Dealing with Demand Uncertainty in Service Network and Load Plan Design

Less-than-Truckload (LTL) transportation carriers plan for their next operating season by deciding: (1) a load plan, which specifies how shipments are routed through the terminal network from origins to destinations, and (2) how many trailers to operate between each pair of terminals in the network. Most carriers also require that the load plan is such that shipments at an intermediate terminal and having the same ultimate destination are loaded onto trailers headed to a unique next terminal regardless of their origins. In practice, daily variations in demand are handled by relaxing this requirement and possibly loading shipments to an alternative next terminal. We introduce the p-alt model, which integrates routing and capacity decisions, and which allows p choices for the next terminal for shipments with a particular ultimate destination. We further introduce and computationally test three solution methods for the stochastic p-alt model, which shows that much can be gained from using the p-alt model and explicitly considering demand uncertainty.