Multi-Stop Trucking: Understanding the True Impact

Editor’s Note: Every year, 40 or so students in the MIT Center for Transportation & Logistics' (MIT CTL) Master of Supply Chain Management (SCM) program complete one-year thesis research projects. The students are early-career business professionals from multiple countries with 2 to 10 years of experience in the industry. The research projects are sponsored by and carried out in collaboration with multinational corporations. Joint teams of company people, MIT SCM students, and MIT CTL faculty work on real-world problems chosen by sponsor companies. In this series, we summarize a selection of the latest SCM research. The researchers for the project described below, Xiaojia Chen and Shanglin Tsai, investigated a cost-saving order picking practice for their MIT Supply Chain Management Program master's thesis. The sponsor was leading logistics services provider in the US, and the project was supervised by Dr. Chris Caplice, Executive Director of MIT CTL. For more information on the program, visit http://scm.mit.edu/program.

Studies on trucking freight mode selection usually focus on full truckload (TL) vs less-than-truckload (LTL). In recent years a variant of full truckload called multiple stop truckload (MSTL or multi-stop) has gained prominence as a potential cost-saving measure.

Working with a leading logistics services provider in the US, researchers at MIT's Center for Transportation and Logistics modeled multi-stop using historical data to understand it better and come up with insights to benefit both shippers and carriers.

Too good to be true?

In contrast with TL which delivers shipments point to point from initial origin to final destination, MSTL adds additional stops in-between. MSTL is priced using TL's existing contracted rates, plus a flat fee per each extra stop known as the stop-off charge.

MSTL seemingly benefits from the best of both worlds with TL's lower costs and LTL's flexibility. Anecdotally, however, shippers have observed higher costs associated with MSTL compared to TL. Researchers sought to understand whether this was true and why.

TL contracts stipulate fixed rates, but also allow carriers the option of refusing shipment tenders. Since the rates are determined by the initial origin and final destination cities independently of the intermediate stops, carriers can be less sure of accepting MSTL business: in an extreme case, a multi-stop route with many out-of-route miles might overlap with existing contracted lanes for which rates are higher. Previous research has shown that getting tenders rejected increases shipment costs.

Price and Acceptance

The researchers modeled price and acceptance for multi-stop using historical information, and compared the results against direct TL. They also quantified the effect of adding extra stops depending on whether they were pickups and drop-offs, the location of the additional stops and the amount of the stop-off charges paid.

The results showed that adding extra stops increased the price in addition to the stop-off charges, and that the type (pickup or drop-off) and location of the extra stops were crucial determinants in both price and acceptance. Loads featuring stops that made life easier for carriers through clustering, reducing out-of-route-miles, and providing continuous moves, were both cheaper and more likely to get accepted. Similarly, there was a deterioration in performance as the number of stops increased.

Evaluate the trade offs

These findings create a framework for assessing multi-stop transportation, with implications for both carriers and shippers. Carriers can use the findings to argue for better information flow during contract negotiations, that can result in a win-win for both parties. Shippers can use the results to structure their multi-stop routes in order to minimize the negative impact on acceptance rates and prices. More generally, shippers seeking to utilize multi-stop must weigh the potential cost-savings against time and performance tradeoffs, and understand the wider implications when comparing different transportation options.

For further information on the SCM thesis authored by Chen and Tsai titled Multi-Stop Trucking: A Study on Cost and Acceptance, contact Dr. Bruce Arntzen, Executive Director, MIT Supply Chain Management Program, at [email protected].

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