Value of Transshipment Hub in Sea Freight Inventory-Routing Problems

What is the best distribution strategy to ship materials from a source to multiple destinations on a regular basis? This is a common question confronting logistics planners in many industries. This paper examines this issue in the context of the ocean freight industry. In particular, we tackle the economics of freighting raw materials through a transshipment hub, and propose a method to synchronize the materials flow through the hub. We also compare the transshipment hub model with a direct service model, where a vessel is chartered and dispatched directly to bring materials to all the destinations in a single voyage. Our analysis shows that the value of the transshipment hub operation is largely determined by the trade-offs of three factors: (i) the cost of loading/unloading operation at the hub,(ii) cost of detaining material at the hub, and (iii) cost of material/inventory intransit. This conclusion is robust and relatively insensitive to the demand usage at the destinations.