Operational shadow pricing in back haul container shipping

•Shadow prices can help carriers determine minimum acceptable rates in the back haul spot market.•Approach can be used to determine the effective marginal cost curve at each IPI.•Findings suggest positive relationship between container imbalance variability and backhaul rates volatility.•Opportunities to improve back haul performance via operational shadow pricing model.

Minimum acceptable rates for back haul cargo are difficult for carriers to establish in practice. They depend on complex factors such as availability of empty containers in the vicinity, cost of repositioning empties and container on-hiring decisions. A shadow pricing and “shadow credit” approach is proposed and applied to an inland network. Such a model can help carriers undertake yield management at the operational level to improve financial performance in a post-conference era. Results also suggest a positive relationship between variability in the imbalance situation of laden containers in a particular trade and volatility of short-term back haul freight rates.