Incorporating insurance costs in hazardous materials routing models

The economic loss associated with the involvement of a hazardous materials truck in an accident can be very high. Although the immediate costs are usually borne by an insurer, the carrier would incur an increase in its future insurance costs as a result. Thus, a hazardous materials carrier can benefit from considering its long-term insurance costs in routing the required shipments. In this paper, we introduce the hazardous materials routing problem under insurance costs. We present a solution methodology that facilitates evaluation of alternative routing policies. The proposed methodology involves solution of a manageable number of shortest path problems in determining the most appropriate route(s). We argue that, for each shipment, the route to be taken by the truck should be determined on the basis of the expected increase in insurance costs due to a possible accident as well as the cost of transportation.