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Forward Shipping Options For Grain By Rail: A Strategic Risk Analysis

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  • Wilson, William W.
  • Priewe, Steven R.
  • Dahl, Bruce L.

Abstract

In the late 1980s, grain-hauling railroads began offering alternatives that have made shipping decisions more strategic. Shippers now confront alternatives ranging from nearby and unguaranteed ordering to various durations of forward and guaranteed shipment. Each has varying penalties for cancellation and payments from the railroad for nonperformance, and differing risks and payoffs. Because of the configuration of choices, shippers confront a portfolio of shipping alternatives. A dynamic stochastic simulation model was developed to analyze alternative strategies. The model includes the effects of uncertainties in tariff rate changes, car premiums, basis levels, forward and spot grain purchases, and receiving railcars under each of three alternatives. Shipping demand is determined by inter-month commodity price differences, carrying costs, transport costs, and storage capacity. Considering these factors, the shipper chooses grain sales and shipping strategies that maximize net payoffs and confronts a tradeoff between expected profits and risk.

Suggested Citation

  • Wilson, William W. & Priewe, Steven R. & Dahl, Bruce L., 1998. "Forward Shipping Options For Grain By Rail: A Strategic Risk Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 23(2), pages 1-19, December.
    • Handle: RePEc:ags:jlaare:31201
    DOI: 10.22004/ag.econ.31201
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    Cited by:

    1. Wilson, William W. & Dahl, Bruce L., 2000. "Import Tenders And Bidding Strategies In Wheat," Agricultural Economics Reports 23285, North Dakota State University, Department of Agribusiness and Applied Economics.
    2. Wilson, William W. & Diersen, Matthew A., 2001. "Competitive Bidding On Import Tenders: The Case Of Minor Oilseeds," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(1), pages 1-16, July.
    3. Friesz, Terry L. & Mookherjee, Reetabrata & Yao, Tao, 2008. "Securitizing congestion: The congestion call option," Transportation Research Part B: Methodological, Elsevier, vol. 42(5), pages 407-437, June.
    4. William W. Wilson & Bruce L. Dahl, 2000. "Logistical Strategies and Risks in Canadian Grain Marketing," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 48(2), pages 141-160, July.
    5. Scheresky, Gwen & Wilson, William W. & Bullock, David W., 2021. "Spatial and Logistical Competition for Shipments to China from the United States and Brazil," AE Series 320807, North Dakota State University, Department of Agribusiness and Applied Economics.
    6. Wilson, Wesley W. & Wilson, William W., 1998. "Deregulation And Innovation In Railroad Shipping Of Agricultural Commodities: 1972-1995," AE Series 23090, North Dakota State University, Department of Agribusiness and Applied Economics.
    7. Wilson, Wesley W. & Wilson, William W., 2001. "Deregulation, rate incentives, and efficiency in the railroad market," Research in Transportation Economics, Elsevier, vol. 6(1), pages 1-24, January.
    8. Wilson, William W., 1998. "U.S. Grain Handling And Transportation System: Factors Contributing To The Dynamic Changes In The 1980s And 1990s," AE Series 23081, North Dakota State University, Department of Agribusiness and Applied Economics.
    9. Vachal, Kimberly & Bitzan, John, 2000. "The Long-Term Availability of Railroads Services for U.S. Agriculture," UGPTI Department Publication 231803, North Dakota State University, Upper Great Plains Transportation Institute.
    10. Wilson, William W. & Dahl, Bruce L., 1998. "Reciprocal Access In U.S./Canadian Grain Trade: Background Issues For The U.S. Grain Trade," AE Series 23085, North Dakota State University, Department of Agribusiness and Applied Economics.
    11. Prentice, Barry E. & Wilson, William W., 1998. "Future Transportation Developments In The U.S./Canada/Mexico Grains-Livestock Subsector Under Nafta And Wto," Proceedings of the 4th Agricultural and Food Policy Systems Information Workshop 1998: Economic Harmonization in the Canadian\U.S.\Mexican Grain-Livestock Subsector; 16766, Farm Foundation, Agricultural and Food Policy Systems Information Workshops.
    12. Iddrisu Awudu & William Wilson & George Baah & Vinay Gonela & Mariama Yakubu, 2024. "Revenue maximization and pricing: an ethanol supply chain and logistical strategy perspectives," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 23(1), pages 62-75, February.

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