Are there economies of traffic density in the less-than-truckload motor carrier industry? An operations planning analysis

An operations planning model of less-than-truckload (LTL) motor carrier operations is developed. The model determines the number of terminals, and the routing of trucks between terminals, to minimize pickup and delivery, platform handling, and linehaul cost subject to service level constraints. Heuristic techniques are used, so the solution is only approximate. Analysis of a number of hypothetical LTL networks shows that there are substantial economies of traffic density. As traffic volume increases over a region of fixed size, average cost falls sharply, especially at the lower density levels. This finding is consistent with the behavior of the carriers which have expanded since de facto deregulation in 1980, and helps to explain why a few large carriers are coming to dominate the LTL market.