Carrier Portfolio Management for Shipping Seasonal Products


Speaker


Abstract

Many seasonal products need to be transported via ocean carriers from origin to destination markets. The shipments arriving earlier in the market may sell at higher prices, but this entails considerable expense for using faster shipping services.

 We study a newsvendor-type shipper who transports and sells seasonal products to overseas market, where the selling price declines over time. A set of shipping services with different arrival times and freight rates are available to choose from. Two scenarios are studied. In Model I, we assume the product can be sold directly to overseas distributors after arrivals. By using a portfolio of shipping services, in addition to mitigating the uncertainty in arrival times (as suggested by the conventional wisdom), the shipper can in effect diversify the timing of sales. We show that this diversification is especially beneficial in the presence of demand uncertainty. Shipments in fast vessels arrive in the early season and bring the shipper higher profit margins, whereas shipments arriving in the late season help raise the overall service level. When the vessels’ arrival sequence is fixed, we explicitly characterize the optimal portfolio with an efficient frontier. In Model II, the shipper holds inventory in the destination so that multiple demands occur in different time segments during the season. We show that when the vessels’ arrival sequence is fixed, the portfolio selection is equivalent to a variant of the shortest-path problem, which can be efficiently solved.