IDEAS home Printed from https://ideas.repec.org/a/eee/transb/v41y2007i9p1067-1078.html
   My bibliography  Save this article

Procurement of transportation services in spot markets under a double-auction scheme with elastic demand

Author

Listed:
  • Garrido, Rodrigo A.

Abstract

In the recent years, new electronic procurement technologies have been successfully implemented in freight transportation marketplaces. This new type of trading between freight transportation agents requires new analytical tools to better understand the consequences of different strategies and forms of transportation capacity allocation. I studied two cases. First, a transportation market where an O-D pair is operated round-trip by multiple carriers, providing service to multiple shippers. Second, a multiple O-D pairs' market, operated by multiple carriers, providing service to multiple shippers. In both cases the shippers' demand function is elastic to the transportation service prices. The shippers contract each shipment to a single carrier following an open auction, in which the shipper selects the carrier based on the best bidding price. Carriers contracted to serve the shipments will often make empty movements to reposition their equipment. Hence, they will attempt to "generate" demand for these empty trips, in order to obtain revenue for their spare capacity. Carriers may generate demand for this capacity by offering service substantially below the market price (as low as the marginal cost of shipping). Shippers on the other hand, decide when to buy transportation services (and how much), i.e., the frequency of shipment and lot size, based on a strategy to minimize the total inventory and transportation costs. A significant reduction in the transportation tariff triggers an adjustment in the replenishment pattern of shippers, as a response to the beneficial market conditions. The new generated demand transforms shippers into bidders for the available spare capacity at discounted prices. This double-auction scheme allocates shipments to the otherwise unused capacity thus reducing the network's empty movements, which also reduces the average transportation cost in the network. In this paper, I show that under an EOQ policy an average discount spot price of two thirds of the market price will trigger a demand generation for transportation services in the shippers' pool. The paper presents a numerical application of the derived model, in which the double-auction scheme reduces the network average transportation tariff by at least 14%.

Suggested Citation

  • Garrido, Rodrigo A., 2007. "Procurement of transportation services in spot markets under a double-auction scheme with elastic demand," Transportation Research Part B: Methodological, Elsevier, vol. 41(9), pages 1067-1078, November.
  • Handle: RePEc:eee:transb:v:41:y:2007:i:9:p:1067-1078
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0191-2615(07)00038-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Seifert, Ralf W. & Thonemann, Ulrich W. & Hausman, Warren H., 2004. "Optimal procurement strategies for online spot markets," European Journal of Operational Research, Elsevier, vol. 152(3), pages 781-799, February.
    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. John O. Ledyard & Mark Olson & David Porter & Joseph A. Swanson & David P. Torma, 2002. "The First Use of a Combined-Value Auction for Transportation Services," Interfaces, INFORMS, vol. 32(5), pages 4-12, October.
    4. Regan, A C & Song, Jiongjiong, 2003. "Combinatorial Auctions for Transportation Service Procurement: The Carrier Perspective," University of California Transportation Center, Working Papers qt7sq003mj, University of California Transportation Center.
    5. Adland, Roar & Cullinane, Kevin, 2006. "The non-linear dynamics of spot freight rates in tanker markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(3), pages 211-224, May.
    6. Song, Jiongjiong & Regan, A C, 2001. "Transition or Transformation? Emerging Freight Transportation Intermediaries," University of California Transportation Center, Working Papers qt28p7z2sg, University of California Transportation Center.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2017. "Ocean carrier canvassing strategies with uncertain demand and limited capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 104(C), pages 189-210.
    2. Liang, Renchao & Wang, Junwei & Huang, Min & Jiang, Zhong-Zhong, 2020. "Truthful auctions for e-market logistics services procurement with quantity discounts," Transportation Research Part B: Methodological, Elsevier, vol. 133(C), pages 165-180.
    3. Lindsey, Christopher & Mahmassani, Hani S., 2017. "Sourcing truckload capacity in the transportation spot market: A framework for third party providers," Transportation Research Part A: Policy and Practice, Elsevier, vol. 102(C), pages 261-273.
    4. Wang, Fan & Zhuo, Xiaopo & Niu, Baozhuang & He, Jiayi, 2017. "Who canvasses for cargos? Incentive analysis and channel structure in a shipping supply chain," Transportation Research Part B: Methodological, Elsevier, vol. 97(C), pages 78-101.
    5. Xu, Su Xiu & Cheng, Meng & Huang, George Q., 2015. "Efficient intermodal transportation auctions for B2B e-commerce logistics with transaction costs," Transportation Research Part B: Methodological, Elsevier, vol. 80(C), pages 322-337.
    6. Huang, George Q. & Xu, Su Xiu, 2013. "Truthful multi-unit transportation procurement auctions for logistics e-marketplaces," Transportation Research Part B: Methodological, Elsevier, vol. 47(C), pages 127-148.
    7. Martin Bichler & Johannes Knörr & Felipe Maldonado, 2023. "Pricing in Nonconvex Markets: How to Price Electricity in the Presence of Demand Response," Information Systems Research, INFORMS, vol. 34(2), pages 652-675, June.
    8. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2018. "Cooperation mode for a liner company with heterogeneous ports: Business cooperation vs. port investment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 513-533.
    9. Xu, Su Xiu & Huang, George Q., 2013. "Transportation service procurement in periodic sealed double auctions with stochastic demand and supply," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 136-160.
    10. Liu, Jiaguo & Wang, Junjin, 2019. "Carrier alliance incentive analysis and coordination in a maritime transport chain based on service competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 333-355.
    11. Xu, Su Xiu & Huang, George Q., 2014. "Efficient auctions for distributed transportation procurement," Transportation Research Part B: Methodological, Elsevier, vol. 65(C), pages 47-64.
    12. Shao, Saijun & Xu, Su Xiu & Huang, George Q., 2020. "Variable neighborhood search and tabu search for auction-based waste collection synchronization," Transportation Research Part B: Methodological, Elsevier, vol. 133(C), pages 1-20.
    13. Li, Li & Zhang, Rachel Q., 2015. "Cooperation through capacity sharing between competing forwarders," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 75(C), pages 115-131.
    14. Su Xiu Xu & George Q. Huang & Meng Cheng, 2017. "Truthful, Budget-Balanced Bundle Double Auctions for Carrier Collaboration," Transportation Science, INFORMS, vol. 51(4), pages 1365-1386, November.
    15. Lafkihi, Mariam & Pan, Shenle & Ballot, Eric, 2019. "Freight transportation service procurement: A literature review and future research opportunities in omnichannel E-commerce," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 348-365.
    16. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2019. "Encroachment and canvassing strategy in a sea-cargo service chain with empty container repositioning," European Journal of Operational Research, Elsevier, vol. 276(1), pages 175-186.
    17. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hammami, Farouk & Rekik, Monia & Coelho, Leandro C., 2019. "Exact and heuristic solution approaches for the bid construction problem in transportation procurement auctions with a heterogeneous fleet," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 127(C), pages 150-177.
    2. Mesa-Arango, Rodrigo & Ukkusuri, Satish V., 2013. "Benefits of in-vehicle consolidation in less than truckload freight transportation operations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 60(C), pages 113-125.
    3. Xu, Su Xiu & Huang, George Q., 2013. "Transportation service procurement in periodic sealed double auctions with stochastic demand and supply," Transportation Research Part B: Methodological, Elsevier, vol. 56(C), pages 136-160.
    4. Huang, George Q. & Xu, Su Xiu, 2013. "Truthful multi-unit transportation procurement auctions for logistics e-marketplaces," Transportation Research Part B: Methodological, Elsevier, vol. 47(C), pages 127-148.
    5. Lafkihi, Mariam & Pan, Shenle & Ballot, Eric, 2019. "Freight transportation service procurement: A literature review and future research opportunities in omnichannel E-commerce," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 348-365.
    6. Gansterer, Margaretha & Hartl, Richard F. & Sörensen, Kenneth, 2020. "Pushing frontiers in auction-based transport collaborations," Omega, Elsevier, vol. 94(C).
    7. Song, Jiongjiong & Regan, A C, 2003. "Approximation Algorithms for the Bid Construction Problem in Combinatorial Auctions for the Procurement of Freight Transportation Contracts," University of California Transportation Center, Working Papers qt3j7034z2, University of California Transportation Center.
    8. Richard Li-Yang Chen & Shervin AhmadBeygi & Amy Cohn & Damian R. Beil & Amitabh Sinha, 2009. "Solving Truckload Procurement Auctions Over an Exponential Number of Bundles," Transportation Science, INFORMS, vol. 43(4), pages 493-510, November.
    9. Chang, Tsung-Sheng, 2009. "Decision support for truckload carriers in one-shot combinatorial auctions," Transportation Research Part B: Methodological, Elsevier, vol. 43(5), pages 522-541, June.
    10. van Duin, J.H.R. & Tavasszy, L.A. & Taniguchi, E., 2007. "Real time simulation of auctioning and re-scheduling processes in hybrid freight markets," Transportation Research Part B: Methodological, Elsevier, vol. 41(9), pages 1050-1066, November.
    11. Lindsey, Christopher & Mahmassani, Hani S., 2017. "Sourcing truckload capacity in the transportation spot market: A framework for third party providers," Transportation Research Part A: Policy and Practice, Elsevier, vol. 102(C), pages 261-273.
    12. Ertem, Mustafa A. & Buyurgan, Nebil & Pohl, Edward A., 2012. "Using announcement options in the bid construction phase for disaster relief procurement," Socio-Economic Planning Sciences, Elsevier, vol. 46(4), pages 306-314.
    13. Jawad Abrache & Teodor Crainic & Michel Gendreau & Monia Rekik, 2007. "Combinatorial auctions," Annals of Operations Research, Springer, vol. 153(1), pages 131-164, September.
    14. Pittawat Ueasangkomsate & Manoj Lohatepanont, 2012. "Bidding Strategies for Carrier in Combinatorial Transportation Auction," International Journal of Business Research and Management (IJBRM), Computer Science Journals (CSC Journals), vol. 3(1), pages 1-17, February.
    15. Xu, Su Xiu & Huang, George Q., 2014. "Efficient auctions for distributed transportation procurement," Transportation Research Part B: Methodological, Elsevier, vol. 65(C), pages 47-64.
    16. Lim, Andrew & Qin, Hu & Xu, Zhou, 2012. "The freight allocation problem with lane cost balancing constraint," European Journal of Operational Research, Elsevier, vol. 217(1), pages 26-35.
    17. 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.
    18. Okan Örsan Özener & Özlem Ergun & Martin Savelsbergh, 2011. "Lane-Exchange Mechanisms for Truckload Carrier Collaboration," Transportation Science, INFORMS, vol. 45(1), pages 1-17, February.
    19. Mesa-Arango, Rodrigo & Ukkusuri, Satish V., 2015. "Demand clustering in freight logistics networks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 81(C), pages 36-51.
    20. Hammami, Farouk & Rekik, Monia & Coelho, Leandro C., 2021. "Exact and hybrid heuristic methods to solve the combinatorial bid construction problem with stochastic prices in truckload transportation services procurement auctions," Transportation Research Part B: Methodological, Elsevier, vol. 149(C), pages 204-229.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transb:v:41:y:2007:i:9:p:1067-1078. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/548/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.