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Integrated hedging and network planning for container shipping's bunker fuel management

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  • Xiaoyu Wang

    (Division of Infrastructure Systems and Maritime Studies, School of Civil & Environmental Engineering, Nanyang Technological University, 50 Nanyang Avenue, Singapore 639798, Singapore.)

  • Chee-Chong Teo

    (Division of Infrastructure Systems and Maritime Studies, School of Civil & Environmental Engineering, Nanyang Technological University, 50 Nanyang Avenue, Singapore 639798, Singapore.)

Abstract

Bunker fuel costs could account for 50–60 per cent of a ship's total operating cost in times of high fuel prices. The volatility of the bunker market over recent years has contributed to significant instability of cash flows for shipping lines. In this study, we consider two of the bunker fuel risk management measures employed by container shipping companies to reduce bunker fuel price risk – re-planning of network configuration and financial hedging of bunker fuel prices. The current industry practice is that the network planning and bunker hedging functions are carried out separately and sequentially. Specifically, the liner network is first planned to decide the ports of call, routes, fleet size, vessel types, and subsequently bunker hedging is performed based on the projected bunker fuel consumption and the forecast of bunker fuel price. This article shows the interdependencies between network planning and bunker hedging practices. By a numerical example using decision tree analysis, we illustrate the benefits of using an integrated planning approach that combines network planning and bunker hedging over the widely practiced sequential planning approach. We find that the integrated planning allows shipping lines to identify all available planning options and enables them to make decisions that could better meet the company's managerial priorities in terms of cost, transit time and risk.

Suggested Citation

  • Xiaoyu Wang & Chee-Chong Teo, 2013. "Integrated hedging and network planning for container shipping's bunker fuel management," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 15(2), pages 172-196, June.
  • Handle: RePEc:pal:marecl:v:15:y:2013:i:2:p:172-196
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    Citations

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    Cited by:

    1. Alexandridis, George & Kavussanos, Manolis G. & Kim, Chi Y. & Tsouknidis, Dimitris A. & Visvikis, Ilias D., 2018. "A survey of shipping finance research: Setting the future research agenda," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 164-212.
    2. Čech, František & Zítek, Michal, 2022. "Marine fuel hedging under the sulfur cap regulations," Energy Economics, Elsevier, vol. 113(C).
    3. Gu, Yewen & Wallace, Stein W. & Wang, Xin, 2016. "Integrated maritime bunker management with stochastic fuel prices and new emission regulations," Discussion Papers 2016/13, Norwegian School of Economics, Department of Business and Management Science.
    4. Yewen Gu & Stein W. Wallace & Xin Wang, 2017. "The Impact of Bunker Risk Management on CO2 Emissions in Maritime Transportation Under ECA Regulation," Springer Optimization and Its Applications, in: Didem Cinar & Konstantinos Gakis & Panos M. Pardalos (ed.), Sustainable Logistics and Transportation, pages 199-224, Springer.
    5. Jiawei Ge & Mo Zhu & Mei Sha & Theo Notteboom & Wenming Shi & Xuefeng Wang, 2021. "Towards 25,000 TEU vessels? A comparative economic analysis of ultra-large containership sizes under different market and operational conditions," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 23(4), pages 587-614, December.
    6. Berit Dangaard Brouer & Christian Vad Karsten & David Pisinger, 2017. "Optimization in liner shipping," 4OR, Springer, vol. 15(1), pages 1-35, March.
    7. Berit Dangaard Brouer & Christian Vad Karsten & David Pisinger, 2018. "Optimization in liner shipping," Annals of Operations Research, Springer, vol. 271(1), pages 205-236, December.

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