System Optimum and Collaborative Planning for Liner Shipping

Abstract

There are multifarious academic research studies available concerning the optimization of a liner shipping company's benefit in terms of its individual behavior. The existing literature on alliance in liner shipping is still scarce, even though more and more carriers are collaborating with other carriers instead of getting improving their businesses by optimizing their own resources and information only. This research presents a unique methodology that a third party logistics firm can utilize to determine best schedules for liner shippers under total collaboration. A mixed integer linear programming (MIP) optimization model is developed to achieve the system optimum assuming total collaboration among partner shippers on the condition that a win-win solution is guaranteed for all participants. MIP optimization models are presented for a single carrier and for the overall system optimization under total collaboration. The system optimization model incorporates price strategy for equitable cost sharing. The price-strategy policy determines the additional price each liner company should charge other companies for shipping their demand. The methodology is verified for a three-carrier system using FICOTM Xpress Optimization Software to solve the MIP models. This study presents a practical membership mechanism to allocate resources among partner carriers to facilitate forming alliances most efficiently and equitably. A unique feature of the study is that the MIP models not only consider the shipping cost for the carriers based at a foreign port to US ports but it also includes the cost of shipment from a US port to the final MSA. Hence, the transportation network is integrated international network including global waterways and inland highways. The methodology can easily be expanded to include other cost elements or variations in the problem formulation.