Standardized cargo network revenue management with dual channels under stochastic and time-dependent demand

Abstract

We consider the network resource allocation problem, faced by sea freight operators, for standardized cargo transportation networks with time-dependent and stochastic demand. Standardized cargo capacity is sold through allotment contracts and on the spot market. The objective is to decide on the allotment contracts to select at the beginning of the booking horizon, as well as investigate dynamic booking control policies based on which spot market requests are accepted (booked) over the booking horizon before departure. This problem is formulated and solved in two stages: In the first stage, the allotment selection problem is formulated as an integer program in which the objective is to maximize the expected profit generated from the realized utilization of each resource in the network. The optimal solution to the allotment selection problem becomes the input to the spot booking control problem in the second stage. We formulate the spot booking problem as a dynamic program, and provide an efficient heuristic as an alternative to the computationally prohibitive dynamic programming (DP) approach. The DP is solved optimally for a small-size problem and for a variety of numerical cases. For large size problems, heuristics are proposed and tested via simulation. Also extensive sensitivity analysis is performed to test the heuristics, gain managerial insights and provide practical recommendations. We recommend a well-performing heuristic that outperforms the trivial first-come first-serve policy for large-sized problems. This leading heuristic is within 2.75%, on average, of the optimal DP solution for small problems and 3.9% for large problems.