Determining the value of dedicated multimodal cargo facilities in a multi-region distribution network

Abstract

This paper presents an analytic model of a multi-region distribution problem that addresses the operational benefits of serving a global market using a network of dedicated multimodal cargo facilities (DMCFs). The model allows an explicit evaluation of the comparative value of using a dedicated air cargo-based multimodal distribution facility in an established network of supply and demand points as opposed to more traditional methods for inter-regional shipments. We develop a large-scale, non-linear programming model to evaluate the corresponding logistics costs, incorporating the congestion effects of aircraft loading/unloading on dock-to-dock lead times in the network. We then demonstrate how this difficult problem can be decomposed into its linear (LP) and non-linear (multi-class queueing) sub-problems. An iterative solution scheme is devised to compute the comparative costs of traditional and DMCF-based cargo operations.

Introduction

Growing recognition of the strategic importance of speed and agility in the supply chain is forcing firms to reconsider traditional operations and logistics practices. New global strategies that emphasize fast, efficient supply-chain management, however, are often constrained by existing transportation infrastructure and logistics practices. Competitive pressures are now stimulating the creation of new logistical infrastructures that increase the interconnections among and between geographic regions, transportation modes, and supply chain partners. In particular, efficient new multimodal logistics systems allow companies to wring additional time and cost out of their supply chains. A traditional source of these delays and costs is the discontinuity in the distribution network that occurs when goods in transit are moved between modes.

Through the integration of multimodal transportation systems and communications technology, organizations are now better able to respond to the changing demands of the global marketplace. The resulting global distribution systems are characterized by two trends. First, aided by the emergence of the Internet as a vehicle for global commerce, current technology allows the electronic integration of all the transactions and information required to ensure that a shipment reaches its destination. Second, centralized multimodal hubs now allow shipments to be moved from one mode of transport to another quickly and efficiently. These trends have focused attention on the development of multimodal freight gateways that link air traffic to surface transportation and orchestrate the flow of cargo on a global basis (Gooley, 1997). It is this latter trend that is the focus of our research.

One of the most advanced concepts in logistical infrastructure is the fusion of modern manufacturing facilities, sophisticated materials handling systems, multimodal transportation systems, and advanced information technologies. Such full-service production and distribution centers are now being developed around recently shuttered military bases in areas such as Kinston, NC; Columbus, OH; and San Antonio, TX (Gooley, 1998). Anchored by an international airport with runways capable of handling fully-loaded, wide-body freighters, these multimodal cargo hubs are served by a materials transfer system that links tenants on or near the site with many modes of surface transport (major interstate highways, rail systems, and/or deep-water ports). Intermodal operations are managed through a central cargo facility with automated sorting capabilities and on-site customs clearance. Kasarda and Rondinelli (1998) describe the ways in which public policy can support and is supporting the development of such multimodal distribution hubs around the globe.

We define a dedicated multimodal cargo facility (DMCF) to be a single facility at which a set of firms can locate production, assembly, and/or warehousing operations in direct proximity to – potentially under the same roof as – multimodal cargo handling and transfer facilities. Fig. 1 illustrates the type of single-site access to various logistics services available in a DMCF. At the site, production/distribution facilities and transportation terminals are linked by a cargo transfer system that enables seamless and uninterrupted flows of materials.

In this paper, we focus our attention on international air cargo operations and the transfers that link inter-regional air shipments arriving to and departing from global air cargo hubs to the intra-regional transportation systems (air, truck, and/or rail) that deliver products to customers. Given the emphasis on speed and agility in global operations, it is not surprising that such air transport systems represent one of the fastest growing trends in distribution. Kasarda (1996) projects that the 21st century will be the age of industrial air commerce. Manufacturers of products like computer software, electronics, and seasonal goods which are subject to a short retail shelf life and high technological obsolescence are partially responsible for a 12% annual growth rate in the use of international air cargo (Nelms, 1997). In fact, as early as 1992, more than 81% of the value of US microelectronics shipments and more than 90% of the value of US pharmaceutical shipments were sent via air (Urban Land Institute, 1993).

Several potential benefits are available to a firm using an air transit-focused DMCF, including (Kenan Institute of Private Enterprise, 1997a):

• emphasis exclusively on cargo rather than a shared emphasis with passenger travel, resulting in less congested airfields and no need for routing through congested passenger hubs;

• use of more efficient cargo aircraft, allowing economies of scale;

• reduced delays from customs clearance and processing;

• less constrained flight schedules (e.g., potential for increased use of overnight flights) due to reduced noise constraints (based on airport location);

• more efficient and direct access to multimodal transfer points (see Fig. 1).

The existence of such DMCFs generates an intriguing logistical decision for a firm that serves a globally-disbursed set of customers. The decision regards whether the firm should continue to use disconnected, traditional air cargo processing at regional airports or relocate some portion of its production and distribution activities so as to take advantage of the competitive benefits of a DMCF. We offer the following research question to explore this issue analytically:

What economic benefits, if any, may be generated by reducing congestion-based delays in air cargo transit through the use of a DMCF-based cargo network versus traditional air transit through passenger-based airports?

In the sections that follow, we develop and illustrate the use of a model that explores the research question posed above. First, however, in Section 2, we review the literature related to the problem at hand. In Section 3, we describe a large-scale, non-linear program to model our problem and then present a solution algorithm based on a decomposition and an iterative solution of the sub-problems. Section 4 presents a numerical example to illustrate this solution process. Finally, in Section 5 we draw conclusions from the results and suggest extensions for future research.