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

Xiaoyu Wang () and Chee-Chong Teo ()
Additional contact information
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.

Maritime Economics & Logistics, 2013, vol. 15, issue 2, 172-196

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.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.palgrave-journals.com/mel/journal/v15/n2/pdf/mel20135a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/mel/journal/v15/n2/full/mel20135a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:marecl:v:15:y:2013:i:2:p:172-196

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/41278/PS2

Access Statistics for this article

Maritime Economics & Logistics is currently edited by Hercules E. Haralambides

More articles in Maritime Economics & Logistics from Palgrave Macmillan, International Association of Maritime Economists (IAME) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().