Airfreight Forwarding Under System-Wide and Double Discounts

17 Pages Posted: 29 Jan 2016

See all articles by James H. Bookbinder

James H. Bookbinder

University of Waterloo

Samir Elhedhli

University of Waterloo - Department of Management Sciences

Zichao Li

University of Waterloo - Department of Management Sciences

Date Written: October 1, 2015

Abstract

We consider the shipment consolidation and freight forwarding problem under two discount schemes: the system-wide and the double-discount. In the system-wide scheme, the cost associated with one flight does not only depend on the quantity of freight assigned to that flight, but also on the total freight assigned to other flights operated by the same carrier. In the double-discount scheme, there are cost savings based on the quantity shipped on a given flight on top of the system-wide discount. We propose models based on multi-commodity network flow formulations that take into account practical aspects such as cargo unsplitability, shipment volume and over-declaration. We propose solution methodologies based on Lagrangian relaxation and local branching. Numerical testing reveals the efficiency of the approaches presented and sheds light on some managerial implications. We find that freight forwarders do not only reduce costs from the system-wide and the double-discount schemes, but are also likely to engage with fewer airlines, thus reducing administrative fees.

Keywords: Transportation, System-wide discount, Double discount, Lagrangian relaxation, Column generation, Local branching, Network planning

Suggested Citation

Bookbinder, James H. and Elhedhli, Samir and Li, Zichao, Airfreight Forwarding Under System-Wide and Double Discounts (October 1, 2015). Available at SSRN: https://ssrn.com/abstract=2724060 or http://dx.doi.org/10.2139/ssrn.2724060

James H. Bookbinder (Contact Author)

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Samir Elhedhli

University of Waterloo - Department of Management Sciences ( email )

Waterloo, Ontario N2L 3G1
Canada

Zichao Li

University of Waterloo - Department of Management Sciences ( email )

Waterloo, Ontario N2L 3G1
Canada

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