Logistics outsourcing strategy with online freight platforms

Abstract

Online Freight Platforms (OFPs) are emerging and developing rapidly based on the Internet of Things and big data technologies. They provide professional logistics services by aggregating the scattered transportation capabilities of individual truck drivers. OFPs have become increasingly popular compared to Traditional Logistics Service Providers (TLSPs), and OFPs have integrated more than 20% of the truck drivers in China. In this paper, we study a manufacturer’s production, distribution, and transportation of a product in bulk to a downstream firm via two transportation channels: TLSP and OFP. The two channels offer different operational modes, service levels, and contract prices. We develop a game-theoretical model to analyze the strategic interactions among the manufacturer, transportation service provider, and downstream firm. Our study highlights the implications for the manufacturer’s logistics outsourcing strategy with OFP and TLSP operations. We find that when an OFP is available, differences in transportation service levels and prices significantly affect the equilibrium decisions of the manufacturer and TLSP. Surprisingly, the emergence of OFPs does not necessarily threaten TLSP operations. This study provides guidance to manufacturers about their selection of shipping outsourcing strategies and new guidance for TLSP operations considering the emergence of OFPs.