Contract pricing in a synchromodal transportation setting

Abstract

In the freight transportation industry, long-term contracts between logistics service providers (LSP) and shippers are common. These contracts typically contain long-term commitments related to, e.g., volume, lead time and price. The latter is mostly based on the expected cost of the transport mode that will be used for the transport of a shipment with the addition of a desired profit margin, i.e., cost-plus pricing. As these contracts apply over a longer period, e.g., a year, commitments need to be made long before the execution of the transport service itself. This long-term decision making contradicts with the fundamentals of synchromodality, which assume flexibility to change decisions with respect to route and transport mode in real time. In this research, we present an extensive numerical experiment that provides insight in the service quality characteristics, i.e., long-term commitments that have a significant impact on a LSP’s cost. In addition, interaction effects between long-term commitments of different shippers are expected, which should also be considered when analysing the cost implications. These results will serve as an input for a service-based pricing strategy for synchromodal transport. Such a strategy sets a price based on service quality characteristics of the transport, rather than the used transport mode. In this way, we aim to justify a contract price while the transport mode and route are still unknown.