Revenue management in liner shipping: Addressing the vessel capacity challenge

Abstract

An empty slot on a container vessel can be impossible to fill due to complex seaworthiness and port requirements. This vessel capacity challenge is well known in the industry, but it is hard to address in practice. For that reason, revenue management (RM) methods in liner shipping rely on simple capacity models based on maximum volume, weight, and number of refrigerated containers. In this article, we challenge this status quo by introducing the standard capacity model (SCM). The SCM is a linear programming feasible set that includes all major capacity reducing aspects of container vessel and port operations such as naval design, stability, stress forces, lashing forces, trim, draft, restows, and quay crane work time. We apply the SCM to a state-of-the-art RM method and optimize yield over a 90 days period of Maersk’s Asia-Europe services in 2018 with 296 port calls. The model solves to optimality in less than 25 min and shows that the simple capacity model used in RM today can overestimate yield by more than 20% compared to the SCM. This is substantial in an industry, where profit margins of a few percent are the norm.