IDEAS home Printed from https://ideas.repec.org/a/pal/marecl/v23y2021i2d10.1057_s41278-020-00167-2.html
   My bibliography  Save this article

An option contract model for leasing containers in the shipping industry

Author

Listed:
  • Alejandra Gómez-Padilla

    (Universidad de Guadalajara)

  • Rosa G. González-Ramírez

    (Universidad de los Andes Chile)

  • Fernando Alarcón

    (Hapag Lloyd AG)

  • Stefan Voß

    (University of Hamburg)

Abstract

We propose an option contract model for the leasing of containers. In an option contract, the shipping company commits to order a quantity of containers from the leasing company and has the right to modify its order at a later stage, according to its actual requirement. Under this scheme, the shipping company is allowed to request a smaller or larger number of containers than the agreed initial order. This is done by buying an option premium in advance from the container leasing company. We present numerical results for different scenarios based on information provided by experts in the industry. For the purposes of comparison, a nonoption contract scheme is also evaluated. According to our numerical results, an option contract is better under a scenario where demand is normally distributed with a large standard deviation. This scenario is commonly observed in practice due to the dynamism and volatility of the shipping industry. We conclude that, under an option contract scheme, the shipping company has more flexibility to adjust its demand for containers and to be requested from the leasing company, and this adjustment is compensated by an option price determined according to variations in demand.

Suggested Citation

  • Alejandra Gómez-Padilla & Rosa G. González-Ramírez & Fernando Alarcón & Stefan Voß, 2021. "An option contract model for leasing containers in the shipping industry," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 23(2), pages 328-347, June.
    • Handle: RePEc:pal:marecl:v:23:y:2021:i:2:d:10.1057_s41278-020-00167-2
    DOI: 10.1057/s41278-020-00167-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s41278-020-00167-2
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s41278-020-00167-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    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. Quang-Vinh Dang & Izabela Ewa Nielsen & Won-Young Yun, 2013. "Replenishment policies for empty containers in an inland multi-depot system," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 15(1), pages 120-149, March.
    2. Shintani, Koichi & Imai, Akio & Nishimura, Etsuko & Papadimitriou, Stratos, 2007. "The container shipping network design problem with empty container repositioning," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(1), pages 39-59, January.
    3. Nina Vojdani & Felix Lootz & René Rösner, 2013. "Optimizing empty container logistics based on a collaborative network approach," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 15(4), pages 467-493, December.
    4. Dawn Barnes-Schuster & Yehuda Bassok & Ravi Anupindi, 2002. "Coordination and Flexibility in Supply Contracts with Options," Manufacturing & Service Operations Management, INFORMS, vol. 4(3), pages 171-207, May.
    5. Ilkyeong Moon & Hwajin Hong, 2016. "Repositioning of empty containers using both standard and foldable containers," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 18(1), pages 61-77, March.
    6. Andy A. Tsay, 1999. "The Quantity Flexibility Contract and Supplier-Customer Incentives," Management Science, INFORMS, vol. 45(10), pages 1339-1358, October.
    7. Alessandro Olivo & Paola Zuddas & Massimo Di Francesco & Antonio Manca, 2005. "An Operational Model for Empty Container Management," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 7(3), pages 199-222, September.
    8. Wong, Eugene Y.C. & Tai, Allen H. & Raman, Mardjuki, 2015. "A maritime container repositioning yield-based optimization model with uncertain upsurge demand," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 82(C), pages 147-161.
    9. Meng, Qiang & Wang, Shuaian, 2011. "Liner shipping service network design with empty container repositioning," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(5), pages 695-708, September.
    10. Zheng, Jianfeng & Sun, Zhuo & Zhang, Fangjun, 2016. "Measuring the perceived container leasing prices in liner shipping network design with empty container repositioning," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 94(C), pages 123-140.
    11. Dongping Song * & Jie Zhang & Jonathan Carter & Tony Field & James Marshall & John Polak & Kimberly Schumacher & Proshun Sinha-Ray & John Woods, 2005. "On cost-efficiency of the global container shipping network," Maritime Policy & Management, Taylor & Francis Journals, vol. 32(1), pages 15-30, January.
    12. Liu, Cong & Jiang, Zhibin & Liu, Liming & Geng, Na, 2013. "Solutions for flexible container leasing contracts with options under capacity and order constraints," International Journal of Production Economics, Elsevier, vol. 141(1), pages 403-413.
    13. Kjetil Fagerholt *, 2004. "Designing optimal routes in a liner shipping problem," Maritime Policy & Management, Taylor & Francis Journals, vol. 31(4), pages 259-268, October.
    14. Kawai, Masahiro, 1983. "Price Volatility of Storable Commodities under Rational Expectations in Spot and Futures Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(2), pages 435-459, June.
    15. Marc Levinson, 2016. "The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger," Economics Books, Princeton University Press, edition 2, number 10724.
    16. Marc Levinson, 2016. "The World the Box Made," Introductory Chapters, in: The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton University Press.
    17. Qi Fu & Chung-Yee Lee & Chung-Piaw Teo, 2010. "Procurement management using option contracts: random spot price and the portfolio effect," IISE Transactions, Taylor & Francis Journals, vol. 42(11), pages 793-811.
    18. Gomez_Padilla, A. & Mishina, T., 2009. "Supply contract with options," International Journal of Production Economics, Elsevier, vol. 122(1), pages 312-318, November.
    19. Hercules E. Haralambides, 2019. "Gigantism in container shipping, ports and global logistics: a time-lapse into the future," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(1), pages 1-60, March.
    20. Xu, He, 2010. "Managing production and procurement through option contracts in supply chains with random yield," International Journal of Production Economics, Elsevier, vol. 126(2), pages 306-313, August.
    21. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    Full references (including those not matched with items on IDEAS)

    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. Alaa Abdelshafie & May Salah & Tomaž Kramberger & Dejan Dragan, 2022. "Repositioning and Optimal Re-Allocation of Empty Containers: A Review of Methods, Models, and Applications," Sustainability, MDPI, vol. 14(11), pages 1-23, May.
    2. Behzad Behdani & Bart Wiegmans & Violeta Roso & Hercules Haralambides, 2020. "Port-hinterland transport and logistics: emerging trends and frontier research," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 22(1), pages 1-25, March.
    3. Zheng, Jianfeng & Sun, Zhuo & Zhang, Fangjun, 2016. "Measuring the perceived container leasing prices in liner shipping network design with empty container repositioning," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 94(C), pages 123-140.
    4. Kolar, Petr & Schramm, Hans-Joachim & Prockl, Günter, 2018. "Intermodal transport and repositioning of empty containers in Central and Eastern Europe hinterland," Journal of Transport Geography, Elsevier, vol. 69(C), pages 73-82.
    5. Jiarong Luo & Xu Chen & Chong Wang & Gaoxun Zhang, 2021. "Bidirectional options in random yield supply chains with demand and spot price uncertainty," Annals of Operations Research, Springer, vol. 302(1), pages 211-230, July.
    6. Chen, Xu & Wan, Nana & Wang, Xiaojun, 2017. "Flexibility and coordination in a supply chain with bidirectional option contracts and service requirement," International Journal of Production Economics, Elsevier, vol. 193(C), pages 183-192.
    7. Li, Ji-cai & Zhou, Yong-wu & Huang, Wenyan, 2017. "Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts," International Journal of Production Economics, Elsevier, vol. 183(PA), pages 208-222.
    8. Song, Dong-Ping & Dong, Jing-Xin, 2012. "Cargo routing and empty container repositioning in multiple shipping service routes," Transportation Research Part B: Methodological, Elsevier, vol. 46(10), pages 1556-1575.
    9. Jeong, Yoonjea & Saha, Subrata & Chatterjee, Debajyoti & Moon, Ilkyeong, 2018. "Direct shipping service routes with an empty container management strategy," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 123-142.
    10. Zhao, Yiran & Yang, Zhongzhen & Haralambides, Hercules, 2019. "Optimizing the transport of export containers along China's coronary artery: The Yangtze River," Journal of Transport Geography, Elsevier, vol. 77(C), pages 11-25.
    11. Zheng, Jianfeng & Qi, Jingwen & Sun, Zhuo & Li, Feng, 2018. "Community structure based global hub location problem in liner shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 1-19.
    12. Vafa Arani, Hamed & Rabbani, Masoud & Rafiei, Hamed, 2016. "A revenue-sharing option contract toward coordination of supply chains," International Journal of Production Economics, Elsevier, vol. 178(C), pages 42-56.
    13. Lee, Chung-Yee & Song, Dong-Ping, 2017. "Ocean container transport in global supply chains: Overview and research opportunities," Transportation Research Part B: Methodological, Elsevier, vol. 95(C), pages 442-474.
    14. Belleh Fontem & Megan Price, 2021. "Joint client selection and contract design for a risk-averse commodity broker in a two-echelon supply chain," Annals of Operations Research, Springer, vol. 307(1), pages 111-138, December.
    15. Wang, Shuaian & Liu, Zhiyuan & Meng, Qiang, 2015. "Segment-based alteration for container liner shipping network design," Transportation Research Part B: Methodological, Elsevier, vol. 72(C), pages 128-145.
    16. Jeong, Yoonjea & Saha, Subrata & Moon, Ilkyeong, 2020. "Optimal devanning time and detention charges for container supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 143(C).
    17. Wang, Chong & Chen, Jing & Chen, Xu, 2019. "The impact of customer returns and bidirectional option contract on refund price and order decisions," European Journal of Operational Research, Elsevier, vol. 274(1), pages 267-279.
    18. Myung, Young-Soo & Yu, Yung-Mok, 2020. "Freight transportation network model with bundling option," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    19. Liu, Zhiyuan & Meng, Qiang & Wang, Shuaian & Sun, Zhuo, 2014. "Global intermodal liner shipping network design," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 28-39.
    20. Kuzmicz, Katarzyna Anna & Pesch, Erwin, 2019. "Approaches to empty container repositioning problems in the context of Eurasian intermodal transportation," Omega, Elsevier, vol. 85(C), pages 194-213.

    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:pal:marecl:v:23:y:2021:i:2:d:10.1057_s41278-020-00167-2. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    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.