Strategic planning of transportation services for petroleum products – an application of capacitated gravity models

Strategic planning of physical facilities and pricing of services for the distribution of petroleum products require a comprehensive consideration of the alternative means by which the products can be shipped to consumers from refineries, a mechanism for estimating the percentage of volumes that would be shipped via each alternative, and an assessment of the financial impact of changes in physical configurations and tariff structures of the distribution networks. Capacitated gravity models were created by adapting multiplicative competitive interaction (MCI) models for market share to accommodate capacity constraints at individual facilities and the aggregate capacity of groups of facilities served by the same pipeline segment. Procedures for calibrating the models were developed to cope with the problem of having only partial information about competitors' deliveries. Described in this paper are the structure of the models, calibration procedures, and their application to corporate planning in a large independent pipeline company which serves the midcontinental US as a common carrier of refined petroleum products.