Stochastic service network design with rerouting

•A new stochastic service network design model with rerouting is proposed.•The new model tends to outsource services considerably less than the existing models.•With rerouting, deterministic models may not be as “brittle” as one thought before.•The spatio-temporal distribution of demands could have a big impact on profit.•The model can be approximately solved through two decomposition-like heuristics.

Service network design under uncertainty is fundamentally crucial for all freight transportation companies. The main challenge is to strike a balance between two conflicting objectives: low network setup costs and low expected operational costs. Together these have a significant impact on the quality of freight services. Increasing redundancy at crucial network links is a common way to improve network flexibility. However, in a highly uncertain environment, a single predefined network is unlikely to suit all possible future scenarios, unless it is prohibitively costly. Hence, rescheduling is often an effective alternative. In this paper, we proposed a new stochastic freight service network design model with vehicle rerouting options. The proposed model explicitly introduces a set of integer variables for vehicle rerouting in the second stage of the stochastic program. Although computationally more expensive, the resultant model provides more options (i.e. rerouting) and flexibility for planners to deal with uncertainties more effectively. The new model was tested on a set of instances adapted from the literature and its performance and characteristics are studied through both comparative studies and detailed analyses at the solution structure level. Implications for practical applications are discussed and further research directions are also provided.