Freight consolidation and routing with transportation economies of scale

Consolidating small freight shipments into vehicle loads allows more efficient and frequent shipping by concentrating large volumes onto relatively few transportation links. This paper analyzes three schemes for routing freight shipments via consolidation terminals in an idealized many-to-many logistics network where consolidation allows carriers to take advantage of transportation economies of scale. Average transportation costs are formulated for each scheme. The minimum cost routing for a shipment is shown to be a combination of two simpler routing schemes that minimize different components of the transportation distance. Optimal terminal locations are found analytically and shown to depend on the efficiency of the linehaul transportation between terminals. Transportation costs are compared and the effectiveness of each routing scheme is shown to depend on the number of consolidation terminals and the efficiency of the linehaul transportation.