A Two Stage Stochastic Optimization Model for Port Infrastructure Planning

Abstract: This paper investigates inland port infrastructure investment planning under uncertain commodity demand conditions. A two-stage stochastic optimization is developed to model the impact of demand uncertainty on infrastructure planning and transportation decisions. The two-stage stochastic model minimizes the total expected costs, including the capacity expansion investment costs associated with handling equipment and storage, and the expected transportation costs. To solve the problem, an accelerated Benders decomposition algorithm is implemented. The Arkansas section of the McCllean-Kerr Arkansas River Navigation System (MKARNS) is used as a testing ground for the model. Results show that commodity volume and, as expected, the percent of that volume that moves via waterways (in ton-miles) increases with increasing investment in port infrastructure. The model is able to identify a cluster of ports that should receive investment in port capacity under any investment scenario. The use of a stochastic approach is justified by calculating the value of the stochastic solution (VSS).