Product transportation strategy in the presence of limited shipment capacity and purchase timing

In maritime practice, shippers can order shipment capacity before knowing product demand and then transport those products via liner shipping (LS) after observing demand information, or shippers can transport them when needed via tramp shipping (TS) without pre-ordering shipment. We develop a game-theoretic model to analyse these two transportation modes, LS and TS, in the presence or absence of demand and supply shocks such as those occurring in a pandemic. Interestingly, when vessels have a sufficiently small shipment capacity, the shipper prefers LS (TS) when market uncertainty is high (low) if the following is true: (a) the market size is moderate and there are no such shocks, or (b) the market is not sufficiently large in the case of shocks. This conclusion contradicts the naïve belief that the shipper prefers LS (TS) in the case of low (high) market uncertainty. Additionally, when the market is sufficiently large, the shipper prefers TS only if dead freight rate is low and the tramp vessel’s shipment capacity is moderately greater than that of LS. It follows that, due to high freight charges or low profit, the TS mode may not be the shipper’s best choice, even if the transportation demand is very large.