A method for the hub location problem of scale-distance tradeoffs

Scale and distance factors determine the economies in less-than-truckload transportation. A 3-stage method is presented for the hub location problem of scale-distance tradeoffs in a context of hub-and-spoke network. A business-rule based preprocessing determines cargo quantities shipped directly and hub-transferred. A 0-1 integer programming model incorporating stepwise transport rates is proposed. Dynamic transport rates are utilized to maximize applicable scale and distance economies by best matching cargo flows with vehicle types. A case from one leading less-than-truckload company in China is studied and results demonstrate the effectiveness of the proposed method.