Creating transportation policy in a network that utilizes both contract carriers and an internally managed fleet

Abstract

A convergence of factors including a strong economy, changing demographics and increased regulatory control has resulted in a U.S. For-Hire Truckload (TL) industry that is increasingly pressed to meet shippers' needs for freight services. As demand now exceeds supply, the buyer/seller relationship has swung to favor TL providers who wield much more power than they have historically enjoyed. TL carriers are now able to negotiate higher rates, increase charges for providing additional services and decrease service levels as shippers are unable to find suitable replacement carriers. Many shippers have responded to these changing market dynamics by increasing the use of private and/or dedicated fleets within their distribution networks. This provides them with guaranteed capacity, increased leverage with carriers during rate negotiations and increased overall operational control of their networks. In this thesis, I will propose a methodology for the creation of a shipper's overall transportation policy in a distribution network that uses an internally managed fleet in conjunction with TL contract carriers.

(cont.) This approach constructs transportation policy in a manner that recognizes the differences in costing between an internally owned and managed fleet versus that of a contract TL carrier. It seeks to maximize savings by leveraging internal economies of scope through the assignment of fleet resources to closed loop tours. Additionally, the approach will go beyond the standard deterministic methods that are commonly employed in the creation of transportation policy. Instead, an iterative process that incorporates both optimization and simulation is proposed that ensures variability inherent within the network is taken into account when defining the best transportation policy for an organization.