Optimal quoting of delivery time by a third party logistics provider: The impact of shipment consolidation and temporal pricing schemes

Increased competition in business environments requires that firms provide not only quality but also timely service with minimal cost. Offering a delivery-time guarantee may increase the demand for a product or service, or allow the firm to charge a price premium. This paper investigates the effects of different pricing schemes for a Third Party Logistics (3PL) provider. The 3PL tenders a consolidated load to a carrier that line-hauls over a certain origin–destination lane. In a price- and time-sensitive logistics market, we derive the optimal quotations that should be made for price and delivery-time, with the objective of maximizing the profit rate of the 3PL provider. We propose four easy-to-use temporal pricing schemes, and derive the corresponding optimal length of shipment consolidation cycles and the prices. Depending on the logistics market parameters, we show that charging according to an order’s time of arrival is not necessarily the best pricing scheme. Various managerial insights and numerical examples with sensitivity analysis are provided.

► We develop analytical models to optimize the profit rate for a 3PL provider.
► Explicitly the impact of shipment consolidation on pricing decisions is studied.
► Temporal pricing schemes proposed include differential and uniform pricing.
► We derive the conditions under which a certain pricing scheme is superior.
► Numerical examples and sensitivity analyses provide further managerial insights.