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Department of Economics (STG), ECO204, 2023-2024 (Ajaz’s Sections)

PROJECT 1: REVENUE MANAGEMENT THROUGH DYNAMIC PRICING AND YIELD MANAGEMENT

This individual (solo) project is worth 14% of your overall course grade.

Submission Deadline (paper & Excel model): 9 pm, Sunday, January 14th, 2024 through Quercus

“THE COMPANY”:

Based in Vancouver, The Canuck Container Shipping Company (“CCSC”) owns and operates the HMSNorthern Exposure, a Maersk Triple-E Class Ultra Large Container Vessel (pictured below):

In line with standard industry practice, the CCSC ferries cargo in 20’ and 40’ containers:

•   A 20’ Container: Known as a Twenty-foot Equivalency Unit (“TEU”) with a maximum load of 24 tons/container.

•   A 40’ Container: Equal to two TEUs (by volume) with a maximum load of 30 tons/container1.

“CURRENT OPERATIONAL AND REVENUE MANAGEMENT MODEL”:

Twice a year – once during the “low” season and again during the “high” season – the HMS Northern Exposure embarks on a voyage from Vancouver (sans cargo), with “stopovers” at the following 10 “port-of-calls” to pick up cargo forfinal delivery to Dubai, following which, the vessel returnins to Vancouver (sans cargo):

For example, during the “High Season” in FY2022-2023, the HMS Northern Exposure sailed from Vancouver (without cargo)   à travelled to the 1st port of call, Japan, and loaded 320 TEUs destined for Dubai à travelled to the 2nd  port of call, China,   and loaded 68 TEUs destined for Dubai à … à travelled to the 10th  port of call, Thailand, and loaded 9 TEUs destined for Dubai à travelled to the final destination Dubai to deliver 1,799 TEUs of cargo (the combined TEUs picked up from the 10 port-of-calls) à sailed back to Vancouver (without cargo):

The amount of cargo (“demand”) [TEUs] loaded at a port-of-call depends on CCSC’s “price” ($/TEU) and the “season”. For example, the following table contains CCSC’s FY2022-2023 “price” and “seasonal demands” for the 10 port-of-calls:

Notice that for any given port-of-call, CCSC charges a uniform “price” across both seasons (i.e. CCSC is not managing

revenues through dynamic pricing). This is where you come in -- you have been hired as a consultant to advise CCSC on (if

feasible) boosting revenues through dynamic pricing subject to newly imposed “yield management” constraints specified next2.

(Going Forward) Dynamic Price Mechanisms & Operational Plus Yield Management Specs:

CCSC’s managements wants you to explore the feasibility of boosting revenues through dynamic pricing (charging separate

prices in the Low vs. High Seasons) subject to the following “newly imposed” operational and yield management “constraints”:

•    [See the following table] For each-port-of-call, a pre-specified percentage of its total cargo destined for Dubai must be in 20’ containers (and the rest in 40’ containers) and the weight of 20’ and 40’ containers exactly as specified below:

•    Since 20’ containers are “denser” than 40’ containers, to thwart the ship from “becoming unbalanced and tipping over”, as well as to expedite the loading/unloading process, management stipulates that when the HMS Northern Exposure reaches its final destination Dubai:

•    In order to accommodate “last minute orders from premium customers”, CCSC’s “yield-management-managers” insist on having a “buffer” (no different from airlines and hotels setting aside seats and rooms for “premium” customers) such that when the HMS Northern Exposure reaches its final destination Dubai:

The Mechanics of “Micro-Optimization”:

Do the following for the Low and High Seasons separately:

1.    Use the FY2022-2023 info to calculate, for each port-of-call as well as the “grand total”: TEUs, Revenue, Ratio of

20’:40’ containers, Total weight, etc. You may want to comment on whether some “proposed” constraints are violated at the port/total level.

2.    For dynamic pricing, you are going to “simulate-estimate”, the “demand-curve” at each port-of-call as follows:

a.    Use the Excel command =rand() to generate a number between 0 and 1 à multiply this number by -1 à “label” it “Price Elasticity” E.

b.   Assume that in FY2022-2023, each port-of-call’s “price” and “demand” resulted in every port-of-call having  the price elasticity equal to E. For example, given Japan’s price and output in season X, its price elasticity was E, identical to the price elasticity of the other nine port-of-calls.

c.    Assume each port-of-call has a linear demand curve. For example, the ith port-of-call demand curve is:

Here pi   = Price $/TEU and qi   = Total Demand (TEUs) for the ith port-of-call. From ECO101, recall that the point price elasticity is:

•    Make judicious use of graphs, tables, Excel screenshots, and pictures in the business report – don’t be that “scribe” who crams reports with “filler/decorative” graphs, tables, etc. Do you have a “technical” graph which doesn’t “fit” in the

Business Report? Put it in the technical appendix (which has “no page limit” within common reason).

•    The Excel file should be properly formatted and labelled. For example: are the top rows “frozen”? Did you adjust column   widths to auto-fit data? Are the numbers formatted to the same number of decimal places? Are the axes labelled? “Set up” the Excel file to make it easy for your “client/audience” to use your model with different input/parameter values (why not  shade the “input/parameters” yellow and the Solver cells green etc.?). We highly recommend “soft coding” formulas and      “naming variables” making it easier for your client/audience to change the parameters, re-solve the problem, and view the   “analysis” and “recommendations” .

“Submitting Project 1”

The business-report must be submitted in pdf format titled “LastName_FirstName_Last-5-Digits-Student ID.pdf ” and

the Excel file must be in either “xlsx” or “xslm” format titled “LastName_FirstName_Last-5-Digits-Student ID.xlsx/xlsm”

Please submit the business-report and Excel file through the Quercus Project 1 Tabs (one for Excel and another for the Business Report) by 9 pm, Sunday, January 14th, 2024.

Penalty for submitting any component of Project 1 past the deadline: 50% of maximum project score per day that any project component is overdue.

Please review the policy on using Quercus to submit, grade, and detect plagiarism in course assessments: Normally, students    will be required to submit their course essays to the University’s plagiarism detection tool for a review of textual similarity and

detection of possible plagiarism. In doing so, students will allow their essays to be included as source documents in the tool’s reference database, where they will be used solely for the purpose of detecting plagiarism. The terms that apply to the

University’s use of this tool are described on the Centre for Teaching Support & Innovation web sitehttps://uoft.me/pdt-faq ”

“Academic Code of Conduct”

It is your responsibility to read and abide by the Student Academic Code of Conduct. Please note that any attempt to “collaborate”, “receive/provide help” to any other individual/organization is a serious violation of the academic code of conduct.