Shipping network design in a growth market: The case of Indonesia

Abstract

This paper investigates the design issues of a shipping network when cargo demand increases rapidly. A gravity-type model for origindestination (OD) demand estimation is first presented and calibrated based on the current cargo volumes of the Indonesian maritime market. A model for minimizing total system cost, which is the sum of shippers' and carriers' costs, is then proposed to design the shipping network with cargo demand levels forecasted for future years. The results show that for the Indonesian maritime market, although a hub-and-spoke (HS) network is appropriate for the current low level of shipping demand, a point-to-point (PoP) structure will be needed at higher traffic volumes in the future. Additional domestic hub ports shall be developed as cargo demand increases over time. The results suggest that a progressive policy can be promising for infrastructure investments in developing countries: government planning and regulations may be introduced in early years to enhance infrastructure utilization and economic return. With increased demand the market may be liberalized to promote healthy competition.

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