Load Planning with Uncertain Demands for Time-Definite Freight Common Carriers

Time-definite common carriers are third-party logistics providers that publish tariffs and provide door-to-door pickup and delivery services for small shippers. Their time-sensitive transport operations are critical outsourced activities for a successfully integrated supply chain. In a pure hub-and-spoke network, centers are points of pickup and delivery while hubs are points of consolidation. When the magnitude of demand is uncertain, the stochastic load-planning problem is to determine freight paths and design a balanced trailer network so that expected operating cost is minimum while integral and operational side constraints are met. Demands are assumed to be a finite discrete distribution. Both the first phase and the recourse are pure integer programs. As a result of study of necessary conditions, a heuristic solving algorithm was developed. As a representative example, a small hub-and-spoke network of the third largest carrier in Taiwan was selected for numerical experiments. Results showed a small fleet size with lower operating costs than with the conventionally used deterministic load plan. Stochastic planning is sensitive to the demand fluctuation, whereas deterministic planning is not. Also, the larger the deviation from estimated shipping demand, the higher the operating cost. Finally, if the carrier must pay a higher wage rate for standby drivers, the carrier must assign a larger feeder fleet to anticipate a surge in demand.