Intermodal pricing and operations using network flow techniques

The traditional cost calculation does not accurately estimate the opportunity costs of using conveyances in intermodal operations, resulting in many pricing problems. The objective of this research is to develop a framework to estimate the opportunity costs of using conveyances in trailer-on-flatcar (TOFC) operations to assist carriers in improving their pricing strategies under highly competitive market conditions. The framework is based on a network model which simulates current operations in order to find the reduced costs of serving the loads on all current blocks. The reduced costs can be used to calculate the opportunity costs of using trailers and flatcars in TOFC operations. System incremental costs (SICs) are also introduced to incorporate the traditional cost levels to assist carriers in their pricing decisions.

The network model is formulated as a linear network flow problem with side constraints which consists of two time-space networks and a set of side constraints across these two networks. These two networks include a trailer network and a flatcar network. To solve the reduced costs, the Simplex method and an efficient algorithm applying Lagrangian Relaxation, a minimum cost algorithm, and a shortest path algorithm have been developed in the research. A case study about the TOFC operation in a major north American railroad company has been completed. The results showed that opportunity costs highly affect the accuracy in calculating system contributions. Moreover, the opportunity costs and SICs are unstable over time. To handle unstable SICs in bidding future cost levels, we introduce three methods, recent projection, historical distribution, and risk adjustment costing. Recent projection and historical distribution directly apply past SICs to bid future cost levels. Risk adjustment costing is a new approach combining the former two methods and concepts from the pricing of options. (Copies available exclusively from MIT Libraries, Rm. 14-0551, Cambridge, MA 02139-4307. Ph. 617-253-5668; Fax 617-253-1690.)