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OR PRACTICE—An Economic Equilibrium Model of the Market for Marine Transportation Services in Petroleum Products

1416 Berkshire Drive, Bensalem, Pennsylvania 19020
Fox School of Business and Management, Temple University, Philadelphia, Pennsylvania 19122
s1v0ham{at}gmail.com
fmurphy{at}temple.edu

We describe a model of the market for petroleum tank vessels used for planning by Maritrans, Inc. This model is an enhanced version of an earlier model and more closely approximates the market for transportation services. Because of the better representation, we found that the market, which is defined around an index for transportation services, has the potential for multiple equilibria. We present how the model has been used in making major decisions at Maritrans and show how the index design leads to an anomaly where demand could increase with increasing prices, leading to the potential for multiple equilibria. We have not observed this phenomenon in the market. However, with the advent of forward markets for transportation services, known as freight-forward markets, if multiple equilibria do appear, it could become profitable for a player to move a market from one equilibrium to another.

Subject classifications: forecasting; economics; finance; forward markets; transportation; energy.
History: Received April 2006; revision received February 2007; accepted March 2007.