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    Container Transportation Company Case Analysis For QM2

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    Sanju Visu
    The document discusses a case analysis submitted to an Indian business school for the Container Transportation Company. It examines developing a variable pricing strategy to better relate container shipping rates to loadability. Several potential strategies are proposed, including similar models used in airlines/hotels that vary pricing based on season/occupancy. The strategies aim to maximize total revenue while meeting constraints like maximum vessel capacity. Pricing per ton instead of TEU is suggested to increase revenue by accounting for different container weights. Demand curves are expected to change under the new pricing models.

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    Container Transportation Company Case Analysis For QM2

    Uploaded by

    Sanju Visu
    216 views18 pages
    The document discusses a case analysis submitted to an Indian business school for the Container Transportation Company. It examines developing a variable pricing strategy to better relate container shipping rates to loadability. Several potential strategies are proposed, including similar models used in airlines/hotels that vary pricing based on season/occupancy. The strategies aim to maximize total revenue while meeting constraints like maximum vessel capacity. Pricing per ton instead of TEU is suggested to increase revenue by accounting for different container weights. Demand curves are expected to change under the new pricing models.

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    CTC firm analysis

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    Slides Group2

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    The document discusses a case analysis submitted to an Indian business school for the Container Transportation Company. It examines developing a variable pricing strategy to better relate container shipping rates to loadability. Several potential strategies are proposed, including similar models used in airlines/hotels that vary pricing based on season/occupancy. The strategies aim to maximize total revenue while meeting constraints like maximum vessel capacity. Pricing per ton instead of TEU is suggested to increase revenue by accounting for different container weights. Demand curves are expected to change under the new pricing models.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    216 views18 pages

    Container Transportation Company Case Analysis For QM2

    Uploaded by

    Sanju Visu
    The document discusses a case analysis submitted to an Indian business school for the Container Transportation Company. It examines developing a variable pricing strategy to better relate container shipping rates to loadability. Several potential strategies are proposed, including similar models used in airlines/hotels that vary pricing based on season/occupancy. The strategies aim to maximize total revenue while meeting constraints like maximum vessel capacity. Pricing per ton instead of TEU is suggested to increase revenue by accounting for different container weights. Demand curves are expected to change under the new pricing models.

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    You are on page 1of 18

    Container Transportation Company

    Case Analysis for QM2


    SUBMITTED to ARNAB BASU

    Indian Institute of Management Bangalore

    December 03, 2013

    SUBMITTED BY GROUP 7 : ANANTHA KRISHNAN. S – 1311077


    GAURAV PAGARIA – 1311087
    LAVANYA – 1311097
    PANKAJ KUMAR – 1311107
    S SANTHOSH KUMAR – 1311117
    SONALI DUTTA – 1311127
    VIPIN M – 1311137
    Container Transport Company Case - Section B Group 7
    INTRODUCTION
    - One of the world’s largest marine transportation company
    - Fastest transit time between Middle East and Asian countries
    - Presence across trans-pacific routes
    - 5 container vessels fleet; Max. limit of 2000 TEU & 24,000 Tons.
    - Max. load:
    - 20 feet – 20 Tons
    - 40 feet – 24 Tons

    - Objective
    - Relate container shipping rates more closely to loadability.
    - Develop a variable pricing strategy

    Container Transport Company Case - Section B Group 7


    1. SIMILAR TO AIRLINE/HOTELS

     Variable pricing strategy based on season or


    occupancy

     Loadability & Occupancy

     Cheapest rate during low-demand period

     Premium pricing during peak seasons

    Container Transport Company Case - Section B Group 7


    2.FIXED-ORIGIN DESTINATION PRICING
    Objective Function: Maximizing Total Revenue (i.e.)Max (σ10
    𝑖 𝑅𝐸𝑉𝑖)

    Decision Variable: Price

    Constraints:
    σ10
    𝑖 𝐷𝐻𝑖 < 1900 TEU, where i= 1, 2, 3………, 10
    σ10
    𝑖 𝐷𝐿𝑖 < 1800 TEU, where i= 1, 2, 3………, 10
    Total weight in high season < 22800 tons
    Total weight in low season < 21600 tons

    Container Transport Company Case - Section B Group 7


    2.FIXED-ORIGIN DESTINATION PRICING
    Formulae used:

    Percentage change in price= (Xi- Price)/Price*100

    Demand for high season:


    DHi = [1-{(% change in Price/100)*5/3}]* Demand

    Demand for low season:


    DLi = [1-{(% change in Price/100)*10/5}]* Demand

    Container Transport Company Case - Section B Group 7


    2.FIXED-ORIGIN DESTINATION PRICING
    Port of Initial High Low
    Initial demand Price
    Origin Price Season Season

    High Season Low Season ($/TEU) ($/TEU) Demand (TEU) Demand (TEU)
    Japan 320 286 $940 $931.29 324.94 291.30
    China 68 61 $878 $878.52 67.93 60.93
    Hong Kong 737 660 $766 $792.04 695.25 615.13
    Indonesia 68 61 $840 $871.83 63.71 56.38
    India 340 304 $790 $820.25 318.30 280.72
    Korea 35 31 $710 $779.09 29.32 24.97
    Malaysia 138 123 $643 $715.62 112.02 95.22
    Singapore 43 38 $649 $717.42 35.44 29.99
    Taiwan 41 37 $702 $723.85 38.87 34.70
    Thailand 9 8 $663 $728.12 7.53 6.43
    Revenue $26,21,974.76 1693.322519 1495.753523

    Container Transport Company Case - Section B Group 7


    2.FIXED-ORIGIN DESTINATION PRICING
    LP Results:

    Container Transport Company Case - Section B Group 7


    2.FIXED-ORIGIN DESTINATION PRICING
    Prices for the maximum premium:

    Container Transport Company Case - Section B Group 7


    3. LOADABILITY & PRICING FACTOR
    Current scenario:
    Pricing based on volume & not on weight
    20- feet container: Volume - 1 TEU & Max. Load weight -24T
    40- feet container: Volume - 2 TEU & Max. Load weight -30T

    Suggested Solution:
    Pricing should be done on per ton basis instead of per
    TEU.
    Results in an increase in revenue of $45,813/-
    Container Transport Company Case - Section B Group 7
    3. Revenue addition due to new pricing strategy

    Port of Initial Initial Wt. of 20' Wt. of 40' # of


    Weight
    Origin demand Price container container container

    High Low High Low


    ($/TEU) (in tons) (in tons) High Season Low Season
    Season Season Season Season

    Japan 320 286 $940 20 24 189.7 182.12 4,325.28 4,152.34


    China 68 61 $878 18 23 42.2 40.49 885.62 850.27
    Hong Kong 737 660 $766 19 22 439.7 417.35 9,119.61 8,655.86
    Indonesia 68 61 $840 21 25 39.8 37.76 930.20 883.59
    India 340 304 $790 22 22 199.1 188.41 4,379.58 4,145.09
    Korea 35 31 $710 21 25 19.3 17.74 448.14 410.76
    Malaysia 138 123 $643 20 22 78.0 71.50 1,631.78 1,495.85
    Singapore 43 38 $649 19 25 22.4 20.45 508.32 463.49
    Taiwan 41 37 $702 19 19 24.4 23.33 463.06 443.20
    Thailand 9 8 $663 23 26 4.3 3.92 108.42 99.56
    New Revenue $26,67,787.8 22800 21600
    Rev. Increase $45,813/-

    Container Transport Company Case - Section B Group 7


    4. MAJOR SHIPPING CONSTRAINTS
    Weight Constraint:
    Vessels can be loaded upto 95% during high season & upto
    90% during low season of their total weight capacity.
    Volume Constraint:
    Vessels can be loaded upto 95% during high season & upto
    90% during low season of their total volume capacity.
    Ratio Constraint:
    Ratio of the number of 20 feet vessels and 40 feet
    vessels is fixed.

    Container Transport Company Case - Section B Group 7


    4. EFFECT OF RM PRINCING ON CONSTRAINTS
    Price of 20’
    Inclusion of Demand for 40’
    container
    loadability container
    increases & 40’
    factor increases
    decreases

    Change in constraints:

    1. Volume will become the binding constraint instead of the


    weight.

    2. Since the demand of both the containers changes, the ratios


    may no longer be the same and cannot be a constraint.

    Container Transport Company Case - Section B Group 7


    5. CHANGE IN DEMAND CURVES

    Container Transport Company Case - Section B Group 7


    5. CHANGE IN DEMAND CURVES

    Change in demand curves for all the other nations follows


    the same pattern
    Container Transport Company Case - Section B Group 7
    6. REVENUE GAIN DUE TO VARIABLE PRICING
    A price decrease by 3% in high season would lead to a demand
    increase by 5%, and a price reduction of 5% in the low season
    would increase the traffic by 10%.

    Change in revenue = 26,67,788 – 26,21,974


    = $45,814/-

    Container Transport Company Case - Section B Group 7


    6. REVENUE GAIN DUE TO VARIABLE PRICING
    Port of High Low Wt. of 20' Wt. of 40' # of
    New Price Weight
    Origin Season Season container container container

    High Low Demand Demand High Low


    (in tons) (in tons) High Season Low Season
    Season Season (TEU) (TEU) Season Season

    Japan 935.60 901.21 322 310 20 24 189.7 182.12 4,325.28 4,152.34


    China 882.06 850.78 67 65 18 23 42.2 40.49 885.62 850.27
    Hong Kong 792.35 766.34 695 659 19 22 439.7 417.35 9,119.61 8,655.86
    Indonesia 872.59 844.02 64 60 21 25 39.8 37.76 930.20 883.59
    India 819.95 793.30 319 301 22 22 199.1 188.41 4,379.58 4,145.09
    Korea 773.31 752.22 30 27 21 25 19.3 17.74 448.14 410.76
    Malaysia 710.43 691.63 114 104 20 22 78.0 71.50 1,631.78 1,495.85
    Singapore 711.34 692.28 36 33 19 25 22.4 20.45 508.32 463.49
    Taiwan 725.11 701.16 39 37 19 19 24.4 23.33 463.06 443.20
    Thailand 721.20 702.15 8 7 23 26 4.3 3.92 108.42 99.56
    1693.066444 1604.461448 New Revenue $26,67,787.8 22800 21600
    Rev. Increase $45,813/-

    Change in revenue = New (variable) price – Old price


    = 26,67,787 – 26,21,974
    = $45,813/-
    Container Transport Company Case - Section B Group 7
    7. RECOMMENDATIONS FOR CTC
    1. The variable pricing strategy should be implemented on a
    quarterly or monthly basis.

    2. Pricing should be done on per ton basis instead of per TEU.

    3. Focus should be made on removing the slacks to make use of full


    capacity.

    4. Number of vessels should be increased as weight is a limiting


    factor.

    5. A better forecasting mechanism is needed for the changes in


    prices and demand to replace the speculative forecasting
    methods.
    Container Transport Company Case - Section B Group 7
    Container Transport Company Case - Section B Group 7

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