Discussion Papers, Department of Business and Management Science, Norwegian School of Economics (NHH)
Integrated maritime bunker management with stochastic fuel prices and new emission regulations
(), Stein W. Wallace
() and Xin Wang
Abstract: Maritime bunker management (MBM) controls the procurement
and consumption of the fuels used on board and therefore manages one of the
most important cost drivers in the shipping industry. At the operational
level, a shipping company needs to manage its fuel consumption by making
optimal routing and speed decisions for each voyage. But since fuel prices
are highly volatile, a shipping company sometimes also needs to do tactical
fuel hedging in the forward market to control risk and cost volatility.
From an operations research perspective, it is customary to think of
tactical and operational decisions as tightly linked. However, the existing
literature on MBM normally focuses on only one of these two levels, rather
than taking an integrated point of view. This is in line with how shipping
companies operate; tactical and operational bunker management decisions are
made in isolation. We develop a stochastic programming model involving both
tactical and operational decisions in MBM in order to minimize the total
expected fuel costs, controlled for financial risk, within a planning
period. This paper points out that after the latest regulation of the
Sulphur Emission Control Areas (SECA) came into force in 2015, an
integration of the tactical and operational levels in MBM has become
important for shipping companies whose business deals with SECA. The
results of the computational study shows isolated decision making on either
tactical or operational level in MBM will lead to various problem.
Nevertheless, the most server consequence occurs when tactical decisions
are made in isolation.
Keywords: Maritime bunker management; SECA; risk management; stochastic programming; fuel hedging; sailing behavior; (follow links to similar papers)
JEL-Codes: C44; C60; (follow links to similar papers)
26 pages, August 25, 2016
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