A game theoretical approach for improving the operational efficiencies of less-than-truckload carriers through load exchanges

Abstract

Less-than-truckload (LTL) transportation offers fast, flexible and relatively low-cost transportation services to shippers. In order to cope with the effects of economic recessions, the LTL industry implemented ideas such as reducing excess capacity and increasing revenues through better yield management. In this paper, we extend these initiatives beyond the reach of individual carriers and propose a collaborative framework that facilitates load exchanges to reduce the operational costs. Even though collective solutions are proven to provide benefits to the participants by reducing the inefficiencies using a system-wide perspective, such solutions are often not attainable in real-life as the negotiating parties are seeking to maximize their individual profits rather than the overall profit and also they are unwilling to share confidential information. Therefore, a mechanism that enables collaboration among the carriers should account for the rationality of the individual participants and should require minimal information transfer between participants. Having this in mind, we propose a mechanism that facilities collaboration through a series of load exchange iterations and identifies an equilibrium among selfish carriers with limited information transfer among the participants. Our time-efficient mechanism can handle large instances with thousands of loads as well as provide significant benefits over the non-collaborative management of LTL networks.