Expanding the Freight Contract Portfolio: Index-Based Freight Contract Design Under Uncertainty
Name
Acocella_2022_Index_based_Freight_Contract_Design_DSpace.pdf
Description
Main article
Size
17.27 MB
Format
Adobe PDF
Checksum (MD5)
7abb68952561c9020d18da421afab5ab
Author(s)
Acocella, Angela
Caplice, Chris
Sheffi, Yossi
Date Issued
March 23, 2022
Abstract
Long-term, fixed-price contracts in the truckload transportation sector have been the prevailing relationship form between firms and their for-hire transportation service providers. While advantageous for planning and budgeting purposes, these contracts do not lend themselves well to contexts in which supply, demand, and market uncertainties are prevalent. We propose an alternative, market-based contract for the truckload sector to reduce the unanticipated costs and performance degradation that result from the standard fixed-price contract. With a uniquely detailed and expansive dataset that captures compounding uncertainties, we build empirical transportation provider decision models. We apply them to index-priced demand across a set of design, implementation, and segmentation strategies and present the those that offer Pareto improvements over the status quo fixed-price contract. Finally, we validate our models with a pilot study of indexed contracts implemented by a large agricultural firm in the US. We employ propensity score matching to quantify the causal effect of indexed pricing on transportation suppliers’ contract compliance and costs the firm incurs during a constrained market period.
Subjects
Truckload freight contracts
Index-based pricing
Risk-sharing
MIT Department
Massachusetts Institute of Technology. Center for Transportation & Logistics
Persistent DSpace Link
