TITLE:
Allocating Collaborative Profit in Less-than-Truckload Carrier Alliance
AUTHORS:
Peng Liu, Yaohua Wu, Na Xu
KEYWORDS:
Cooperative Game, Profit Allocation, Collaborative Transportation
JOURNAL NAME:
Journal of Service Science and Management,
Vol.3 No.1,
March
29,
2010
ABSTRACT: International Financial Crisis has made the less-than-truckload (LTL) industry face with severe challenges of survival and development. More and more small and medium-sized LTL carriers choose to collaborate as the potential savings are large, often in the range 5–15%. A key question is how to distribute profits/savings among the participants. Since every LTL carriers are guided by their own self-interests and their contributions to the collaboration are quite different, the proposed allocation method should be a collectively and individually desirable solution. In this paper, we firstly analyze the profit opportunities from collaboration and present mechanisms to realize these benefits by two illustrative examples. Based on the cooperative game theory, we formulate the LTL collaboration game and discuss the well-known profit allocation concepts including Proportional Allocation, Shapley value and Nucleolus. We then propose a new al-location method named Weighted Relative Savings Model (WRSM) which is in the core and minimizes the maximum difference between weighted relative savings among the participants. Simulation result for real-life instances shows the effectiveness of WRSM.