Pricing and market mix optimization in freight transportation

We propose improved pricing and market mix can improve the profitability of the freight transportation provider through the reduction of equipment repositioning costs. We hypothesize that because of complexities surrounding pricing and equipment repositioning costing, existing pricing strategies in freight transportation fail to fully consider these costs. We test this hypothesis in an applied setting in which Monte Carlo simulation captures the stochasticity of market conditions inherent in the problem. We use a heuristic to improve the nondifferentiable, discontinuous objective function. Our results from test cases show with high confidence that current prices are not optimal, as indicated by a strong correlation between recommended increases and decreases in market prices and the internalized repositioning costs. Our hypothesis is further supported by a high confidence that the obtained profit level distribution is significantly (statistically) higher than the current profit levels.