IDEAS home Printed from https://ideas.repec.org/a/taf/uiiexx/v49y2017i2p194-208.html
   My bibliography  Save this article

A novel floating price contract for the ocean freight industry

Author

Listed:
  • Ruina Yang
  • Xiaochen Gao
  • Chung-Yee Lee

Abstract

In this article, we investigate the carrier–shipper contracting issue arising from the ocean freight industry. In current practice, the carrier may sign a contract with the shipper stating a fixed price per container for the whole year, which is comprised of a low-demand season followed by a high-demand season. By accepting the contract, the shipper agrees to comply with the obligation of transporting the exact number of containers needed in both the low and high seasons at the contracted price. However, often the shipper will default on the committed quantity in the low season when the spot market price drops below the contract price. To address this problem, we propose a floating price contract. In the article, we characterize the optimal contract parameters and the shipper's optimal strategy and evaluate the effectiveness of the floating price contract with a combination of analytical and numerical methods. We find that under a broad class of macroeconomic market conditions, the floating price contract not only enables the carrier to tackle contract default issue more effectively while better enjoying the benefit of capacity planning but makes the shipper better off than relying solely on the spot market.

Suggested Citation

  • Ruina Yang & Xiaochen Gao & Chung-Yee Lee, 2017. "A novel floating price contract for the ocean freight industry," IISE Transactions, Taylor & Francis Journals, vol. 49(2), pages 194-208, February.
    • Handle: RePEc:taf:uiiexx:v:49:y:2017:i:2:p:194-208
    DOI: 10.1080/0740817X.2016.1215610
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/0740817X.2016.1215610
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/0740817X.2016.1215610?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.

    Citations

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


    Cited by:

    1. 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.
    2. 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).
    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. 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).

    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:taf:uiiexx:v:49:y:2017:i:2:p:194-208. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/uiie .

    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.