Advertisement

Optimal Air-Cargo Allotment Contract with Multiple Freight Forwarders

  • Kannapha AmaruchkulEmail author
Conference paper
Part of the Communications in Computer and Information Science book series (CCIS, volume 966)

Abstract

Consider the air-cargo service chain which comprises a carrier and multiple forwarders. The carrier and each of the forwarders may establish an allotment contract at the start of the season. We formulate the contract design problem as a Stackelberg game, in which the carrier is the leader and offers a contract to a forwarder. The contract parameters may include the discount contract price and the penalty cost for the unused allotment as well as the minimum allotment utilization. The carrier’s contract is accepted, if the forwarder earns at least its reservation profit. Given the carrier’s offer, the forwarder decides how much to book as an allotment, in order to maximize its own expected profit. We show that the two-parameter contract suffices to coordinate the service chain, and the carrier earns the maximum chain’s expected profit less the total reservation profits of all forwarders. If the penalty cost is not imposed, then the minimum allotment utilization is needed to construct an efficient contract. On the other hand, if the penalty cost is strictly positive, then there is no need to impose the minimum allotment requirement.

Keywords

Air-cargo Capacity management Stochastic model applications 

Notes

Acknowledgements

This research was supported in part by the Thailand Research Fund and Office of the Higher Education Commission, Thailand (Grant RSA58- Kannapha-Amaruchkul). The views expressed in this paper are that of the author and do not necessarily reflect the views of the Thailand Research Fund and Office of the Higher Education Commission, Thailand. Data collection and in-depth interviews were partially conducted by the Ms. Apinya Theppanomrat, one of the full-time master students in the logistics management (LM) program at NIDA, and Ms. Narisara Lueang-orn, one of the part-time master LM students, who has been working at the freight forwarder company (in the numerical example) for several years.

References

  1. 1.
    Accenture: 2015 air cargo survey: taking off for higher profitability (2015). www.accenture.com. Accessed 3 July 2016
  2. 2.
    Amaruchkul, K.: Game-theoretic analysis of air-cargo allotment contract. In: International Conference on Operations Research and Enterprise Systems (ICORES 2018), Funchal, Portugal (2018)Google Scholar
  3. 3.
    Amaruchkul, K., Cooper, W., Gupta, D.: Single-leg air-cargo revenue management. Transp. Sci. 41(4), 457–469 (2007)Google Scholar
  4. 4.
    Amaruchkul, K., Cooper, W., Gupta, D.: A note on air-cargo capacity contracts. Prod. Oper. Manage. 20(1), 152–162 (2011)Google Scholar
  5. 5.
    Amaruchkul, K., Lorchirachoonkul, V.: Air-cargo capacity allocation for multiple freight forwarders. Transp. Res. Part E 47(1), 30–40 (2011)Google Scholar
  6. 6.
    Barz, C.: Risk-Averse Capacity Control in Revenue Management. Springer, Heidelberg (2007).  https://doi.org/10.1007/978-3-540-73014-9zbMATHGoogle Scholar
  7. 7.
    Barz, C., Gartner, D.: Air cargo network revenue management. Transp. Sci. 50(4), 1206–1222 (2016)Google Scholar
  8. 8.
    Bazaraa, M., et al.: The Asia Pacific air cargo system. Research Paper No: TLI-AP/00/01. The Logistics Institute-Asia Pacific. National University of Singapore and Georgia Institute of Technology (2001). http://www.tliap.nus.edu.sg/Library/default.aspx. Accessed 06 Jan 2007
  9. 9.
    Becker, B., Dill, N.: Managing the complexity of air cargo revenue management. J. Revenue Pricing Manage. 6(3), 175–187 (2007)Google Scholar
  10. 10.
    Billings, J., Diener, A., Yuen, B.: Cargo revenue optimisation. J. Revenue Pricing Manage. 2(1), 69–79 (2003)Google Scholar
  11. 11.
    Boeing Company: World air cargo forecast 2016–2017 (2016). http://www.boeing.com/commercial/market/cargo-forecast/. Accessed 13 Apr 2018
  12. 12.
    Cachon, G.: Supply chain coordination with contracts. In: de Kok, A., Graves, S. (eds.) Handbooks in Operations Research and Management Science: Supply Chain Management. Elsevier, Amsterdam (2003)Google Scholar
  13. 13.
    Chiang, W., Chen, J., Xu, X.: An overview of research on revenue management: current issues and future research. Int. J. Revenue Manage. 1(1), 97–128 (2007)Google Scholar
  14. 14.
    DeLain, L., O’Meara, E.: Building a business case for revenue management. J. Revenue Pricing Manage. 2(4), 368–377 (2004)Google Scholar
  15. 15.
    Feng, B., Li, Y., Shen, H.: Tying mechanism for airlines’ air cargo capacity allocation. Eur. J. Oper. Res. 244, 322–330 (2015)MathSciNetzbMATHGoogle Scholar
  16. 16.
    Feng, B., Li, Y., Shen, Z.: Air cargo operations: literature review and comparison with practices. Transp. Res. Part C 56, 263–280 (2015)Google Scholar
  17. 17.
    Gupta, D.: Flexible carrier-forwarder contracts for air cargo business. J. Revenue Pricing Manage. 7(4), 341–356 (2008)Google Scholar
  18. 18.
    Hellermann, R.: Options contracts with overbooking in the air cargo industry. Decis. Sci. 44(2), 297–327 (2013)Google Scholar
  19. 19.
    Hendricks, G., Elliott, T.: Implementing revenue management techniques in an air cargo environment. (2010). www.unisys.com/transportation/insights. Accessed 3 Mar 2010
  20. 20.
    Hoffmann, R.: Dynamic capacity control in cargo revenue management-a new heuritic for solving the single-leg problem efficiently. J. Revenue Pricing Manage. 12(1), 46–59 (2013)Google Scholar
  21. 21.
    Ingold, A., McMahon-Beattie, U., Yeoman, I.: Yield Management: strategies for the service industries. South-Western Cengage Learning, Bedford Row, London (2000)Google Scholar
  22. 22.
    International Air Transport Association: Airline Revenue Management: Course eTextbook. International Aviation Training Program, Montreal, Quebec (2012)Google Scholar
  23. 23.
    International Air Transport Association: IATA cargo strategy (2016). www.iata.org. Accessed 3 July 2016
  24. 24.
    Kasilingam, R.: Air cargo revenue management: characteristics and complexities. Eur. J. Oper. Res. 96(1), 36–44 (1996)zbMATHGoogle Scholar
  25. 25.
    Levin, Y., Nediak, M., Topaloglu, H.: Cargo capacity management with allotments and spot market demand. Oper. Res. 60(2), 351–365 (2012)MathSciNetzbMATHGoogle Scholar
  26. 26.
    Lin, D., Lee, C., Yang, J.: Air cargo revenue management under buy-back policy. J. Air Transp. Manage. 61, 53–63 (2017)Google Scholar
  27. 27.
    McGill, J., van Ryzin, G.: Revenue management: research overview and prospects. Transp. Sci. 33(2), 233–256 (1999)zbMATHGoogle Scholar
  28. 28.
    Moussawi-Haidar, L.: Optimal solution for a cargo revenue management problem with allotment and spot arrivals. Transp. Res. Part E 72, 173–191 (2014)Google Scholar
  29. 29.
    Nahmias, S.: Production and Operations Research. McGraw-Hill Inc., New York (2009)Google Scholar
  30. 30.
    Netessine, S., Shumsky, R.: Introduction to the theory and practice of yield management. INFORMS Trans. Educ. 3(1), 34–44 (2002)Google Scholar
  31. 31.
    Phillips, R.: Pricing and Revenue Optimization. Stanford University Press, Stanford (2005)Google Scholar
  32. 32.
    Prior, R., Slavens, R., Trimarco, J.: Menlo worldwide forwarding optimizes its network routing. Interfaces 34(1), 26–38 (2004)Google Scholar
  33. 33.
    Sales, M.: The Air Logistics Handbook: Air Freight and the Global Supply Chain. Routledge, New York (2013)Google Scholar
  34. 34.
    Sigworth, D.: Contracting: making the rate case. Traffic World 268(17), 32–33 (2004)Google Scholar
  35. 35.
    Slager, B., Kapteijns, L.: Implementation of cargo revenue management at KLM. J. Revenue Pricing Manage. 3(1), 80–90 (2004)Google Scholar
  36. 36.
    Talluri, K., van Ryzin, G.: The Theory and Practice of Revenue Management. Kluwer Academic Publishers, Boston (2004)zbMATHGoogle Scholar
  37. 37.
    Tang, C.: A scenario decomposition-genetic algorithm method for solving stochastic air cargo container loading problems. Transp. Res. Part E 45(6), 725–739 (2011)Google Scholar
  38. 38.
    Tao, Y., Chew, E., Lee, L., Wang, L.: A capacity pricing and reservation problem under option contract in the air cargo freight industry. Comput. Ind. Eng. 110, 560–572 (2017)Google Scholar
  39. 39.
    Wada, M., Delgado, F., Pagnoncelli, B.: A risk averse approach to the capacity allocation problem in the airline cargo industry. J. Oper. Res. Soc. 68(6), 643–651 (2017)Google Scholar
  40. 40.
    Woods, R.: Top 5 perishables with the fastest-growing demand for air cargo (2017). https://aircargoworld.com/allposts/top-5-perishables-with-the-fastest-growing-demand-for-air-cargo/. Accessed 13 Apr 2018
  41. 41.
    Wu, Y.: Modelling of containerized air cargo forwarding problems under uncertainty. J. Oper. Res. Soc. 62(7), 1211–1226 (2011)Google Scholar
  42. 42.
    Yang, S., Chen, S., Chen, C.: Air cargo fleet routing and timetable setting with multiple on-time demands. Transp. Res. Part E: Logist. Transp. Rev. 42(5), 409–430 (2006)Google Scholar
  43. 43.
    Yeoman, I., McMahon-Beattie, U.: Revenue Management and Pricing: Case Studies and. Thomson Learning, Bedford Row (2004)Google Scholar
  44. 44.
    Yeung, J., He, W.: Shipment planning, capacity contracting and revenue management in the air cargo industry: a literature review. In: Proceedings of the 2012 International Conference on Industrial Engineering and Operations Management, Istanbul, July 2012Google Scholar
  45. 45.
    Zhang, C., Xie, F., Huang, K., Wu, T., Liang, Z.: MIP models and a hybrid method for the capacitated air-cargo network planning and scheduling problems. Transp. Res. Part E 103, 158–173 (2017)Google Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Graduate School of Applied Statistics, National Institute of Development Administration (NIDA)BangkokThailand

Personalised recommendations