Option contracts in synchromodal transport

Abstract

Synchromodality is a relatively new concept in freight transport operations, related to intermodal transport. In synchromodal transport, the shipper uses different transport modes in parallel on the same route (for instance, intermodal transportation combined with truck-only transportation), aiming for an optimal volume split across the modes. In this PhD, the goal is to investigate the use of different types of contracts in synchromodal transport, in view of increasing the share of intermodal transportation, and in view of sharing the risks between the shipper and the transportation company. Currently, shippers often make “mode-free” bookings and is guaranteed that the goods will arrive to their destination on time; the choice of transport mode is made by the transport company. This type of contract puts the bulk of the responsibility/risk with the transport company, which needs to meet the service level agreement. We want to investigate the impact of option contracts (analogous to financial options), which imply that the shipper reserves intermodal capacity beforehand, and decides on the actual use of this capacity depending on demand. This actually shifts the responsibility regarding transport choice back to the shipper, who aims to minimize the total logistics cost (not only transportation cost, but also inventory-related costs). We wish to analyze under which conditions such option contracts can be beneficial to both parties (shipper and transportation company), in terms of minimizing expected costs, when compared to a mode-free contract. We also wish to analyze the impact on risk, by considering the variance of the costs. This may open up the opportunity for multi-objective optimization, as decision makers are typically risk-averse, implying that they trade off increased risk with increased expected profit/decreased expected costs.