Modeling Economies of Scale in Transportation Hub Networks

Freight and passenger carriers deploy large hub-and-spoke transportation networks to provide efficient service between many origins and many destinations. These networks use hub facilities that provide a connecting, sorting and/or consolidation function designed to concentrate flows on the inter-hub links to exploit the strong economies of scale in transportation. Yet examination of the optimal solutions of hub location models reveals that the flows on spoke arcs quite often exceed the flows between hubs, which violates the premise underlying the model for economies of scale. This paper provides computational results for a range of hub location problem types and data sets to document this disconnect between the assumed model for transportation cost and the actual optimal flows. This raises an important question for hub location research using the basic model for economies of scale. Some interesting differences between flows in passenger and freight hub networks are also highlighted.