The impact of fuel price volatility on transportation mode choice

In recent years, the price of oil has driven large fluctuations in the price of diesel fuel, which is an important cost component in freight logistics. This thesis explores the impact of fuel price volatility on supply chains by examining the sensitivity of decisions under various scenarios. Specifically, we analyze the transportation mode choice decision between truckload and intermodal (truck combined with rail) transportation using a model to calculate the total relevant cost, consisting of transportation cost and inventory holding cost. We use input from the North American operations for a global retail company regarding annual demand, product characteristics, load size, lead time, transportation rates, fuel surcharges, inventory policies and holding cost to perform sensitivity analysis of the mode choice decision to fuel price and the value density of the product. For several origin-destination pairs we identify the diesel price at which intermodal offers lower total cost than truckload as well as the magnitude of savings that can be achieved by switching modes. We then generalize the insights from this case by providing an equation to calculate the fuel price for this mode choice tradeoff.

Department dc:contributor.department

Massachusetts Institute of Technology. Engineering Systems Division.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Authors dc:creator

• Kim, Eun Hie
• Nsiah-Gyimah, Michael

Advisor dc:contributor.advisor

• Jarrod Goentzel.

• Engineering Systems Division.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/53542

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/53542