Formulating cargo inventory costs for liner shipping network design

ABSTRACT

This study examines how to incorporate the inventory costs of containerized cargoes into existing liner service planning models such that the designed networks could be improved while not causing extra modeling/computational burden. Two approaches are compared: (i) not considering the inventory costs at all and (ii) incorporating the inventory costs associated with onboard time and those related to transshipment by assuming a fixed connection time. The two models are compared with the ideal model capturing the exact inventory costs on a route choice problem and a capacity planning problem based on extensive randomly generated and practical numerical experiments. The results show that: first, ignoring the inventory costs in service planning models may lead to network design with much higher costs (poor network design decisions); second, in service planning models assuming weekly frequency, the inventory costs associated with onboard time could be formulated exactly, and those related to the connection time of weekly services could be approximated by assuming fixed connection time of 3.5 days for ports with 1 day’s minimum connection time and 4.5 days for ports with 2 days’ minimum connection time.

KEYWORDS:

• Liner shipping network design
• inventory costs of containers
• value of transit time
• transshipment
• dwell time

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. APL is a wholly owned subsidiary of Neptune Orient Lines, a global transportation and logistics company engaged in shipping and related businesses based in Singapore. APL was the world’s ninth largest container shipping company on 1 January 2014, having 121 ships with a total capacity of 629,479 twenty-foot equivalent units (TEUs) (UNCTAD 2014).

2. In reality, some liner services are not weekly. However, the models proposed in the paper are also applicable to other frequencies by minimal modification as long as all of the services have the same frequency. If the services do not have the same frequency, for example, a weekly service and a service which visits each port of call every 5 days, then they can be considered as having the same frequency—every 35 days—by repeating the port rotation of the first service five times and repeating the second service seven times.