A stochastic programming formulation for strategic fleet renewal in shipping

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A stochastic programming formulation for strategic fleet renewal in shipping

Bakkehaug, Rikard / Eidem, Eirik Stamsø / Fagerholt, Kjetil / Hvattum, Lars Magnus

Highlights • We introduce and describe the strategic fleet renewal problem in maritime transportation. • We propose a formulation of the problem that explicitly handles uncertainty in parameters such as future demand, freight rates and vessel prices. • Through Monte Carlo simulations, we compare different discretizations of the uncertain variables and planning horizon lengths. • The computational results show that handling uncertainty is important when dealing with fleet renewal in shipping.

Abstract Shipping companies repeatedly face the problem of adjusting their vessel fleet to meet uncertain future transportation demands and compensating for aging vessels. In this paper, a new multi-stage stochastic programming formulation for strategic fleet renewal in shipping is proposed. The new formulation explicitly handles uncertainty in parameters such as future demand, freight rates and vessel prices. Extensive computational tests are performed, comparing different discretizations of the uncertain variables and different lengths of the planning horizon. It is shown that significantly better results are obtained when considering the uncertainty of future parameters, compared to using expected values.