Profit allocation in collaborative less-than-truckload carrier alliance

The international Financial Crisis has made the Less-than-truckload industry face with severe challenges of survival and development. In this case, more and more small and medium-sized LTL carriers choose to collaborate as the potential savings are large, often in the range 5-15%. A key question is how profits/savings should be distributed among the participants. Since every LTL carriers are guided by their own self-interests and their contributions to the collaboration are quite different, the proposed allocation method should be a collectively and individually desirable solution. In this paper, we firstly analyze the profit opportunity through collaboration and present mechanisms to realize these benefits by two illustrative examples. Based on the cooperative game theory, we formulate the LTL collaboration game and discuss the well-known profit allocations including proportional allocation, Shapley value and Nucleolus. We then propose a new allocation method Weighted Relative Savings Model (WRSM) which is in the core and minimizes the maximum difference between the contribution ratio weighted relative savings among the participants. Computational results for real-life instances are presented and analyzed to show the effectiveness of WRSM.