Pricing and Quality Setting Strategy in Maritime Transportation
Nowadays, maritime transportation is the primary mode of international shipping and comprises 90% of this industry. Firms providing maritime shipping services usually use containers to ship materials and goods from shippers in export-oriented areas to consignees in import-oriented areas. However, the imbalance in international trade between different continents or regions, which arises from different economic needs, results in different supply and demand patterns for empty containers at distinctive ports. As a result, empty containers accumulate at demand regions, while the supply regions often face a shortage of empty containers.
Shipping firms usually reposition empty containers from demand regions to supply areas to continue their shipping activities and satisfy customer demands. This type of movement accounts for about 30% of a shipping firm’s container movement and imposes undesirable expenses on them. Several measures can be used to manage this cost. For instance, some firms might utilize foldable containers for long-term savings, but replacing current containers with foldable ones requires extra investment in the short term. Pricing, the methodology used in our research study, is another helpful approach that aids shipping firms in managing the empty repositioning costs of containers. Applying this methodology in the transportation industry is useful for revenue management and is an appropriate tool for adjusting the flow between origins and destinations.
In addition to empty repositioning, the shipping firm faces two other challenges: market uncertainty and service quality variation. To handle these challenges, our study employed mathematical techniques and tools for the following two objectives: 1) to analyze how service quality and price affect the transportation demand and the flow between origins and destinations regarding the uncertain behaviour of customers, and 2) to develop a policy assisting the shipping firm in optimizing its annual profit by determining the level of service quality and corresponding prices.
Our study demonstrated that increasing the service quality does not necessarily improve the firm’s profit. To determine the appropriate service quality, the firm must accurately assess the impact of service quality on both the demand and the cost of service simultaneously. It also revealed that our developed method, which considers these two simultaneous impacts, improves the annual profit of shipping firms.
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