Collaboration among small shippers in a transportation market

Intense competition in markets is pushing companies to increase their operational efficiency. One possible way to achieve increased efficiency is through cooperation with other companies. We study the coalition formation among small shippers in a transportation market characterized by uncertain demand. We analyze the decisions taken by the coalition and study the effect of shipper characteristics on the benefit of collaboration. Analysis shows that the shippers always benefit from the coalition, but when the benefits are to be allocated, the coalition may not always guarantee the budget balance, which is elementary for sustainability of any coalition. Using a game theoretical approach this study proposes saving allocation mechanisms and discusses the conditions that lead to a balanced budget.

► A coalition among small-shippers with stochastic demand always achieves higher total utility. ► Fair saving allocation mechanisms, that satisfies IR and BB could be designed. ► The coalition benefits the shippers especially when transfer to consolidation points is costly. ► When vehicle dispatch cost is on the extremes, benefit of coalition is limited. ► As arrival rate of the shippers increase, the benefit of the coalition may increase or decrease.