Locating transportation terminals to serve an expanding demand

This paper develops a continuous approximation model of a general freight carrier serving a fixed region with an increasing density of demand. Terminal, transportation and relocation costs are considered. As the demand for service by a freight carrier increases, transportation terminals are added to decrease transportation costs. The vehicle routing scheme includes economies of scale for linehaul transportation between terminals. Although the optimal strategy for adding and locating terminals may require knowledge of future demand, myopic strategies may be nearly optimal. Three strategies are considered that provide upper and lower bounds on the distribution cost from the optimal strategy. Terminal locations are found for each strategy. A myopic strategy with limited capability for relocation is shown to be nearly optimal unless terminal relocation costs are large.