Abstract
We propose an option contract model for the leasing of containers. In an option contract, the shipping company commits to order a quantity of containers from the leasing company and has the right to modify its order at a later stage, according to its actual requirement. Under this scheme, the shipping company is allowed to request a smaller or larger number of containers than the agreed initial order. This is done by buying an option premium in advance from the container leasing company. We present numerical results for different scenarios based on information provided by experts in the industry. For the purposes of comparison, a nonoption contract scheme is also evaluated. According to our numerical results, an option contract is better under a scenario where demand is normally distributed with a large standard deviation. This scenario is commonly observed in practice due to the dynamism and volatility of the shipping industry. We conclude that, under an option contract scheme, the shipping company has more flexibility to adjust its demand for containers and to be requested from the leasing company, and this adjustment is compensated by an option price determined according to variations in demand.
Highlights
Intermodal transport, powered by containers, has contributed significantly to the economic development of nations and to the enormous growth of world trade
In addition to the fluctuations in the demand for containers, shipping companies need to renew their fleet of contain‐ ers when a container’s useful economic life gets to its end. If this renewal process is planned in advance, more beneficial contract terms can be negotiated between the shipping line and the leasing company
We propose a bidirectional option contracts model for the issue of leasing contain‐ ers
Summary
Intermodal transport, powered by containers, has contributed significantly to the economic development of nations and to the enormous growth of world trade. Container shipping companies must at all times have available a number of con‐ tainers for their transport services; these can be owned or leased. Trade imbalances mainly occur in the Trans-Pacific and Europe–Asia trades for dry containers and in North–South flows for reefer containers This results in very large volumes of con‐ tainers to handle and the need to reposition containers from surplus to deficit areas. One of the important decisions of a container shipping company is how to manage its fleet of containers and trade imbalances, and in this context, whether to buy or lease containers (Haralambides 2017). A shipping company, under this type of contract, commits to order a certain quantity of containers from the leasing company, and it has the right to modify its order according to actual requirements.
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