Risk management in a systems view of intermodal facility investment under uncertainty in freight commodity flow

Irina Vladimirovna Benedyk, Purdue University

Abstract

This study proposes a mixed integer dynamic capacitated intermodal facility location model that incorporates downside risk to determine a system level strategic intermodal facility investment plan in a region under uncertainty in freight commodity flow. Downside risk, which is associated here with the failure to achieve a desired target revenue for an intermodal facility (port or terminal), is incorporated in the model to capture the impact of the risk associated with the uncertainty in the commodity flow. The allowed system level downside risk is a parameter determined by the decision-maker, and a low value for it implies a lesser tolerance of risk. The downside risk analysis entails identifying the set of intermodal facility investment plans that represents tradeoffs between two objectives: expected system costs minimization and risk reduction associated with uncertainty in commodity flows. A scenario-based solution approach is used to characterize that uncertainty based on different estimates of future international trade and different emerging infrastructure projects that impact the commodity flows. Numerical experiments using the U.S. national level data demonstrate the potential applicability of the proposed model in assisting the strategic intermodal facility investment decision-making process. The downside risk analysis reveals that investing in intermodal terminals is preferable to investing in ports when low system level downside risk is allowed, and vice versa when high system level downside risk is allowed. The expected system costs increases with lower allowed system level downside risk because fewer investment plans for intermodal facilities are feasible under it, reducing the flexibility in commodity flow distribution. Also, the cost variance increases with lower allowed system level downside risk because commodity flows under different estimates of future international trade need to be allocated to the same capacity of intermodal facilities. The proposed methodology can provide a holistic view of the tradeoffs of strategic intermodal investment at the national level to aid policy development, and assist in the strategic investment decision-making process of individual facility operators by factoring commodity flow uncertainty.

Degree

M.S.

Advisors

Peeta, Purdue University.

Subject Area

Civil engineering

COinS