IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v273y2019i1d10.1007_s10479-017-2532-1.html
   My bibliography  Save this article

A carrier–shipper contract under asymmetric information in the ocean transport industry

Author

Listed:
  • Ruina Yang

    (Xi’an Jiaotong University)

  • Chung-Yee Lee

    (Hong Kong University of Science and Technology)

  • Qian Liu

    (Hong Kong University of Science and Technology)

  • Song Zheng

    (Alibaba Group)

Abstract

We study the carrier–shipper contracting issue in a single time period (i.e., 1 year) consisting of a low demand season followed by a high demand season under asymmetric information arising from the ocean freight industry. In order to address the contract default problem that is prominent in this industry, we propose a proportion requirement policy in which the capacity allocated to the shipper at the contract price in the high demand season is proportional to his quantity commitment in the low demand season. The shipper has private information about the low season demand while the carrier does not. To induce truthful information revelation, the carrier offers a bundle consisting of two two-part tariff contracts, each of which targets for one market state. In our model, the carrier determines the contract bundle to maximize her expected profit in both seasons. The shipper decides which contract to sign after observing the market state, and then determines the optimal shipping quantity to minimize his total expected cost. We characterize the carriers optimal contract bundle under asymmetric information and the shippers optimal strategy for each market state. The analytical results show that both the carrier and the shipper can be better off with an appropriately designed contract bundle compared with replying solely on the spot market under certain conditions. We also investigate how the outcomes of the system (e.g., the shippers optimal commitment quantity, the optimal contract price, the information rent and the carriers expected profit) are affected by the proportion requirement parameter, the degree of information asymmetry, and the uncertainty of the market state type.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:annopr:v:273:y:2019:i:1:d:10.1007_s10479-017-2532-1
    DOI: 10.1007/s10479-017-2532-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-017-2532-1
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-017-2532-1?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. 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.
    2. Rolf Hellermann, 2006. "Capacity Options for Revenue Management," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-540-34420-9, October.
    3. 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.
    4. 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.
    5. Wan, Ke & Levary, Reuven R., 1995. "A linear-programming-based price negotiation procedure for contracting shipping companies," Transportation Research Part A: Policy and Practice, Elsevier, vol. 29(3), pages 173-186, May.
    6. Gorman, Michael F., 2002. "Pricing and Market Mix Optimization in Freight Transportation," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 41(1).
    7. L. H. Lee & E. P. Chew & M. S. Sim, 2007. "A heuristic to solve a sea cargo revenue management problem," Springer Books, in: Kap Hwan Kim & Hans-Otto Günther (ed.), Container Terminals and Cargo Systems, pages 351-364, Springer.
    8. Daniel E. O'Leary, 2010. "Intelligent Systems in Accounting, Finance and Management: ISI journal and proceeding citations, and research issues from most‐cited papers," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 17(1), pages 41-58, January.
    9. W. J. Hurley & E. R. Petersen, 1994. "Nonlinear Tariffs and Freight Network Equilibrium," Transportation Science, INFORMS, vol. 28(3), pages 236-245, August.
    10. Kavussanos, Manolis G. & Visvikis, Ilias D. & Batchelor, Roy A., 2004. "Over-the-counter forward contracts and spot price volatility in shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 40(4), pages 273-296, July.
    11. Peter Nielsen & Liping Jiang & Niels Gorm Malý Rytter & Gang Chen, 2014. "An investigation of forecast horizon and observation fit's influence on an econometric rate forecast model in the liner shipping industry," Maritime Policy & Management, Taylor & Francis Journals, vol. 41(7), pages 667-682, December.
    12. Pachon, Julian & Erkoc, Murat & Iakovou, Eleftherios, 2007. "Contract optimization with front-end fare discounts for airline corporate deals," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(4), pages 425-441, July.
    13. Michael F. Gorman, 2001. "Intermodal Pricing Model Creates a Network Pricing Perspective at BNSF," Interfaces, INFORMS, vol. 31(4), pages 37-49, August.
    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. Shivam Gupta & Sachin Modgil & Samadrita Bhattacharyya & Indranil Bose, 2022. "Artificial intelligence for decision support systems in the field of operations research: review and future scope of research," Annals of Operations Research, Springer, vol. 308(1), pages 215-274, January.
    2. Zhuzhu Song & Wansheng Tang & Ruiqing Zhao, 2022. "Implications of economies of scale and scope for round-trip shipping canvassing with empty container repositioning," Annals of Operations Research, Springer, vol. 309(2), pages 485-515, February.
    3. 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.
    4. Sun, Xuting & Chung, Sai-Ho & Choi, Tsan-Ming & Sheu, Jiuh-Biing & Ma, Hoi Lam, 2020. "Combating lead-time uncertainty in global supply chain's shipment-assignment: Is it wise to be risk-averse?," Transportation Research Part B: Methodological, Elsevier, vol. 138(C), pages 406-434.
    5. Wang, Kelly Yujie & Wen, Yuan & Yip, Tsz Leung & Fan, Zuojun, 2021. "Carrier-shipper risk management and coordination in the presence of spot freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    6. Yang, Ruina & Yu, Mingzhu & Lee, Chung-Yee & Du, Yuquan, 2021. "Contracting in ocean transportation with empty container repositioning under asymmetric information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    7. 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).
    8. Margaretha Gansterer & Richard F. Hartl & Sarah Wieser, 2021. "Assignment constraints in shared transportation services," Annals of Operations Research, Springer, vol. 305(1), pages 513-539, October.

    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. 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).
    2. Mingzhu Yu & Ruina Yang & Zelong Yi & Xuwen Cong, 2020. "Contracting in Ocean Shipping Market Under Asymmetric Information," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 37(02), pages 1-24, March.
    3. Yang, Ruina & Yu, Mingzhu & Lee, Chung-Yee & Du, Yuquan, 2021. "Contracting in ocean transportation with empty container repositioning under asymmetric information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    4. Zhou, Wei-Hua & Lee, Chung-Yee, 2009. "Pricing and competition in a transportation market with empty equipment repositioning," Transportation Research Part B: Methodological, Elsevier, vol. 43(6), pages 677-691, July.
    5. 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.
    6. 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.
    7. 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.
    8. Chen, Gang & Rytter, Niels G.M. & Jiang, Liping & Nielsen, Peter & Jensen, Lars, 2017. "Pre-announcements of price increase intentions in liner shipping spot markets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 95(C), pages 109-125.
    9. 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.
    10. 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.
    11. Najafi, Mehdi & Zolfagharinia, Hossein, 2021. "Pricing and quality setting strategy in maritime transportation: Considering empty repositioning and demand uncertainty," International Journal of Production Economics, Elsevier, vol. 240(C).
    12. Meng, Qiang & Zhao, Hui & Wang, Yadong, 2019. "Revenue management for container liner shipping services: Critical review and future research directions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 128(C), pages 280-292.
    13. 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.
    14. Zhuzhu Song & Wansheng Tang & Ruiqing Zhao, 2022. "Implications of economies of scale and scope for round-trip shipping canvassing with empty container repositioning," Annals of Operations Research, Springer, vol. 309(2), pages 485-515, February.
    15. 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.
    16. Wang, Kelly Yujie & Wen, Yuan & Yip, Tsz Leung & Fan, Zuojun, 2021. "Carrier-shipper risk management and coordination in the presence of spot freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    17. Song, Zhuzhu & Tang, Wansheng & Zhao, Ruiqing, 2020. "A simple game theoretical analysis for incentivizing multi-modal transportation in freight supply chains," European Journal of Operational Research, Elsevier, vol. 283(1), pages 152-165.
    18. 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.
    19. 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.
    20. Ziaul Haque Munim & Hans-Joachim Schramm, 2017. "Forecasting container shipping freight rates for the Far East – Northern Europe trade lane," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(1), pages 106-125, March.

    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:spr:annopr:v:273:y:2019:i:1:d:10.1007_s10479-017-2532-1. 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.springer.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.