Integrating long-haul and local transportation planning: the Service Network Design and Routing Problem

We introduce a new optimization problem, the Service Network Design and Routing Problem that integrates long-haul and local transportation planning decisions. Such a problem is particularly important for consolidation carriers that face customer demands for fast delivery and thus must synchronize the different levels of their transportation operations. We present two formulations of the problem: (1) a route-based formulation that allows for the modeling of a rich set of rules governing local delivery routes at the expense of increased instance size and computational solve time, and, (2) an arc-based formulation that can be solved more quickly but has less modeling power. We solve each with a Dynamic Discretization Discovery algorithm that was recently proposed and designed for solving Service Network Design problems that require the precise modeling of time. With an extensive computational study, we examine the benefits of each formulation.