism

Author

Listed:
  • Jin, Jie
  • He, Junliang
  • Wang, Xudong
  • Han, Chuanfeng
  • Meng, Lingpeng

Abstract

In shipping market, the distinct characteristics of violating demand and fluctuating spot market price both in low-demand and high-demand seasons breed the problems of shippers defaulting in the low season and insufficient capacity in high season. Based on the appeal to lock in the market and capacity, the shipper's performance credit in low season as a lever mechanism is proposed in this paper to adjust the capacity obtained in high season and study the contract design problem between the carrier and the shipper in respond to the volatile shipping market. The results show that the mechanism encourages the shipper to re-weigh their actual capacity in low season. It enables the shipper to increase their committed capacity quantity and facilitates the carrier to maintain the benefits of planning capacity in advance. Meanwhile, the shipper may obtain more capacity in the high season without increasing costs. In addition, it is interesting to note that while contracting is consistently a preferrable option than solely relying on the spot market for the shipper, it's only true for the carrier when a certain threshold condition is reached, and on the contrary, it is more profitable to transact with the spot market.

Suggested Citation

  • Jin, Jie & He, Junliang & Wang, Xudong & Han, Chuanfeng & Meng, Lingpeng, 2024. "Contract design in ocean shipping market: A performance credit leveraged mechanism," International Journal of Production Economics, Elsevier, vol. 272(C).
    • Handle: RePEc:eee:proeco:v:272:y:2024:i:c:s0925527324001130
    DOI: 10.1016/j.ijpe.2024.109256
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