A descriptive and prescriptive analysis of rail service subsidies in the China–Europe freight transportation market

Abstract

This study presents a descriptive and prescriptive analysis of rail service subsidies for China Railway Express (CRE) in the China-Europe freight transportation market. The analysis is conducted by advanced mathematical modeling and programming methods. Specifically, we implemented a multicommodity multimodal freight transportation network equilibrium model that can be used for predicting the commodity-specific mode-route cargo flow pattern and hence for assessing the effectiveness and limitations of the current CRE subsidy scheme. To properly quantify the impact of subsidies on individual shippers’ decision making, the model explicitly characterizes individual shippers’ mode-route choice behavior and takes into account shipping cost, transit time, capacity-induced congestion surcharge, and unobserved transportation impedances as shippers’ disutility. The solution of the network equilibrium model resorts to a disaggregate simplicial decomposition (DSD) algorithm within the well-known Lagrangian relaxation framework. A bi-level network-based subsidy optimization model is constructed, in which the upper level aims at minimizing the sum of revenue loss and congestion charge, and the lower level is the aforementioned freight transportation network equilibrium model. A tabu search procedure is proposed and implemented to derive the solution of the bi-level model. The above models and algorithms are then applied to the China-Europe containerized freight transportation network, which comprises all China-Europe liner shipping lines, all CRE service lines, and the highway networks in China and Europe. The evaluation and optimization results show that the current subsidy scheme creates an imbalanced capacity utilization pattern across CRE service lines while an optimized line-specific subsidy solution can yield noteworthy improvements in the service utilization and economic efficiency of CRE.