Dynamic pricing in the ferry industry

University of Southampton scientists are using mathematical methods to improve the ferry industry’s revenue management and pricing structures.

Published:: 13 January 2020

Vehicle ferry organisations face pricing challenges due to issues with packing vehicles of all shapes and sizes onto ferries.

Vehicles range in size from small mopeds to large freight vehicles and packing them with the minimum of wasted space on deck is important for improving efficiency and hence, revenues. It’s also fairer to price vehicles according to the space that they use rather than the space they occupy – a bigger vehicle on the deck can make the packing more awkward and create wasted space, making it harder to fit other vehicles on.

Researchers in the Centre for Operational Research, Management Science and Information Systems (CORMSIS) at the University of Southampton used their expertise in optimal packing, revenue management and dynamic programming to find ways of making the packing process more efficient. The project, entitled Dynamic Pricing in the Ferry Industry, was funded by Engineering and Physical Sciences Research Council (EPSRC).

The research team used both exact methods, such as mixed integer programming, and heuristic optimisation (genetic algorithms and local search) to find the optimal arrangement of vehicles on board the ferry to minimise wasted space and maximise revenues. The work also uses computer simulation to project forward in the selling season as a way of determining the optimal price to charge for different types of vehicles.

As a result, ferry organisations who put the research into practice found their services to be more efficient, increasing profitability, reducing customer complaints and upskilling key staff.

This project has given valuable insights into how pricing can be used as a way of encouraging efficient packing of vehicle ferries and make pricing fairer for customers.

“Through this work we have developed two user-friendly software products. The first is a visual programme of the ferry loading process, allowing new loaders to be trained before starting work on the real process and existing loaders to improve their decision-making. The second is an app that allows the operations manager to input details of their bookings for the day and receive an output indicating how busy each crossing will be, the likelihood of vehicles being left off and a suggested loading layout. Implementing these ideas can make vehicle packing more efficient resulting in fairer prices for customers.”

Drawing on this body of research in revenue management and price optimization, the team have also carried out projects in other parts of the transport industry such as airlines and bus services as well as the supermarket industry.