UC Riverside

We study the multi-period container leasing and load acceptance problem in intermodal freight transportation, where the container capacity could be replenished before allocated to load orders with different profit levels. The container leasing decision is exogenously determined by the initial container inventory left unused from last period and the returned containers in the current period. The load acceptance decision involves trade-offs between accepting the order now or reserve the container for potential high profit level order in the future. Our objective is to characterize the optimal policies in order to maximize the total profit. The two-stage sequential decision problem is formulated as a stochastic dynamic programming problem. We show the optimal leasing quantity follows a base-stock policy and the optimal allocation for different class of demand follows a rationing policy. We further study the impact of demand variability on the optimal policy. Given stochastically higher demand in the future, both total profit and marginal value increase. Such change in demand also results in a higher leasing threshold and a higher rationing level for each demand class.