Optimal Investment Timing and Size of a Logistics Park: A Real Options Perspective

Dezhi Zhang,Xiamiao Li,Jiehui Jiang,Shuangyan Li,Qingwen Zhan

doi:10.1155/2017/2813816

Dezhi Zhang, Xiamiao Li + Show 3 more

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https://doi.org/10.1155/2017/2813816

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Abstract

This paper uses a real options approach to address optimal timing and size of a logistics park investment with logistics demand volatility. Two important problems are examined: when should an investment be introduced, and what size should it be? A real option model is proposed to explicitly incorporate the effect of government subsidies on logistics park investment. Logistic demand that triggers the threshold for investment in a logistics park project is explored analytically. Comparative static analyses of logistics park investment are also carried out. Our analytical results show that (1) investors will select smaller sized logistics parks and prepone the investment if government subsidies are considered; (2) the real option will postpone the optimal investment timing of logistics parks compared with net present value approach; and (3) logistic demands can significantly affect the optimal investment size and timing of logistics park investment.

Highlights

Various logistics centers have recently been established for quickly distributing freight [1]
A distribution center is a logistics node mainly for end customers to provide distribution services, which remains as the following several characteristics, that is, small service radiation range and multispecies, small batch, multibatch, and short cycle, while a logistics park is a comprehensive logistics node with large size, which is commonly located in a strategic area that can be accessed from main highways, railways, and airports
In Section 3.2.1, we address the effect of government subsidies to the logistic demand that triggers the threshold of investment in a logistics park under the real option (RO) and net present value (NPV) approaches

Summary

Introduction

Various logistics centers have recently been established for quickly distributing freight [1]. It has been shown that freight transportation contributes to about 5.5% of global greenhouse gas emissions [2] To respond to these issues efficiently, it has been proposed to combine multiple distribution centers and logistic operators into a logistics park. A logistics park typically has a large space for ample trucks, mass warehousing, office parking, and logistics services such as information transaction, distribution processing, multimodal function, and support service functions. It is a hub for different transportation modes and local and long-distance traffic [4, 5]

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