PRICE-SETTING BASED COMBINATORIAL AUCTION
APPROACH FOR CARRIERS’ COLLABORATION IN LESS
THAN TRUCKLOAD TRANSPORTATION
Bo Dai and Haoxun Chen
Laboratoire d'Optimisation des Systèmes Industriels (LOSI), Institut Charles Delaunay (ICD), UMR CNRS STMR 6279
Université de Technologie de Troyes, 12 rue Marie Curie, BP 2060, 10010, Troyes Cedex, France
Keywords: Collaborative transportation planning, Combinatorial auction, Price-setting method, Lagrangian relaxation.
Abstract: In collaborative logistics, multiple carriers may form an alliance to optimize their transportation operations
through sharing transportation requests and vehicle capacities. In this paper, we study a carriers’
collaboration problem in less than truckload transportation with pickup and delivery requests. After
formulating the problem as a mixed integer programming model, an iterative price-setting based
combinatorial auction approach based on Lagrangian relaxation is proposed. Numerical experiments on
randomly generated instances demonstrate the effectiveness of the approach.
1 INTRODUCTION
In collaborative logistics, multiple carriers may form
an alliance to optimize their transportation
operations by sharing vehicle capacities and delivery
requests. The objective of the collaboration is to
eliminate empty back hauls, to raise vehicle
utilization rate, and thus to increase the profit of
each carrier involved.
In practice, two types of transportation services
are often provided: truckload (TL) transportation
and less than truckload (LTL) transportation. Until
now, most studies on collaborative logistics were
focused on TL transportation (Kwon et al. 2005;
Ergun et al. 2007a, 2007b; Lee et al. 2007), few
papers studied collaborative logistics problems in
LTL transportation (Krajewska and Kopfer, 2006;
Houghtalen et al., 2007; Berger and Bierwirth 2010).
Combinatorial auction has been applied to
truckload transportation service procurement and
carriers’ collaboration. However, previous studies
adopt a quantity-setting based combinatorial auction
approach. In each round, carriers (bidders) submit
prices on various bundles of requests. The
auctioneer then makes a provisional allocation. The
approach requires the pre-selection of preferable
bundles by each carrier and the resolution of a NP-
hard winner determination problem by the
auctioneer in each round. The price setting based
auction approach, to be adopted in this paper, can
overcome the two difficulties.
In this paper, we study a carrier collaboration
problem in less than truckload transportation with
pickup and delivery requests (quoted as CCPLTL
hereafter), where multiple carriers constitute a
transportation alliance for sharing their vehicle
capacities and transportation requests. A price-
setting based iterative combinatorial auction
approach is proposed for reallocating the requests
among the carriers. In the approach, the role of the
auctioneer is to set and update the price of serving
each request, and its objective is to maximize the
total profit of the whole alliance. Each bidder
(carrier) selects its preferable requests to serve by
maximizing its individual profit based on the prices
proposed by the auctioneer. The price update is
based on Lagrangian relaxation. When the auction
process is terminated, if there are still some requests
selected by more than one carrier, the conflict is
resolved by using a random method. The
effectiveness of the approach is demonstrated by
numerical experiments on random generated
instances.
2 PROBLEM DESCRIPTION
In the carriers’ collaboration problem considered,
407
Dai B. and Chen H..
PRICE-SETTING BASED COMBINATORIAL AUCTION APPROACH FOR CARRIERS’ COLLABORATION IN LESS THAN TRUCKLOAD TRANSPOR-
TATION.
DOI: 10.5220/0003186204070413
In Proceedings of the 3rd International Conference on Agents and Artificial Intelligence (ICAART-2011), pages 407-413
ISBN: 978-989-8425-40-9
Copyright
c
2011 SCITEPRESS (Science and Technology Publications, Lda.)
multiple carriers operating in a transportation
network form a collaborative alliance to share their
transportation requests and vehicle capacities, in
order to increase their vehicle utilization rates and
reduce their empty back hauls. Initially, each carrier
has acquired certain requests from shippers (the
customers of the carrier), where each request is
specified by a pickup location and a time window, a
quantity, and a delivery location and a time window.
We assume that all requests acquired by the alliance
are available to all carriers, this implies that all the
requests must be reallocated among all the carriers
by using a collaborative transportation planning
method. If a request acquired by a carrier is not
served by itself, then the carrier has to transfer part
of the revenue of the request paid by a shipper to the
carrier serving the request. The objective of the
collaborative planning is to find an allocation of
requests to each carrier as well as optimal vehicle
tours for executing the allocated requests subject to
the capacity constraint of each vehicle and the time
window constraints of each request so that the total
profit of the alliance is maximized. After the request
reallocation, the profit of the alliance must be fairly
allocated among all the carriers so that they are
willing to remain in the alliance. For simplicity, in
this study we assume that all carriers have vehicles
of the same capacity and each carrier uses the same
tariffs to calculate its transportation costs.
3 PRICE-SETTING BASED
COMBINATORIAL AUCTION
FRAMEWORK
Motivated by a combinatorial auction mechanism
for truckload transportation service procurement
(Kwon et al., 2005; Lee et al., 2007), we propose a
combinatorial auction framework with associated
models for CCPLTL. In this framework, the
reallocation of transportation requests among
carriers is realized through a multi-round
combinatorial auction. Two types of actors exist in
our framework, auctioneer and bidders. The
auctioneer is a virtual coordinator who sets and
updates the price of serving each request. The
objective of the auctioneer is to maximize the total
profit of the alliance subject to the constraint that
each request is allocated to at most one carrier
finally. The bidders, who are the carriers, select their
preferable requests to serve by maximizing their
individual profits based on the prices proposed by
the auctioneer. Contrary to the quantity-setting based
combinatorial auction which requires the pre-
selection of preferable bundles by each carrier in
each round, our proposed auction is a lagrangian
relaxation based price-setting auction which does
not require the pre-selection. The auction framework
we propose consists of the following steps.
(1) Before the auction, each carrier (bidder)
submits its requests open to auction to the auctioneer
through a common platform. These requests are
recorded in a request pool for auction of the
auctioneer. Every request has an ask price offered by
a shipper (the amount of money paid by the shipper
for the service of the request). This price is kept by
the carrier who receives the request and will not be
known by other carriers.
(2) The auctioneer sets an initial price (referred to
as outsourcing price hereafter) for serving each
request in the pool, which is equal to or less than the
ask price of the request.
(3) The bidders express their selections of requests
based on the current outsourcing prices of all
requests announced by the auctioneer. All requests
in the pool are available to each bidder, and each
bidder selects a set of available requests to serve to
maximize its own profit. The decision problem of
each carrier is referred to as a bidding problem
which will be formulated in the next section.
(4) The auctioneer adjusts the outsourcing price of
each request. By relaxing the constraints that each
request is served by at most one bidder using
lagrangian relaxation, the prices are adjusted based
on the subgradient which is defined as the violations
of the relaxed constraints by the current request
selections of all bidders.
(5) Repeating the above steps (3) and (4) until a
stopping criterion is satisfied, namely, all requests in
the pool are reallocated to at most one carrier or the
current best allocation can not be improved in a
given number of iterations, or a given number of
iterations are achieved.
(6) If there are still some requests selected by more
than one bidder after the above mentioned iterative
auction process is terminated, a random conflict
resolution method is applied to reallocate the
requests to the bidders.
(7) After the iterative auction process, each bidder
gains a profit by serving some requests (referred to
as pre-profit hereafter), which is calculated by
solving the relevant bidding problem. The auctioneer
holds a residual profit which is the difference
between the total profit of the alliance and the pre-
profits of all the carriers. This residual profit is
ICAART 2011 - 3rd International Conference on Agents and Artificial Intelligence
408
redistributed to all bidders based on a profit sharing
mechanism, which ensures that the profit of each
carrier gained with the collaboration is no less than
its profit gained without collaboration. This
mechanism will be discussed in our future work
.
The interactions between auctioneer and multiple
bidders in each round are illustrated in Figure 1.
Figure 1: The interactions between auctioneer and
multiple bidders in each round.
The advantages of our auction framework are
explained as follows: the ask price of each request is
reserved by the bidder who owns this request and
not known by other carriers; the bidders need not
submit bids in forms of bundles of requests but
select their preferable requests, this can significantly
reduce the computation complexity for considering
exponential number of bundles of requests (
2
n
for n
requests). In addition, our framework extends the
work of Kwon et al. (2005) and Lee et al. (2007) for
truckload transportation service procurement to
carrier collaboration in LTL transportation.
4 FORMULATION OF THE
COMBINATORIAL AUCTION
PROCESS
In this section, we formulate the combinatorial
auction process for CCPLTL, which includes a
global optimization model for the alliance, the
bidding problem for each carrier, and the iterative
price adjustment by auctioneer.
4.1 Global Optimization Model
For simplicity, we assume that no more than one
transportation request is associated with each node
in the transportation network considered.
Indices
i, j, m = 1, . . . , N node index, where N represents
the number of nodes in the transportation network.
The nodes include the locations of all shippers, the
locations of all customers of the shippers, and the
vehicle depots of all carriers.
k = 1, . . . , K carrier index, where K represents the
number of carriers.
l = 1, . . . , L request index, where L represents the
number of requests.
Parameters
P
i
the set of requests whose pickup site is node i
D
i
the set of requests whose delivery site is node i
d
l
quantity delivered on request l
p
l
price paid by a shipper to serve request l
C vehicle capacity
W
k
the number of vehicles owned by carrier k
o
k
the depot of carrier k
c
ij
shipping cost from node i to j for each vehicle
where c
ij =
c
ji
and the triangle inequality c
im +
c
mj
c
ij
,
holds for any i, j, m with
,mim j
t
ij
travelling time of a vehicle from node i to node j
i
a
the earliest service time at node i
i
b
the latest service time at node i
T
ij
a large number, T
ij
= b
j
a
i
Variables
k
ij
q quantity transported through arc (i, j) by carrier k
k
ij
x
the number of times that arc (i, j) is visited by
vehicles of carrier k
lk
y 1 if request l is served by carrier k; otherwise 0
k
i
t the time at which a vehicle of carrier k leaves
node i
With the notation, the total profit optimization
problem of the alliance can be formulated as a mixed
integer programming model P as follows:
Model P:
11 111,
KL KN N
k
llk ijij
kl kijji
Z
Max p y c x
 




 
(1)
Subject to:
1, 1,
,1,...,, ,{ } 1,..., ,
NN
kk
ij ji k
jji jji
xxiNiok K
 


(2)
, , 1,..., , , 1,..., ,
kk
ij ij
Cij Nijqx k K
(3)
1, 1,
,
1,..., ,
1,..., ,
ii
NN
kk
ij ji l lk l lk
j ji j ji lP lD
iN
qqdydy
kK
 


(4)
1, 1,
,1,...,,
kk
kk
NN
jjo jjo
kk
oj jo
xxkK
 


(5)
1,
, 1,..., ,
k
k
k
N
k
oj
jjo
x
Wk K


(6)
PRICE-SETTING BASED COMBINATORIAL AUCTION APPROACH FOR CARRIERS' COLLABORATION IN
LESS THAN TRUCKLOAD TRANSPORTATION
409
1
, 1,..., ,1
K
lk
k
y
lL

(7)
1,
, 1,..., , ,1{}1,...,,
N
k
ij k
jji
xi Niok K


(8)
, , 1,..., , , , ,11,...,,
k
kk k k
j i ij ij ij ij
ij Nij i jtttxT x o k K
(9)
1,
, 1,..., ,
k
ko o
kk
N
k
oj l lk l lk
jjo lP lD
qdydykK



(10)
, , 1,..., , , 1,..., ,0,
kk
ij ij
Z
ij Ni jk Kxx 
(11)
1,..., , 1,..., ,0,1 , ,
lk lk
yyZlLkK
(12)
1,..., , 1,..., ,0,1 , ,
lk lk
yyZlLkK
(13)
1,..., , , 1,..., ,0,
k
k
ii i
iNikKat b o
(14)
The objective function (1) represents the total profit
of the alliance. Constraints (2) ensure that the
number of vehicles leaving from each node is equal
to the number of vehicles arriving at this node.
Constraints (3) are the vehicle capacity constraints.
Constraints (4) are the flow conservation equations,
assuring the flow balance at each node. Constraints
(5) guarantee that the number of vehicles of carrier k
leaves from depot o
k
is equal to the number of
vehicles arrives at this depot. Constraints (6) imply
that no more than W
k
vehicles can be used by carrier
k. Constraints (7) guarantees that each request is
allocated to at most one carrier. Constraints (8)
ensure that each pickup/delivery node is visited by
each carrier at most once. Constraints (9) denote the
relations between departure times
k
i
t . Constraints
(10) imply that only empty vehicle is returned to the
depot of each carrier. Constraints (14) are time
window constraints for pickup and delivery
operations of the requests. Since at most one request
is associated with each node, the constraints are
associated with the nodes.
Note that a solution of model P does not
completely define vehicle tours for each carrier, but
they can be constructed based on the solution by
applying a tour generation method proposed in our
previous work (Dai and Chen, 2009a, 2009b).
4.2 Iterative Auction based on
Lagrangian Relaxation
Based on model P, we propose an iterative price-
setting combinatorial auction for the total profit
maximization of the alliance. The prices in this
auction are the Lagrange multipliers we introduce
for relaxing constraints (7) in the model. The relaxed
problem can be decomposed into several
subproblems, one for each carrier, which determines
the preferable requests to bid by the carrier at the
current price for serving each request given by the
auctioneer. This subproblem is referred to as the
bidding problem of the carrier. The price adjustment
of the auctioneer in each iteration (round) is based
on the subgradient defined as the violations of the
relaxed constraints by the current request selections
of all carriers. The auction process will be
terminated until some condition is satisfied.
4.3 Bidding Problem for each Carrier
To formulate the bidding problem for each carrier,
we rewrite objective function (1) as objective
function (15),
11 111,
KL KN N
k
llk ijij
kl kijji
Z
Min p y c x
 





 
(15)
which transforms model P into an equivalent
minimization problem. We then relax constraint (7)
by introducing the Lagrange multipliers
,1,...,,0
l
lL
, leading to the following
relaxed problem SP
LR
:
11 111,
1
11 111,
1
1
11
1
KL KN N
k
llk ijij
kl kijji
K
lk
k
KL KN N
k
llk ijij
kl kijji
K
lk
k
LR
L
l
l
LL
ll
ll
py cx
ZMin
y
py cx
Max
y

 
 

























 
 

(16)
subject to constraints (2) to (6), (8) to (14).
The relaxed problem can be decomposed into k
subproblems
k
L
R
SP
, one for each carrier k, which is
the bidding problem of carrier k.
Subproblem
k
L
R
SP
:

111, 1
111,
LNN L
kk
L
R l lk ij ij l lk
lijjil
LNN
k
l l lk ij ij
lijji
ZMax
Max
py cx y
py cx












(17)
subject to constraints (2) to (6), (8) to (14)
associated with carrier k.
Accordingly, an upper bound for model P can be
calculated by (18).
11
KL
k
L
RLRl
kl
ZZ


(18)
In model SP
LR
, p
l
is the ask price of request l (the
price paid by a shipper to serve request l), and
Lagrange multipliers λ
l
are given by the auctioneer.
ICAART 2011 - 3rd International Conference on Agents and Artificial Intelligence
410
The combinatorial auction process considered then
consists of the following steps.
Step1, auctioneer sets an outsourcing price for each
request, i.e., the value of (p
l
-λ
l
).
Step2, Each bidder (carrier) determines which
requests to serve by solving its bidding problem
k
L
R
SP
.
Step3, the auctioneer adjusts the outsourcing prices
by updating λ
l
based on the violations of the relaxed
constraints.
Step4, repeat the above process until no constraint is
violated, i.e., each request is allocated to at most one
carrier, or a limit number of iterations is achieved.
For the latter case, the allocation is infeasible
because some requests are allocated to more than
one carrier. In this case, the auctioneer randomly
allocates each of the requests to one carrier.
4.4 Iterative Price Adjustment by
Auctioneer
As we mentioned, the subgradient method (Fisher,
2004) is used to update the Lagrange multipliers.
Given an initial value
0
, the value of
in the m-th
iteration of the auction, denoted by
m
, is calculated
by the equation (19).
1
1
1,0 1,..., ,
K
lk
k
mm
llm
y
M
ax t l L








(19)
In equation (19), y
lk
is provided by carrier k after
solving its bidding problem
k
L
R
SP
at the m-th iteration;
t
m
is a positive scalar step size, it is set to a fixed
amount
initially. If the objective value of SP
LR
is
not improved in a given number of iterations,
is
halved, i.e.,
2
.
Three stopping conditions are used in the
combinatorial auction iteration process. If one of
them is satisfied, the process will be terminated.
(1) No constraint of (7) in model P is violated.
(2) The number of iterations performed exceeds a
predefined number.
(3) The current step size
is smaller than a given
small value.
5 NUMERIC EXPERIMENTS
Up to now, there are no benchmark instances for
CCPLTL, so all instances used to evaluate the
performance of our proposed combinatorial auction
approach are generated randomly. These instances
are grouped into two sets, which are different in the
generation of the coordinates of each node.
All instances involve three carriers (K = 3)
whose vehicles have the same capacity C = 10. The
number of transportation requests L is set to (N-K)/2
(L = 15). The requests are generated by randomly
choosing a pickup node i (i any depot) and a
delivery node j (j i and any depot), each node is
associated with at most one request; each request is
associated with a randomly generated quantity of
freight d which is no larger than a predefined
number, which is set to 2, 5, 10 for generating 5, 5, 5
instances respectively in each set. Given a request
with pickup node i and delivery node j acquired by a
carrier from its shipper, the ask price of serving the
request is set as α*(1+β)*d*(c
oi
+c
ij
+c
jo
)/C, where o
and β denote the depot of the carrier and the profit
margin (set to 0.05) of the carrier, respectively, d is
the quantity of the request, (c
oi
+c
ij
+c
jo
) is the direct
shipping cost for the request, α is the vehicle
utilization rate of the carrier. The time windows are
generated in the following way: the time interval for
serving all requests is set to [0, 144] (1440 minutes =
24 hours, time unit is taken as 10 minutes); the
earliest service time a
i
at pickup node i is randomly
chosen from 0 to 60, the latest service time b
i
is
randomly chosen from (a
i
+ 6) to 72; the earliest
service time a
j
at delivery node j is randomly chosen
from 72 to 132, and latest service time b
j
is
randomly chosen from (a
j
+ 6) to 144. The bidding
problem of each carrier is solved by the MIP solver
of ILOG Cplex 11.2 for all instances. The time limit
for the resolution of each bidding problem is set to
one hour. The initial value of each Lagrange
multiplier is set to 0; the step size
is initially set to
50 and its minimum value is to 0.001;
is halved if
the objective value of SP
LR
is not improved in 10
iterations; the maximum number of iterations for the
auction is set to 200.
The number of nodes is set to 33. For each
instance in the first set, the coordinates data of the
first 33 nodes of benchmark instance R101 of
VRPTW (Solomon, 2005) are used, where node 5,
17, 11 are chosen as the depots of the three carriers
respectively. Each carrier has 10 vehicles. For each
instance in the second set, the coordinates of each
node are randomly generated from 6666 square.
After the coordinates of all nodes are generated, the
Euclidean distance d
ij
between any two nodes i and j
is calculated. Without loss of generality, we set c
ij
=
t
ij
= c
ij
. Every carrier randomly selects a node as its
depot which is different from the depot nodes of all
other carriers; each carrier owns a number of
vehicles randomly chosen from 1 and 10.
PRICE-SETTING BASED COMBINATORIAL AUCTION APPROACH FOR CARRIERS' COLLABORATION IN
LESS THAN TRUCKLOAD TRANSPORTATION
411
All computational results are given in Table 1
and 2, where the row Quantity 2, 5, 10
indicates the maximal pickup/delivery quantity
generated for each request. The results presented in
row Opt are obtained by solving the global
optimization model P of each instance using Cplex
11.2 with a time limit of 2 hours. The row CAFLB
and CAFUB denote the lower bound and the upper
bound obtained by our combinatorial auction
approach, respectively. The row Gap denotes the
percentage difference between CAFLB and CAFUB.
The row Iteration and Time denote the number of
iterations and the time (in seconds) for solving each
instance by our combinatorial auction approach.
Table 1: Results for the first set of fifteen instances.
Quantity
2
1 2 3 4 5
Opt
Time (s)
2431.5 2516.2 2602.6 2348.1 2279.2
141 690 402 101 116
CAFLB
CAFUB
Gap (%)
Iteration
Time (s)
2431.5 2516.2 2426.4 2348.1 2279.2
2431.5 2516.2 2616.23 2348.1 2279.2
0 0 7.8 0 0
58 90 81 50 66
450 1278 1423 514 936
Quantity
5
6 7 8 9 10
Opt
Time (s)
2618.7 2536.9 2499.7 2398.2 2426.9
275 7200 836 1858 1672
CAFLB
CAFUB
Gap (%)
Iteration
Time (s)
2618.7 2536.9 2499.7 2398.2 2426.9
2618.7 2536.9 2499.7 2398.2 2426.9
0 0 0 0 0
81 72 45 73 152
1761 41772 7850 9006 7061
Quantity
10
11 12 13 14 15
Opt
Time (s)
2138.2 2173.7 1947.6 2211.7 2504.7
961 7200 590 7200 7200
CAFLB
CAFUB
Gap (%)
Iteration
Time (s)
2138.2 2173.7 1947.6 2211.7 2504.7
2138.2 2173.7 1947.6 2211.7 2504.7
0 0 0 0 0
81 68 49 75 54
3891 32915 1911 44702 42243
From the above two tables, we can see that our
combinatorial auction approach can find a globally
optimal solution for most instances except for
instances no. 3, no. 22, and no. 25. For the three
instances, our approach can find a fairly good
solution.
Table 2: Results for the second set of fifteen instances.
Quantity
2
16 17 18 19 20
Opt
Time (s)
502.9 965.9 881 1314.4 514.9
2308 292 44 62 1000
CAFLB
CAFUB
Gap (%)
Iteration
Time (s)
502.9 965.9 881 1314.4 514.9
502.9 965.9 881 1314.4 514.9
0 0 0 0 0
49 82 85 58 83
10266 4098 697 338 2246
Quantity
5
21 22 23 24 25
Opt
Time (s)
2445.4 816.8 380.1 690.2 1233.6
776 128 2250 3914 705
CAFLB
CAFUB
Gap (%)
Iteration
Time (s)
2445.4 707.7 380.1 690.2 1082
2445.4 838.701 380.1 690.2 1266.9
0 18.5 0 0 17.1
52 115 62 54 56
9376 2696 17232 35113 992
Quantity
10
26 27 28 29 30
Opt
Time (s)
651 746.5 95.2 706.1 1062.4
5936 406 110 291 6359
CAFLB
CAFUB
Gap (%)
Iteration
Time (s)
651 746.5 95.2 706.1 1062.4
651 746.5 95.2 706.1 1062.4
0 0 0 0 0
57 46 41 81 57
84407 13805 947 3960 50037
6 CONCLUSIONS
The carriers’ collaboration problem in less than
truckload transportation with pickup and delivery
requests has been studied in this paper. A
Lagrangian relaxation based price-setting
combinatorial auction approach is proposed for the
total profit maximisation of the alliance in the
collaboration. Numerical experiments on thirty
randomly generated instances demonstrate the
effectiveness of the approach. The main advantage
of our approach is that the decision marking of each
carrier is made in an autonomous and decentralised
way, there is no confidential information of a carrier
revealed to other carriers, so the approach is more
implementable than a centralised approach where all
information is shared among the carriers. In our
future work, we will design a fair profit allocation
mechanism to keep the persistence of the
collaborative alliance.
ICAART 2011 - 3rd International Conference on Agents and Artificial Intelligence
412
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PRICE-SETTING BASED COMBINATORIAL AUCTION APPROACH FOR CARRIERS' COLLABORATION IN
LESS THAN TRUCKLOAD TRANSPORTATION
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