Title: Pricing joint products in liner shipping

Authors: Lixian Fan; Meifeng Luo; Wesley W. Wilson

Addresses: School of Management, Shanghai University, 599 Shangda Rd., Shanghai 200444, China ' Department of Logistics and Maritime Studies, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong ' Department of Economics, University of Oregon, Eugene, Oregon 97403, USA

Abstract: Fronthaul and backhaul shipping trips share the same round-trip voyage costs. The pricing strategies for the two trips are critical to the performance of liner operators, as well as the trade volume. This paper analyses the pricing strategies for the two trips in liner shipping based on different levels of demand imbalance. The critical condition is found when demand imbalance causes trade imbalance, and the optimal pricing strategies and the relationship between fronthaul and backhaul prices in both balanced trade and imbalanced trade are identified. Using the properties derived from theoretical analysis and employing Johansen's vector error correction model, the relationships between fronthaul and backhaul container freight rates for the Trans-Pacific, Trans-Atlantic and Euro-Asia routes were tested, and the critical trade imbalance ratios that disintegrate the freight rates for both directions were identified.

Keywords: liner shipping; backhaul shipping; cointegration; joint products; product pricing; pricing strategies; demand imbalance; fronthaul shipping; round-trip costs; vector error correction; modelling; trade imbalance ratios.

DOI: 10.1504/IJSTL.2014.062901

International Journal of Shipping and Transport Logistics, 2014 Vol.6 No.4, pp.371 - 386

Available online: 10 Jun 2014 *

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