Financing Strategy for Capital-Constrained Third-Party Logistics Firms

The chapter investigates the pricing timing strategy in the context of trade credit (TC), under which the capital-constrained 3PL applies for deferred payments from a cold-chain equipment supplier. Based on the wholesale price offered by the supplier, the 3PL determines the order volume before observing the random demand and the logistic service price after observing it. The results indicate that TC alleviates the double marginalization problem, depending on price timing and demand structure. With traditional bank finance (BF) as a benchmark, the supplier is reluctant to provide TC to the 3PL without postponement when the market is extremely sensitive to price. Postponement not only benefits both members but also enhances 3PL’s repayment ability and thus participants’ preference for TC. They can reach an agreement on utilizing price postponement and trade credit as long as the supplier chooses a suboptimal wholesale decision for deferred payment that is slightly lower than the optimal one. The above results shed light on the management of cold-chain logistics for the capital-constrained 3PL [This chapter is adapted from the previously published paper: “Yang, Y., & Liu, J. (2023). Price timing and financing strategies for a capital-constrained supply chain with price-dependent stochastic demand. International Journal of Production Economics, 261, 108,885.”].