Strategic expansion of freight transportation hub networks under demand uncertainty

Abstract

We focus on freight transportation carriers that transport shipments that are small relative to vehicle capacity and incur transportation costs that exhibit economies of scale. For such carriers, profitability is driven by shipment consolidation, which is achieved by routing shipments through a network of hubs. We consider a carrier that seeks to expand its network into new regions by merging with carriers that already operate in those regions. We focus on how, and by how much, the network that results from such a merger should be redesigned to maximize profitability. We perform a case study based on operations from a multi-regional United States Less-than-truckload freight transportation carrier to derive insights into the profitability of different redesign strategies. We derive insights into how a network that results from a merger should be redesigned. We also study how uncertainty in shipment sizes impacts the structure of the redesigned networks.