Minding Braess Paradox amid third-party logistics hub capacity expansion triggered by demand surge

Abstract

Third-party logistics (3PL) in the U.S. has been declared essential by the government and 3PL firms are tasked to continue their operations amid the pandemic. Meanwhile, demand for e-commerce deliveries have exploded due to strict enforcement of lockdowns and the public's preference to avoid physical contacts. To process the record increase in volume, 3PL firms have expanded capacities of their consolidation hubs. However, expansion in a hub capacity might risk delay propagation through the hub's conveyer systems and lead to a counterintuitive phenomenon known as Braess Paradox (BP). We present two layouts (Two-Way Secondary Sort and Direct Sorting) that are commonly employed in the 3PL hubs to accommodate high volumes. We then extend by differentiating 3PL's traffic into Regular and Express packages and include penalty cost in the model. The results show that the BP may occur in 3PL hub settings. However, both layouts are impacted differently. We compare the performances of the two sorting layouts and present value ranges where the benefits of one layout might outweigh the other in hub operations. We also expand the two-tier model by adding an extra tier of package type (i.e., Critical Package) and provide findings that are more generic to any multiple-tier model. Our findings help in identifying the conditions that 3PLs can avoid BP and improve their hub performances with suitable configurations of flow layout.