Allocating Costs in a Collaborative Transportation Procurement Network

We study a logistics network where shippers collaborate and bundle their shipment requests in order to negotiate better rates with a common carrier. In this setting, shippers are able to identify collaborative routes with decreased overall empty truck movements. After the optimal routes that minimize total cost of covering all the shippers’ demand are determined, this cost is allocated among the shippers. Our goal is to devise cost allocation mechanisms that ensure the sustainability of the collaboration. We first develop cost allocation mechanisms with well-known properties from the cooperative game theory literature, such as budget balance, stability and cross monotonicity. Next, we define a set of new properties, such as a guaranteed discount from the stand alone cost for each shipper, desirable in our setting and propose several cost allocation schemes that could lead to implementable solutions. We also perform a computational study on randomly generated and real-life data to derive insights on the performance of the developed allocation schemes.