Optimal capacity booking in air cargo transportation

Abstract

In air cargo transportation, freight forwarders need to determine the long-term contract capacity and the capacity purchased from spot market. This article studies how dynamic programming could be utilized to help freight forwarder determine the most cost effective purchase strategy for meeting their capacity needs. We characterize the structure of the optimal booking policy as a set of monotone booking limits. In practice, these booking limits are crucial to applying the models to the complex real life problems. Numerical studies verify our analysis and illustrate the performance under various conditions.