Real options: applications to logistics and transportation

• Published in: International journal of physical distribution & logistics management Vol. 36; no. 4; pp. 252 - 270
• Main Authors: Tibben-Lembke, Ronald S., Rogers, Dale S.
• Format: Journal Article
• Language: English
• Published: Bradford Emerald Group Publishing Limited 01.04.2006
• Subjects: Bandwidths; Commodity options; Distribution; Distribution management; Futures; Information technology; Investments; Logistics; Market prices; Options trading; Profits; Purchasing; Risk management; Stock exchanges; Stock options; Studies; Transport management; Transportation; Transport management; Risk management; Distribution management
• ISSN: 0960-0035; 1758-664X
• DOI: 10.1108/09600030610672037

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.