Centralized Carrier Collaboration Multihub Location Problem for Less-Than-Truckload Industry Hybrid Hub-and-Spoke Network

of profitability, spatially spread demand, and intense competition have incited a trend to seek solutions through ICT and the Internet (3). One manifestation of this is an increase in collaboration among small to medium-sized LTL carriers. That is, small to medium-sized carriers have begun to develop strategies that exploit synergies (such as excess capacity, overlapping lanes, and facilities), which form the basis for some forms of collaboration. LTL carrier collaboration can improve operations and reduce supply chain costs. By collaborating, smaller and medium-sized LTL carriers can increase use of assets (such as capacity or facility space) and strengthen their market position. The challenge for a collaborative effort is to balance multiple requests by LTL carriers that require resources with the available transportation capacity to service those requests. This balance depends on the affordability of transportation services provided to collaborative member carriers, as well as on the shipment size and value (4–6). Carrier collaboration is highly dependent on location factors, that is, where to transfer loads to fulfill demand requirements. This is important because smaller and medium-sized LTL carriers operate within a point-to-point network structure of warehouses, depots, and distribution centers. Point-topoint networks move LTL shipments directly between facilities, such as end-of-line terminals, without intermediate stops to consolidate loads. Therefore, this paper investigates the benefits of locating transfer hubs to facilitate carrier collaboration. Here, “hybrid” refers to the short-term transformation of an LTL point-to-point network into a type of hub-and-spoke with direct routes. A major challenge in carrier collaboration is to identify potential locations for a consolidation hub to facilitate transfers of loads in the collaborative. Identification of these hubs depend on such factors as contractual agreements for using the facility and costs of holding, collaboration, and congestion. Contractual agreement costs may pertain to the handling of the transfer. These costs can be either fixed or variable, and fixed costs can be per unit, per weight, or per volume. In addition, these costs may depend on the transfer point (for example, city) in which they occur, as well as incoming and outgoing trucks, for example, the cost of the crew unloading or loading the trailer and any cost associated with the operation of the vehicle (7). Collaborative holding and congestion costs are available elsewhere (5, 6). In addition, selection of hub locations may depend on product handling and storage capabilities, for example, refrigerated storage or humiditycontrolled areas for specific goods. Consideration of such heterogeneous products increases the complexity of the problem (4, 5). This study assumes a homogeneous fleet that handles a single product type (e.g., nonperishable goods). A centralized carrier collaboration multihub location problem (CCCMLP) for the small to medium-sized less-than-truckload industry is addressed. In the CCCMLP, a central entity (e.g., a third-party logistics firm) seeks a set of collaborative consolidation transshipment hubs to establish a hybrid collaborative hub-and-spoke system that minimizes the total collaborative costs for the set of collaborating carriers. Previous studies focused on addressing the exchange of capacity without considering the location of transfer hubs and the routes that connect them. A carrier has the option either to collaborate or to ship its demand directly without collaborating. The decision depends on the expected profit margin over shipping directly while following a revenue-generating, rate-setting behavior. The CCCMLP was formulated as a variant of the P-hub location problem, which is NP-hard and solved with Lagrangian relaxation. Numerical experiments were conducted to gain insight into the performance of the CCCMLP formulation under various network sizes and numbers of hubs. The results indicate that larger expected profit margins from collaborative carriers applying revenue-generating behavior would increase the likelihood of collaboration by carriers. As the network size increases, the effect of hybrid hub location costs drops.