Stochastic ship repositioning optimization in tramp spot market with a cargo selection mechanism

Abstract

In tramp shipping, the spot market is characterized by intense competition and volatility. Securing profitable spot cargoes for a tramp shipping company is challenging. To handle this issue, this paper addresses a ship repositioning problem in the dry bulk spot market, aiming to provide short-term operational planning for a tramp shipping company. The goal is to maximize profits by optimizing destination decisions, speed, and cargo selection upon arrival. To handle high competition and market volatility, the cargo selection mechanism considers competitors’ movements, a priority principle, and cargo-worthiness, along with uncertainties in future cargo availability and competitors’ behavior. We propose a two-stage stochastic programming model to solve this problem. The first stage determines the destination and arrival time for each empty ship, while the second stage involves cargo acquisition based on first-stage decisions, revealed uncertainties, and the cargo selection mechanism. We use the Sample Average Approximation (SAA) method to solve the stochastic model. Extensive experiments validate the SAA method’s performance, and the Value of Stochastic Solution (VSS) is calculated by comparing it with a deterministic model. Finally, a sensitivity analysis based on a case study informs the development of operational policies for tramp shipping companies.