Inland port and waterway capacity expansion model under demand uncertainty

Abstract

We address the inland port and waterway capacity expansion (IPWCE) problem under demand uncertainty, the purpose of which is to determine the capacity expansion scales and timings for inland ports and waterways. To achieve this goal, we first build an inland waterway multimodal network (IWMN) that consists of physical and operational multimodal networks. Second, by viewing the IPWCE problem under deterministic demand as a subproblem of the IPWCE problem under uncertain demand, we develop a model for IPWCE under deterministic demand (IPWCEDD) based on bilevel programming and a model for IPWCE under uncertain demand (IPWCEUD) based on network real options theory. Third, we propose a sensitivity analysis-based descent search (SADS) algorithm to solve the IPWCEDD model. Moreover, in accordance with the optimal solutions of the IPWCEDD model, we then develop a least squares Monte Carlo simulation (LSM) method to solve the IPWCEUD model. Finally, we verify the effectiveness, efficiency, and applicability of the proposed models as well as the solution algorithm and methods through experiments of two different scales. The results of the small-scale experiment indicate that the proposed SADS algorithm and LSM method can solve the models optimally within the time limit. The large-scale experiment, which is conducted on the Yangtze River IWMN of mainland China, shows that capacity expansions at Chongqing Port, Nanjing Port, and Wuhan Port and on the waterway links connecting these ports can yield the maximum increased option values for the IPWCE problem under demand uncertainty. Moreover, the corresponding optimal expansion timing for implementing the capacity expansion plan is in the second year. Our research outcomes can help to guide IPWCE under demand uncertainty and further establish a high-quality inland river transport system.