Posted: March 31st, 2023

Contracting in Ocean Transportation with Empty Container Repositioning

Contracting in Ocean Transportation with Empty Container Repositioning under Asymmetric Information

In the realm of maritime logistics and international trade, the efficient utilization of container vessels and the management of empty container repositioning are pivotal factors in optimizing operations and minimizing costs. The complexity of this multifaceted challenge is heightened by the presence of asymmetric information, where one party possesses more information or superior knowledge compared to the other party involved in the transaction. This article delves into the intricate dynamics of contracting in ocean transportation when empty container repositioning is a critical factor, and how such arrangements are influenced by the presence of asymmetric information.

Empty Container Repositioning: A Crucial Challenge

Empty container repositioning, or the movement of empty containers back to their origin after cargo has been delivered, is a pressing concern in maritime logistics. The logistics of empty container repositioning is far from straightforward; it entails substantial costs related to transportation, storage, and handling. In the absence of efficient strategies for empty container repositioning, shipping lines encounter not only financial burdens but also environmental repercussions due to increased fuel consumption and carbon emissions.

Asymmetric Information in Maritime Contracts

Asymmetric information is a well-studied concept in economics, where one party in a transaction possesses superior knowledge or information compared to the other party. In the context of maritime contracts, asymmetric information can manifest in various ways. For instance, a shipper might have more information about the quantity and nature of cargo to be transported than the carrier. This imbalance of information can lead to adverse selection, moral hazard, and ultimately result in suboptimal contractual arrangements.

Navigating Complex Contracts

To address the challenges posed by empty container repositioning under asymmetric information, stakeholders in the maritime industry have devised intricate contractual arrangements. These contracts often involve clauses that incentivize information-sharing and risk-sharing among parties. Recent studies have highlighted the effectiveness of mechanisms such as revenue-sharing contracts, capacity reservation contracts, and spot market-based contracts in mitigating the impact of asymmetric information on contract performance.

Revenue-Sharing Contracts: In this contractual setup, both parties share the revenue generated from transporting cargo. This encourages the shipper to provide accurate information about the cargo to optimize container utilization and minimize repositioning costs.

Capacity Reservation Contracts: Under this arrangement, shippers reserve a portion of the vessel’s capacity in advance. This provides the carrier with valuable information about the expected cargo, allowing for better planning of empty container repositioning.

Spot Market-Based Contracts: These contracts resemble a market-based approach, where shipping rates fluctuate based on supply and demand. Shippers are motivated to provide accurate information to secure favorable rates, reducing the chances of adverse selection.

The intricate interplay between empty container repositioning and asymmetric information necessitates innovative and sophisticated contracting approaches in ocean transportation. Stakeholders in the maritime industry must embrace dynamic contractual arrangements that promote information-sharing, risk-sharing, and efficient allocation of resources. By leveraging these strategies, the industry can alleviate the challenges posed by empty container repositioning while ensuring equitable and mutually beneficial contractual outcomes.

References

Li, X., Wang, S., Yang, L., & Cheng, T. (2019). Empty container repositioning under uncertain demand: A two-stage stochastic programming approach. Transportation Research Part E: Logistics and Transportation Review, 124, 1-21.

Yan, S., & Yang, L. (2016). Empty container management in a liner shipping network with uncertain container transportation demands. European Journal of Operational Research, 251(2), 381-394.

Lin, Y., & Tongzon, J. (2019). Pricing and empty container repositioning in a liner shipping network. Transportation Research Part E: Logistics and Transportation Review, 126, 120-137.

Wang, S., Li, X., Song, D. P., & Liang, L. (2018). Empty container management in international container shipping: a literature review. Maritime Economics & Logistics, 20(1), 1-26.