Cost Sharing in a Shipping Market with Empty Container Repositioning

Abstract

In this paper, we study the cost sharing and pricing issue in a two-port shipping market with one carrier and two forwarders. The Stackelberg leader carrier authorizes two forwarders to collect cargoes at different ports and then transports laden and empty containers. We first build a model to investigate the carrier's optimal cost sharing and pricing strategy. We find that the carrier will transfer all the empty container repositioning (ECR) cost to the forwarder of low demand if imbalance exists and transfer all the ECR cost to the forwarder in the high unit ECR cost direction otherwise. As a result, the forwarder who completely takes the ECR cost will have less profit compared to the model without cost sharing. Therefore, we build another two models to motivate all the players to accept the ECR cost sharing policy. We also conduct some numerical analysis to compare all these models. We find that there is a salient conflict between profit maximization and ECR minimization.

Keywords: cost sharing, empty container repositioning, pricing