Group for Research in Decision Analysis

Price-flexible transportation contracts for aid delivery in developing countries

Feyza Sahinyazan McGill University, Canada

East Africa is a home of many food deficit countries, even the imported food commodities fail to close this gap. For this reason, many organizations, mainly United Nation's World Food Program (WFP) deliver food aid for the last couple of decades. Millions of people rely solely on food aid. However, distributing food in the most rural areas of Africa comes with many challenges. In order to deal with them, WFP cooperates with third party transporters, instead of building its own fleet. As a result, WFP needs to collect bids and sign numerous contracts and manage them in every six months. Since these contracts are non- binding, in the sense that no penalties can be applied to non-responsive transporters; WFP experiences significant disruptions of commodity flow on their supply chain. In this paper, we aim to understand and analyze the main logistics obstacles that the transporters face, as their bids are determined by these factors. In addition, we develop a new contract design that is inspired by the notion of barrier-options, which incentivize the transporters to provide more reliable service. While doing so, we keep the focus on the ease of implementation to provide a solution that can be accepted and pursued by all stakeholders.