Protection-level decision in the slot allocation of a carrier: trade-offs between advanced and spot market selling

The ocean freight industry is characterized by significant volatility in spot market prices and demand throughout the selling season. This necessitates the development of a sophisticated decision framework for carrier to better manage slot allocation between advanced and spot market sales, with a focus on understanding the trade-offs between them. In this paper, we propose and analyze a decision model for determining a protection level for spot sales, adapting the Newsvendor model. We then extend the model to incorporate overbooking, following the decision on the protection level. Through numerical experiments, we discover that the protection level is only needed when the advance price is lower than the expected spot price. The expected spot price is influenced by spot market demand, the price sensitivity coefficient, and the price seasonality factor. The protection level might be unnecessary when the price sensitivity to demand is low. Furthermore, the overbooking quantity will be added proportionally to both advance and spot market allocations.