10.11.2021

From Supplier to Shelf: Transporting Perishable Products

LU, Tao | 陈滢儒 | FRANSOO, Jan C. | LEE, Chung-Yee

Whether transported by air, sea, or land, perishable goods must reach their destinations on time. The sooner they arrive, the fresher they will be. But speed comes at a price. To keep shipping costs down while meeting customers’ diverse expectations of quality, most suppliers (“shippers”) today use multiple transportation service providers (“carriers”) for perishable products. In a fiercely competitive market, how can shippers be sure that they have chosen the right strategy? This is the question tackled by HKUST’s Professor Ying-Ju Chen and colleagues, who delve into the conditions under which multiple carriers should—and should not—be used.

 

“In the contemporary logistics market,” the researchers begin, “merchandise is transported via multiple modes.” Scandinavian seafood is exported by air, road and ocean. Mangoes travel in airplanes and ships from Brazil and Peru to the European Union. Using mixed transport modes helps suppliers to balance the demand for speed and quality. Sweeter mangoes, picked at a later stage of ripening, must be transported by air, which is fast but expensive. Sea freighted mangoes, which take longer to arrive, are less tasty but more cost-competitive.

 

“Choosing the means of transport is critically important, given the cost differences between fast and slow transport modes,” note the researchers. Shippers would also be foolish to forget that carriers aim to maximise their own profits. “To attract more payload,” say the authors, “carriers competitively offer their freight rates.” To help shippers maximize their cost and operational advantages, the team considered the problem of a shipper relying on two carriers to supply high- and low-quality products. Their mathematical model accounted for numerous real-world factors, such as carrier pricing competition, carrier speed, and customers’ varying demands for quality.  

The model revealed that dual shipping is beneficial when the faster service yields a higher profit margin and the slower service caters to customers with lower expectations of quality. Intriguingly, the researchers found that shippers benefit most from contracting two carriers with either very similar or very different speeds. “A smaller speed difference between carriers intensifies competition and can thus reduce the shipper’s transportation costs,” they report. Conversely, with a greater speed difference, shippers can secure an operational advantage from product differentiation.

That said, dual sourcing might not always be the best option. Using a single carrier was advantageous when carriers competed in a “winner takes it all” fashion. “While dual sourcing permits product differentiation, it can lower the cost advantage from carrier competition,” note the authors. However, when customers’ willingness to pay for quality is more similar, dual sourcing is preferable. Therefore, shippers should opt for single sourcing when its carrier competition-related advantages outweigh the product differentiation-related advantages of dual sourcing.

This compelling research could help overseas shippers to mould sourcing strategies to their advantage. Most notably, shippers should use carriers with very similar or very different speeds. “Using two moderately different services may be harmful,” warn the authors. Carriers also have something to learn from these findings. “From the slow carrier’s perspective, it is sometimes beneficial to have a faster competitor or to further slow itself down,” the authors suggest.

陈滢儒

Professor
Information Systems, Business Statistics & Operations Management