Network Design and Allocation Mechanisms for Carrier Alliances in Liner Shipping

When cargo carriers form an alliance, a key issue to resolve is how to provide incentive for carriers to make decisions that are optimal for the alliance as a whole. We propose a mechanism that utilizes capacity exchange prices to influence carrier behavior, and analyze two approaches to modeling the impact of these prices on the behavior of an individual carrier. We find that the model used can significantly impact alliance recommendations; one proposed model always finds capacity exchange prices that yield an allocation that is budget-balanced and stable, yet cannot guarantee centralized feasibility. The second model uses more realistic control parameters and does in fact guarantee centralized feasibility. Finally, experimental results for two and three-carrier alliances are analyzed; it is determined that the benefit associated with collaborating increases with network size and fleet capacity, and depending on the characteristics of demand, fleet capacity is a more important factor.