Network Design and Allocation Mechanisms for Carrier Alliances in Liner Shipping

Many real world systems operate in a decentralized manner, where individual operators interact with varying degree of cooperation and self motives. In this paper, we study transportation networks that operate as an alliance among different carriers. In particular, we study alliance formation among carriers in liner shipping. We address tactical problems such as the design of large scale networks (which result from integrating the service networks of different carriers in an alliance) and operational problems such as the allocation of limited capacity on a transportation network among the carriers in the alliance. We utilize concepts from mathematical programming and game theory and design a mechanism to guide the carriers in an alliance to pursue an optimal collaborative strategy. The mechanism provides side payments to the carriers, as an added incentive, to motivate them to act in the best interest of the alliance while maximizing their own profits. Our computational results suggest that the mechanism can be used to help carriers form sustainable alliances.