Real options: applications to logistics and transportation

Abstract

Purpose Changes over the last 30 years have given companies increased flexibility and control over their logistics activities. During this same period of time, financial markets have embraced stock options, which allow buyers the right but not the obligation to purchase a stock at a specified price in the future. Recent technological developments could enable the trading of formalized options around transportation and logistics services. This paper aims to propose a framework for enabling managers to extend the use of options to the future use of logistics resources. Design/methodology/approach Presents a conceptual model that is based on research within the field. Findings This paper presents a framework for using transportation options in a similar manner to stock or commodity options: a shipper would buy a transportation option from a carrier, or a carrier's agent, which would give the shipper the right but not the obligation to send a shipment in a particular freight lane at a specified future time, for a specified future cost. Originality/value The paper provides a new method for structuring future logistics shipments.

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