Journal of the Operational Research Society (2006) 57, 928–938 r 2006 Operational Research Society Ltd.

td. All rights reserved. 0160-5682/06 $30.00

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A combined terminal location and ship routing

problem
H Gunnarsson1*, M Rönnqvist1 and D Carlsson2
1
Linköping Institute of Technology, Linköping, Sweden; and 2Södra Cell AB, Växjö, Sweden
In this paper, we consider a combined terminal location and ship routing problem at Södra Cell AB. The purpose is to
supply the customers’ annual demand for pulp products while minimizing the distribution costs. Customers are supplied
with various pulp products from pulp mills in Scandinavia by ships, trains, or lorries. The ship routes go from the pulp
mills to terminals in Europe. From each terminal, the products are transported to customers by lorry, train, or barge.
Some customers can be supplied directly from the pulp mills by trains or lorries. We have developed a mathematical
model to select which terminals to use and, at the same time, determine the shipping routes. The mixed integer
programming model was solved directly using a commercial solver. When the number of routes generated is large, the
time required to obtain an optimal solution is too long. Hence, we have developed heuristics in order to obtain an
acceptable solution in reasonable time. In addition to the basic case, five different scenarios were tested. Our heuristics
provide solutions that are within 0.12% of the optimal ones.
Journal of the Operational Research Society (2006) 57, 928–938. doi:10.1057/palgrave.jors.2602057
Published online 17 August 2005

Keywords: mixed integer programming; facility location; transportation; ship routing

Introduction estimated to be several thousands, and we have, thus, a priori

generated a relevant subset of these. The model is a mixed
The problem addressed in this paper is to minimize the
integer linear programming model. The commercial solver
distribution costs for satisfying the demand for pulp
CPLEX gives a solution, but it takes longer time than is
products for one of the world’s largest suppliers of market
acceptable. We have therefore developed various heuristics
pulp, Södra Cell AB. The supply chain considered in this
that can be used to get a good-enough solution within
project starts at the supply sources (ie pulp mills), located in
acceptable time limits. By using these heuristics, the problem
Sweden and Norway, and ends at the customers’ paper mills,
can be solved within 11 min: a result that is 0.12% from the
located mainly elsewhere in Europe. Around 30 different
optimal solution for the given case studies. The results are
products are transported from pulp mills to customers in the
used in the ongoing planning work at Södra Cell AB.
supply chain. Trains or lorries are used to reach customers in
In the literature on ship scheduling on tactical and
the Nordic countries. The most common way to reach the
operative levels, the problems are often solved by formulat-
customers outside Sweden and Norway is by a shipping
ing and solving a Set Partitioning (SP) problem (Christian-
vessel. The vessels chartered long term are called TC-vessels
sen et al, 2004). Each route represents a column, and the
(ie time-chartered vessels). They load at a harbour near one
columns are often generated a priori. The column gives
of the pulp mills, and unload at a terminal next to a harbour
information about which places to visit on the current route.
elsewhere in Europe. In addition to the TC-vessels, vessels
The constraints in the model state that all places have to be
that are chartered short term (ie spot vessels) can be used. It
visited and that each ship is assigned exactly one route. This
is also possible to use trains and lorries directly for export to
method for solving the ship routes problem can be found in
Europe. Trains and lorries transport the pulp products
Ronen (2000) and Butchers et al (2001). Daily operative
further from the terminals to the customers.
planning of ships scheduling combined with distribution
The contribution of this paper is an optimization model
for Södra Cell AB can be found in Bredström (2003),
for a combined terminal location and ship routing problem
where a mixed integer programming model was developed
together with an industrial case study that shows its practical
and a rolling horizon solution approach as well as a genetic
usage. The model is tested and evaluated through different
algorithm were used to solve it.
scenarios at Södra Cell AB. The number of possible routes is
A survey of applications and methods within the facility
location area can be found in Drezner (1995). In the
*Correspondence: H Gunnarsson, Division of Optimization, Department
of Mathematics, Linköping Univeristy, Linköping 58183, Sweden. literature on forest, a review of locational issues in forest
E-mail: hegun@mai.liu.se management can be found in Church et al (1998). Melkote

and Daskin (2001a, b), and Bhadury et al (2000) described
different integrated models of facility location and trans-
portation network design. Related problems of uncapaci-
tated fixed charge network design problems were studied in
Magnanti and Wong (1984), and in Balakrishnan et al
(1989). Overall descriptions of modelling of multicommodity
transportation in network design problems can be found in
Crainic and Rousseau (1986).
Different approaches for the attempt to integrate the
facility location problem with the vehicle routing problem
are discussed and evaluated in Balakrishnan et al (1987).
Other problems integrating location decisions with routing
can be found in Min et al (1998), and in ReVelle and Laporte
(1996). Other related problems include hub location
problems. A review of hub location problems can be found
in Campbell et al (2002). Studies integrating ship routing
with inventory can also be found in Christiansen (1999),
Christiansen and Nygreen (1998a, b).
In the supply chain literature, there are several studies that
include decisions concerning ship routes. Fagerholt and
Rygh (2002) studied the problem of distributing fresh water,
and the results concerned the number of shipping vessels,
their capacity, and their speed. Mehrez et al (1995) worked
with the problem of shipping bulk minerals from facilities
to customers. Several time periods in the planning horizon
were used, and decisions concerning the size of the fleet and
which route to use were taken. Storage is possible at the
warehouses, which are located near the harbours. Mehrez
et al (1995) only consider ships that are chartered for a single
voyage (ie spot trips), and these ships do not have to return
to their origins, nor are they necessarily fully occupied
by one company. We, however, also consider long-term
chartered ships that are required to return to the origin in
the right time. The problem presented in Mehrez et al (1995)
was solved using a mixed integer programming model.
The outline of the remainder of the present paper is as
follows. In the next section the combined terminal location
and ship routing problem is described. Then, in the
subsequent section, the mathematical model for the problem
is formulated. In the following two sections, the solution
methods are described and numerical results using data from
a real-life case study are presented. The case is obtained from
Södra Cell AB, and the results include an analysis of a
number of different scenarios. Finally, in the last section
some concluding remarks are made.
Problem description
The supply sources in the present problem are pulp mills.
Södra Cell AB owns three pulp mills in Sweden and two
pulp mills in Norway. Figure 1 shows the location of the
pulp mills. The raw materials for pulp production consist of
wood logs and sawmill chips. Around 30 different pulp
products are produced at the pulp mills. Most of the pulp
products have to be transported to the nearest harbour in
H Gunnarsson et al—Terminal location and ship routing problem 929
order to be shipped out of the two Nordic countries. This
transportation carries a cost, and the size of this cost depends
on the distance from the pulp mill to the harbour. The rest of
the pulp is transported by train or lorry to final customers.
The pulp products are exported by ship from Sweden and
Norway to terminals elsewhere in Europe. There are two
kinds of terminals: harbour terminals and inland terminals.
The inland terminals are reached from harbour terminals by
barges, trains, or lorries. Södra Cell AB uses 24 terminals,
three of which are inland terminals. Figure 1 shows the
location of the terminals. The terminals have different
capacities to receive products and are rented on annual
agreements. From each terminal, the pulp products are
transported to a number of customers. The transportation
from terminals to the final customer is done by trains or
lorries, or a combination of both. The transportation from
harbour terminals to inland terminals can be handled by
trains, lorries, or barges.
The last link in the supply chain consists of the customer
demand, both domestic and foreign. There are about 300
delivery points spread across Europe. About 80% of the
volume is delivered outside Sweden and Norway. The 10
largest customers purchase half of the volume.
The most common way to supply the European customers
is via shipping vessels to terminals, and then further by
trains, lorries, or barges. Södra Cell AB uses three TC-
vessels. The vessels deliver about 0.7 million tonnes of pulp
products to international terminals. The vessel routes vary in
journey time from a few days for short routes to about 25
days for longer routes (eg to Italy). Loading and unloading
times at harbours are included in these journey times. The
time for unloading a full shipping vessel is estimated to be
8 h and the ship capacity of a TC-vessel is 5600 tonnes.
We define two types of routes, simple routes and
composite routes, in the problem, which will be referred to
as A-routes and B-routes, respectively. The A-routes load at
one pulp mill and go to one terminal for unloading. B-routes
start at one pulp mill and visit one or several pulp mills or
terminals and end at one terminal. An example of a B-route
can be to load at the pulp mill in Mönsterås, go on to the
pulp mill in Mörrum for additional loading, and finally
unload at the terminal in Bremen. Another possible B-route
can be to load at the pulp mill in Tofte, unload some of the
products at the terminal in Aberdeen, and then go on to
Bremen to unload the rest of the products. The spot vessels
are chartered for a single voyage, from an origin (pulp mill)
to a destination (terminal), and have different capacities. The
smallest spot vessel can carry 2600 tonnes of pulp.
The annual planning of routes and terminal usage requires
several types of decisions. With regard to the routes, the
planners at Södra Cell AB have to decide which terminals to
use, and how much (ie how large a total flow will be accepted
for each terminal). The total flow at a terminal will also
control the possible amount of products received on A-
routes to the current terminal. The planner has to decide
930 Journal of the Operational Research Society Vol. 57, No. 8
Figure 1 Location of pulp mills (squares) and terminals (triangles).
which A-routes and B-routes to use, as well as the total flow
of products on the routes. In addition, Södra Cell AB wants
to know whether it is profitable to use spot vessels or not and
to what extent to use them.
Model formulation
Modelling issues
The A-routes go from one pulp mill to one terminal. The
ship vessels always transport a full cargo of pulp products
the shortest way, directly to the final destination. The
planning period in the model is 1 year, but the customers
have continuous demand (ie monthly). For terminals
connected to customers that together have a large demand,
the A-routes can bring full cargoes and deliver the pulp
products monthly. However, there are problems in supplying
the terminals connected to customers that together have a
small demand. Using A-routes to these terminals would lead
to delivery of the total annual demand of pulp products
just once a year instead of once a month. There are no
possibilities to store the pulp products because the pulp
 H Gunnarsson et al—Terminal location and ship routing problem 931

production capacity barely covers the total pulp demand. Mathematical model
The use of A-routes in the model is only allowed for those
The mathematical model of the combined terminal location
terminals that are connected to customers that together have
and ship routing problem is a linear mixed integer
a large demand. For the other terminals another kind of
programming model. We start the description of the model
route is used, namely B-route. A B-route visits several places,
by introducing the necessary sets. Let I be the set of pulp
which means a longer journey. B-routes supply customers
mills, J the set of terminals, P the set of products, Q the set
connected to different terminals, and the annual pulp
of customers, R the set of routes, and L the set of terminal
demand of a specific customer can be divided on 12 different
flow levels. The set of pulp mills includes a subset for pulp
B-routes, which enables monthly delivery. The ship vessels
mills in route k, Ik. The set of terminals includes subsets for
using B-routes do not always bring full cargoes, which
harbour terminals, JH, inland terminals, JL, and terminals
makes the B-routes expensive expressed in tonnes per
in route k, Jk. Finally, the set of routes includes subsets for
kilometer, compared to the A-routes.
A-routes, RA, and for B-routes, RB.
In order to include restrictions on the size of the flow on
In general, we will use index i for pulp mills, j for
the A-routes in the model, we have defined a number of
terminals, k for routes, p for products, q for customers,
levels with corresponding flow for each terminal. A specified
and l for terminal flow levels. Unless otherwise stated, we
maximal proportion of A-routes is designed to each of these
assume that definitions using for example index i are valid
levels. The levels give information about the total flow at
for all iAI.
each terminal. In the solution of the model, a terminal with
large total flow is assigned an appropriate high level,
allowing a corresponding high proportion of A-routes. A Variables
terminal with small total flow in the solution would, in
First we define variables representing the transportation
contrast, be assigned a low terminal level with hard
flows of products on A-routes and B-routes from pulp mills
restrictions. Very small flow at a terminal will result in no
to terminals. We define them as
acceptance at all for flow on A-routes, and large flow at a
terminal will lead to an acceptance of receiving almost all the xAkijp=flow of product p on A-route k from pulp mill i to
flow by A-routes. The maximal proportions of flow on A- terminal j,
routes and the terminal levels are presented in Figure 2, xBkijp=flow of product p on B-route k from pulp mill i to
where 16 different levels are used. It requires a lot of terminal j.
experience to decide the number of terminal levels and their
We also need variables for spot flows. We define them as
sizes. Södra Cell AB uses history of their routes and
distribution structures to find the relevant information. xSijp=spot flow of product p from pulp mill i to terminal j.
In order to model a B-route we need one link for each
possible combination of mills and terminals included in the All the routes end at a terminal. In order to model the
B-route. For example, a B-route that starts at a pulp mill, time restriction for the A-routes and B-routes, we introduce
then goes to one terminal for unloading some of the a variable describing the return flows on routes from
products, and thereafter further to another terminal for harbour terminals back to pulp mills. This flow does not
unloading the remaining cargo is modelled as two types of include any products as the shipping vessel is empty. These
links from the pulp mill: one link for the flow of each variables can be defined as
product to the first terminal and another link representing xR
ji =return flow from terminal j to pulp mill i.
the flow of each product to the second terminal.
The variables related to transportation by train and lorry
can be formulated as follows:
0.9
ytrain
iqp =flow of product p from pulp mill i to customer q
0.8
transported by train,
Proportion of A-routes

0.7
0.6
ylorry
iqp =flow of product p from pulp mill i to customer q
0.5 transported by lorry.
0.4 The flows from terminals and at terminals can be
0.3
defined as
0.2
0.1 yThlp=flow of product p from harbour terminal h to inland
0 terminal l,
0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750
Annual flow in 1000 tonnes
ytot
j =total flow of products at terminal j,
yQjqp=flow of product p from terminal j to customer q.
Figure 2 Proportion of A-routes depending on the annual
flow. All variables defined so far are continuous variables.
932 Journal of the Operational Research Society Vol. 57, No. 8

We also need some sets of binary variables in the model Constraints (4) make sure that the total inflow to a harbour
formulation. The set of variables concerning A-routes, terminal equals the flow of products on the routes and the
B-routes, and spot trips can be expressed as flow of products on the spot vessels passing the terminal.

The flow out from a harbour terminal can be transported
1; if A-route k is used
uA
k ¼ to an inland terminal or directly to a customer. The
0; otherwise
corresponding flow-balance constraints for inland terminals


1; if B-route k is used become
uBk ¼
0; otherwise X X Q
yThjp ¼ yjqp 8j 2 JL ; p 2 P ð4Þ
and h2JH q2Q


1; if a spot trip from pulp mill i to terminal j is used
uSij ¼ Constraints (4) make the flow of each product to each
0; otherwise
inland terminal equal the flow of each product from the
The set of variables related to the use of terminals is inland terminal to the customers. The total inflow of
defined as products to an inland terminal becomes

XX
1; if terminal j is used
T
zj ¼ ytot
j ¼ yThjp ; 8j 2 JL ð5Þ
0; otherwise
h2JH p2P

In order to model the restrictions on flows on A-routes to Constraints (5) ensure that all flow of products trans-
a given terminal, we define flow levels specifying the maximal ported from harbour terminals to an inland terminal equals
allowed proportion of flow on A-routes entering the the total flow at the inland terminal. Let the capacity at
terminal. Terminals receiving a large volume of products terminal j be denoted by bj. The capacity constraints at
are allowed a larger proportion of A-routes compared to terminals can then be formulated as
terminals receiving a small volume of products. In order to
j pbj zj ;
ytot
model the levels we use the variables T
8j 2 J ð6Þ


T 1; if terminal j has a total flow of level l Constraints (6) also ensure that nothing can be trans-
wjl ¼
0; otherwise ported from or to a terminal which is not opened (zTj ¼ 0).
Let the amount of flow associated with level l be denoted by
tl and let the interval flow for the levels be denoted by N.
Constraints To assure that the terminals have the right level of flow,
we formulate
Let sip be the volume of product p available at pulp mill i. In
X
order to ensure that the supply of a product at a pulp mill is
j p
ytot tl wTjl ; 8j 2 J ð7Þ
not exceeded, we formulate the constraints l2L
XX XX X X
xA
kijp þ xBkijp þ xSijp þ xtrain
iqp and
k2RA j2Jk
X
k2RB j2Jk j2JH q2Q X
ð1Þ ytot ðtl  NÞwTjl ; 8j 2 J ð8Þ
xlorry j X
þ iqp psip ; 8i 2 I; p 2 P
l2L
q2Q

Constraints (7) ensure that the total flow at each terminal

The flow balance constraints for harbour terminals can be
does not exceed the amount of flow associated with the
expressed as
chosen terminal level, and constraints (8) make sure that the
XX XX X
xA xBkijp þ xSijp right level of the terminal is chosen. The constraints
kijp þ
k2RA i2Ik k2RB i2Ik i2I X
X X ð2Þ wTjl ¼ 1; 8j 2 J ð9Þ
¼ yTjlp þ yQ
jqp ; 8j 2 JH ; p 2 P l2L
l2JL q2Q
ensure that one level of flow is chosen to each terminal. In
The total inflow of products to a harbour terminal
order to limit the A-routes, we use the constraints
becomes
X XX X
X XX X XX XX
kijp p
xA pl tl wTjl ; 8j 2 JH ð10Þ
xA
kijp þ xBkijp þ xSijp k2RA i2Ik p2P l2L
k2RA i2Ik p2P k2RB i2Ik p2P i2I p2P

¼ ytot where pl denotes the maximal proportion of flow on

j ; 8j 2 JH ð3Þ
A-routes with terminal level l. Larger total flow of products
Constraints (2) assure that the inflow of each product to to terminals means higher levels, and that, in turn, means
every harbour terminal equals the outflow of each product. larger allowed proportions of flow of products on A-routes.
 H Gunnarsson et al—Terminal location and ship routing problem 933

We have to express constraints ensuring that the demand of on the route in the left-hand side. Large flow on routes
the customers is satisfied. The demand for product p of means many shipping voyages. Let bA, bB, and bS denote the
customer q is denoted by dqp. The demand constraints are minimal number of shipping vessels per year on A-routes,
X Q X X lorry B-routes, and spot trips, respectively. The flow of products
yjqp þ ytrain
iqp þ yiqp ¼ dqp ; on A-routes has to be large in comparison with B-routes and
j2J i2I i2I ð11Þ spot trips. The customers have continuous demand, and they
8q 2 Q; 8p 2 P therefore have to be visited many times a year, which means
several shipping vessels per year. In the case of B-routes,
Constraints (11) show the different transportation modes there are several possibilities to visit the terminal using
used to fulfil the demand: the flow from terminals, train flow, different B-routes, so the number of shipping vessels
and, finally, lorry flow. There are time restrictions for TC- transporting pulp products on B-routes is allowed to be
vessels. Let r denote the total time, in working days per year, smaller. In our cases, the minimal number of shipping vessels
available for TC-vessels, let sH denote the total capacity of on an A-route is 10 and on a B-route is two. Finally, the spot
each shipping vessel, and let m denote the number of TC- trips are chartered short term, so the only restriction
vessels. The ship capacity of each one of the TC-vessels is regarding the number of ship voyages is that a shipping
5600 tonnes. Further, let tA k denote the used time (in days) vessel gets filled (ie brings at least 2600 tonnes). In order to
for A-route k and let tBk denote the corresponding time for get a certain number of shipping vessels on routes, we need
B-route k. The transportation time from terminal j back to the following constraints to guarantee a minimal size of
pulp mill i is denoted by tRji . To ensure that the time limits are flows on routes:
not exceeded we express
XXX
X XXX X XXX xA A H A
8k 2 RA ð17Þ
kijp Xb s uk ;
tA A
k xkijp þ tBk xBkijp i2Ik j2Jk p2P
k2RA i2Ik j2Jk p2P k2RB i2Ik j2Jk p2P
XX ð12Þ
ji xji prs m
tR R H
þ XXX
j2JH i2I xBkijp XbB sH uBk ; 8k 2 RB ð18Þ
i2Ik j2Jk p2P
This constraint is an approximation, as parts of a full
shipping vessel will be modelled as using parts of the time and
compared to a full shipping vessel. However, the routes use X
at least two vessels. The route balance constraints can be xSijp XbS sH uSij ; 8i 2 I; 8j 2 JH ð19Þ
p2P
formulated by
X XX X XX X
xA xBkijp ¼ xR B-routes consist of several links of varying length, and all
kijp þ ji ; 8i 2 I ð13Þ
k2RA j2Jk p2P k2RB j2Jk p2P j2JH these links have to be utilized. Otherwise, the route can be
misclassified as an A-route. In order to get a certain
Constraints (13) ensure that the outflow from a pulp mill proportion of flow on each link in a route we need the
equals the return flow to the same pulp mill. To assure that constraints
nothing is transported on routes that are not chosen, we X XXX
need the constraints xBkijp Xn xBkijp ; 8k 2 RB ; 8i 2 Ik ;
XXX p2P i2Ik j2Jk p2P ð20Þ
kijp pMuk ;
xA A
8k 2 RA ð14Þ
i2Ik j2Jk p2P
8j 2 Jk

XXX where n denotes the share of the flow on a link in a route

xBkijp pMuBk ; 8k 2 RB ð15Þ compared to the total flow on the given route. In order to
i2Ik j2Jk p2P
strengthen the linear programming relaxation we add the
and redundant constraints
X X
xSijp pMuSij ; 8i 2 I; 8j 2 JH ð16Þ zTj X wTjl ; 8j 2 J ð21Þ
p2P l2Lf

Constraints (14) and (15) are related to A-routes and B-
routes, respectively, and constraints (16) concern spot trips.
The constant M is a big number and in our cases we have
used M ¼ 1 000 000 (related to the sum of the demand
outside of Scandinavia). If the binary variable for a route is
zero, the right-hand side in the constraint becomes zero, and
there is no possibility to use the corresponding flow variable
where Lf denotes the set of terminal flow levels with flow
greater than zero.
Objective function
The objective is to minimize the total distribution
cost for satisfying the customers. The total cost can be
934 Journal of the Operational Research Society Vol. 57, No. 8

expressed as between terminals and customers as

X X X TQ Q
z ¼ C routes þ Cspot þ C train=lorry þ C termterm þ C distr C term – cust ¼ cjq yjqp ð26Þ
j2J q2Q p2P
þ C return þ C flow þ C fixterm
The transportation between terminals, as well as from
where terminals to customers only, consists of the cheapest mode
of transportation on each specific distance by either train,
Croutes=transportation cost for routes,
lorry, or barge. A customer can be supplied with pulp
Cspot=spot cost,
products from different terminals.
Ctrain/lorry=train and lorry cost,
Let cR
ji be the unit cost for the return route between
Cterm–term=transportation cost between terminals,
terminal j and pulp mill i. We can express the total return
Cdistr=distribution cost between terminals and customers,
route cost as
Creturn=cost for return routes,
Cflow=flow cost at terminals, and XX
C return ¼ cR R
ji xji ð27Þ
Cfix–term=fixed terminal cost. j2J i2I

Let cA
be the transportation cost per unit (tonnes) for A-
k
Let cTj be the unit cost for flow at terminal j, and let
route k, and let cBk be the corresponding transportation cost
further f Tj be the fixed cost at terminal j. The flow cost at
per unit for B-route k. Further, let cMP
i be the transportation
terminals is a variable cost of operating a terminal as a
cost per unit from pulp mill i to the corresponding harbour.
function of volume. The fixed cost of using a terminal
The shipping vessels are chartered on long term. Hence, the
consists of a cost regarding continuous operation of a
fixed cost regarding these shipping vessels is considered to be
terminal. We can express the total flow cost at terminals and
sunk costs.
the total fixed terminal cost as
The total transportation cost for routes can now be
X
expressed as C flow ¼ cTj ytot
j ð28Þ
X XXX j2J
C routes ¼ ðcA MP A
k þ ci Þxkijp and
k2RA i2Ik j2Jk p2P X
X XXX ð22Þ
þ ðcBk þ cMP B C fixterm ¼ fjT zTj ð29Þ
i Þxkijp
j2J
k2RB i2Ik j2Jk p2P

Let cSij be the transportation spot cost per unit between Solution methods
pulp mill i and terminal j. We can express the total spot
cost as One solution approach was to use the commercial solver
CPLEX 7.0 directly, with default settings. The modelling
XXX
C spot ¼ ðcSij þ cMP S language AMPL (version 10.6.16) was used to model the
i Þxijp ð23Þ
i2I j2JH p2P problem. The problem was solved in about 3 h using a PC
with a Pentium 4 processor, with 1.7 GHz clock frequency
Let ctrain
iq and clorry
iq be the train and lorry cost, respectively, and 1 Gb RAM. However, when the number of B-routes is
between pulp mill i and customer q. We can express the total large, the time required to solve the problem directly is too
train and lorry cost as long. We have therefore developed heuristics which enable
XXX us to obtain a solution within practical time limits. Below
C train=lorry ¼ ctrain train
iq yiqp
follows a short description of the heuristics.
i2I q2Q p2P
XXX
þ clorry lorry
iq yiqp ð24Þ Heuristic Heur1
i2I q2Q p2P
We start by solving the problem without binary variables for
Let cThl
be the transportation cost between harbour the B-routes, uBk , and without the related constraints (18)
terminal h and inland terminal l. We can express the total that guarantee a minimal size for the B-routes, and without
transportation cost between terminals as constraints (15) that prevent flow on routes when the
corresponding binary variable is zero. The resulting new
X XX
C term – term ¼ cThl yThlp ð25Þ problem will be a relaxation of the original problem. The
h2JH l2JL p2P flow on the B-routes in this solution can be too small.
Therefore, we add binary variables for the B-routes used in
Let cTQ
jq be the transportation cost between terminal j and the solution. The corresponding constraints that were
customer q. We can express the total transportation cost relaxed in the previous solution are also added, and finally
 H Gunnarsson et al—Terminal location and ship routing problem 935

the rest of the possible B-routes are removed, and the We noted that using Heur1, Heur2, and Heur3 will never
problem is resolved. This generates a feasible integer result in infeasible solutions since there are always alter-
solution. The main steps of the heuristic Heur1 can be natives to using the A-routes and B-routes, such as using
summarized as follows. spot trips, or using transportation by trains and lorries.

(1) Solve the problem:

Results
(i) without binary variables for the B-routes, and
(ii) without the related constraints, guaranteeing a Cases
minimal size of the B-routes, and
The case study from Södra Cell AB is based on data from
(iii) without the constraints preventing flow on routes
the period April 2002 to March 2003. There are only four
with binary variables equal to zero.
pulp mills involved in the test cases. The pulp mill Folla in
This gives a tentative solution.
Norway is excluded due to its special distribution system,
(2) Introduce binary variables for the B-routes used in the
which prevents easy comparison. All the possible A-routes
solution obtained in step 1, and add the constraints of
and spot trips are generated and included in the test cases.
type (ii) and (iii) that include these binary variables.
Regarding the B-routes, there is a large set of possible routes.
(3) Fix the flow on the other B-routes to zero.
In order to restrict the number of B-routes we have chosen
(4) Solve the problem to obtain a feasible integer solution.
the types of B-routes presented in Table 1. The choice of
these types of B-routes is based on planning experience at
Heuristic Heur2 Södra Cell AB. The total number of places visited is
restricted to four, due to the fact that routes including more
This heuristic is very similar to Heur1 described above;
places are rarely used by Södra Cell AB. The visiting order
however, step 2 differs. The approach in Heur2 is based on
of the pulp mills and terminals is not considered. That is, a
the use of reduced costs for the B-routes. The size of the
route from a pulp mill to terminal 1 and then to terminal 2 is
reduced cost for the B-routes that are not used gives us
considered as the same route as starting at the pulp mill,
information about which B-routes are most attractive. We
visiting terminal 2 first, and then visiting terminal 1. The
study the linear programming reduced costs for the links in
reason for that is that annual decisions are only considered
the B-routes that are obtained when the original binary
in the model, since there are no other time periods included.
variables are fixed at their optimal values. The reduced costs
Information about the size of the test problem is given in
on links on the B-routes are summed up and compared.
Table 2. The size of the problem is very large, motivating the
Then, the sums less than a given positive value are chosen.
development of the heuristics.
Binary variables for these corresponding B-routes are then
added to the problem. This strategy will include the B-routes
used in the first solution, because they have a reduced cost of
zero. To summarize, Heur2 consists of the same steps as Table 1 Different kinds of routes
Heur1, except that step 2 is replaced by the following: Type of Number
route Destinations of routes
(2) Introduce binary variables for the B-routes with the
sum of the reduced costs less than a given value in A-route Pulp mill–Terminal 84
the tentative solution, and add the corresponding B-route Pulp mill–Terminal–Terminal 664
B-route Pulp mill–Pulp mill–Terminal 126
constraints (ii) and (iii). B-route Pulp mill–Pulp mill–Terminal–Terminal 999
B-route Pulp mill–Pulp mill–Pulp mill–Terminal 84
More binary variables for B-routes are added in step 2
than in Heur1. The number depends on the size of the given
number in step 2.
Table 2 Size of the problem in the basic case

Heuristic Heur3 Number of pulp mills 4

Number of customers 262
We have also developed an iterative heuristic. This was Number of harbour terminals 21
accomplished by starting by solving the relaxed problem, Number of inland terminals 3
expanding the set of B-routes that is binary, and finally Number of shipping vessels 3
Number of products 30
solving the problem again. The time required for getting an Number of A-routes 84
optimal solution using this heuristic is however not Number of B-routes 1873
considered to be acceptable. Therefore, we interrupt the
procedure after a given number of iterations. Finally, all the Total number of variables 425 245
B-routes that are not yet binary are fixed to zero, so a Number of binary variables 2449
Number of constraints 11 309
feasible integer solution is guaranteed in the end.
936 Journal of the Operational Research Society Vol. 57, No. 8

It is not easy to obtain the costs for spot vessels. There are
often different agreements that decide the levels of the costs,
and there are other parameters besides the length of the
transportation to consider. The used spot rates are mainly
obtained through historical data. The possibility of using the
spot vessels for return flow can be important for the price
setting.
We have generated six scenarios (problems) to test the
model and the efficiency of the solution procedures. The
problems are presented below. Each case is based on specific
interest from Södra Cell AB for their tactical decision
making.
The first problem (P1) is the basic case, and all other
problems are modifications of this problem. Every customer
has at least two possible terminals to get pulp from. The
corresponding numbers of components as well as the size of
the basic case are presented in Table 2. In problem P2 the
terminal in Terneuzen is made available for all customers in
Italy. In addition, the costs from Terneuzen to customers in
Italy are decreased by 20%. In problem P3 the terminals
in Sunderland and Grimsby are made available for all
customers in Great Britain. In problem P4 the terminals
in Sunderland and Grimsby are made available for all
customers in Great Britain, and simultaneously only one
of these terminals is allowed to be used. In problem P5 the
terminals in Kiel, Ghent, Boulogne, and La Pallice are
removed. In addition, the flow cost at terminals are
decreased for the terminals in Terneuzen and Bremen. All
the routes in the basic case use the Kiel Canal for routes not
involving Tofte and Värö. In problem P6 the possibility to
round Denmark instead of using the Kiel Canal is
investigated. Rounding Denmark will be cheaper due to
Canal costs, but the journey time of the routes will be longer.
This is going to result in a larger problem because the
number of routes is considerably increased. This problem
includes 2393 B-routes, compared to the basic case, where
the number of B-routes is 1873.
corresponding LP-solutions to the different problems. In all
the cases, the time to get an LP-solution is short and the
optimal integer solution is close to the LP-solution. We have
also used the options in CPLEX with the LP-solvers Baropt
and Dualopt and both use computational times very similar
to the default option (within 10% of each other). The
objective function values are given in cost units, not to reveal
the actual commercial values.
Table 4 presents the results of solving the problems using
the different heuristics. We have chosen to present the result
after five iterations in Heur3, due to the fact that the time for
solving the problem then becomes less than 1 h. Regarding
the Heur2, we present the problem solved with the sum of
the reduced costs (red. cost) less than 1500, for the same
reason. It should be noted that the times for solving the
problems by using Heur1 and Heur2 are similar.
It should be noted that in Heur3 around 30 binary variables
connected to B-routes are added in the beginning and only a
few (two to four) are added towards the end. To use the
Heur3 on the basic case to the end requires 73 iterations, and
takes around 165 h. The number of included binary variables
connected to B-routes in the last iteration is 403.
Analysis of cases
The results from the six different scenarios are presented in
Table 5. The figures within parentheses represent the total
possible number of the components, respectively. Around
five terminals are not used in the cases, which is in
accordance with Södra Cell AB’s ambition to use fewer
terminals. It should be noted that only a small part of the
Table 3 Optimal objective function values and CPU-times in
the different problems using CPLEX directly
IP Time Time Gap
Problem (CPLEX) (h) LP-solution (h) (%)

P1 401 359 2.26 396 107 0.006 1.32

Numerical results P2 400 148 2.21 394 916 0.008 1.32
P3 400 816 8.30 395 289 0.020 1.40
The objective values from solving the six problems using P4 400 908 1.62 395 289 0.005 1.42
the CPLEX directly as the solution method are given in P5 400 072 0.18 395 047 0.005 1.28
P6 400 724 2.87 395 300 0.006 1.37
Table 3. We also show the objective function values for the

Table 4 Optimal objective function values in different problems using the proposed heuristics
Time Diff. opt. Heur2 red. Time Diff. opt. Heur3 Time Diff. opt.
P Heur1 (h) (%) cost p1500 (h) (%) 5 iterations (h) (%)

P1 401 465 0.13 0.026 401 465 0.14 0.026 401 464 0.75 0.026
P2 400 270 0.12 0.030 400 270 0.17 0.030 400 264 0.72 0.029
P3 401 103 0.12 0.072 401 103 0.18 0.072 400 915 0.52 0.025
P4 401 218 0.13 0.077 401 215 0.17 0.077 401 016 0.81 0.027
P5 400 525 0.05 0.113 400 455 0.15 0.096 400 080 0.20 0.002
P6 401 107 0.18 0.096 401 107 0.20 0.096 400 828 0.72 0.026
 H Gunnarsson et al—Terminal location and ship routing problem 937

Table 5 Results from the different scenarios using CPLEX directly

P1 P2 P3 P4 P5 P6

Number of terminals used 19(24) 19(24) 21(24) 20(23) 15(20) 19(24)

Number of A-routes used 2(84) 2(84) 1(84) 1(84) 3(68) 2(126)
Number of voyages on used A-routes 20 22 22 22 73 22
Number of B-routes used 24(1873) 24(1873) 24(1873) 24(1873) 17(1214) 24(2393)
Number of voyages on used B-routes 146 143 145 147 91 140
Number of spot trips used 10(84) 11(84) 11(84) 11(84) 8(68) 10(126)
Maximum number of voyages on used spot trips 75 88 80 76 80 87
Proportion of the volume transported by train and lorry (%) 45 45 46 46 46 46

possible routes are used. The restrictions regarding the size of
the routes have decreased the amount of routes. The number
of voyages on used A-routes and B-routes is based on the fact
that the TC-vessels have a capacity of 5600 tonnes. In all the
cases all possible times for running routes are used,
explaining almost the same proportion of train and lorry
transportation in all instances. The spot trips selected by the
model are mainly trips to distant destinations. The maximum
number of voyages on used spot trips is based on the fact that
the capacities of the spot vessels are from 2600 tonnes.
As many as 19 of totally 24 terminals are used in P1. Two
of the three inland terminals are used. The number of B-
routes used is only 24 out of 1873 possible. The B-routes are
usually used for nearer destinations. Regarding long routes,
for instance, to Genova, the spot trips are chosen to a greater
extent. By using spot ships to these distant destinations,
Södra Cell AB can make more A- and B-routes to the close
destinations.
If the distribution costs from Terneuzen to the customers
located in Italy could be decreased by at least 20% as
described in problem P2, it would be better for Södra Cell
AB to close the terminal in Genova and use the terminal in
Terneuzen more. The main disadvantage with this action is
that the distance from the terminal to the customers in Italy
would be longer, which could mean less good service.
Södra Cell AB has several terminals in Great Britain and
is striving to reduce the number. We can see that if all
customers can use the terminals in Sunderland and Grimsby
as in problem P3, the costs would decrease, in spite of the
fact that neither Sunderland nor Grimsby is used in the basic
case. The costs would increase marginally if just one of the
two terminals in Sunderland and Grimsby is allowed to be
used as described in problem P4. For making a complete
comparison, other circumstances, not included in the model,
have to be considered.
The results concerning problem P5 indicate that it would
be cost efficient to close the terminals Kiel, Ghent, Boulogne,
and La Pallice, and instead use the terminals Terneuzen and
Bremen more frequently. However, the loss in value for
customers located close to the terminals that would be closed
is hard to estimate. There is a trade-off between availability
of products at the larger terminals versus longer distances to
some customers.
We can see from the results of problem P6 that all the
longer routes rounding Denmark have been chosen at the
expense of the shorter routes via the Kiel Canal. There is no
loading or unloading in the weekends for the staff in Södra
Cell AB, which will mean even more savings by using these
longer routes. Since many routes in the present situation
include waiting time for loading or unloading, using this
time for transport could be as good as waiting at the
harbour.
Concluding remarks
The strategic decisions on location of terminals for
distributing the pulp at Södra Cell AB are regularly
reconsidered. It has been the aim of the company to reduce
the number of terminals for the last couple of years. One
argument for reducing the number of terminals is to
concentrate volumes which makes shipping to the terminals
more efficient. Having a higher volume assigned to a
terminal also means a bigger ‘bargaining power’ when
discussing handling costs and service with the operating
company. Another argument is that availability can be
improved by having the full assortment of products in stock
for quick delivery to customers. There are, however,
problems associated with taking away terminals. The main
disadvantage is that the distance to some customers
increases, which means increased transportation costs. There
are also other aspects, which are harder to express in
numbers, and therefore are difficult to include in a numerical
model. One such aspect can be how the relationship with an
important customer is influenced if a terminal is removed.
In the strategic decision process as well as tactical decision
making in the annual budgeting process it is important to be
able to quantify the impact of different scenarios. The
suggested model does exactly this and is used by Södra Cell
AB as a support tool. Even though some aspects exist that
are hard to include, the developed model is an important
tool in weighing the different measurable aspects against
each other. It is also a tool for measuring the actual cost of
keeping a terminal just to maintain a good relationship with
a certain customer. Such information can also be valuable in
negotiations with the customer. In the tests we have found
938 Journal of the Operational Research Society Vol. 57, No. 8
that the six case studies can be solved by CPLEX directly,
and for instances including a considerable amount of
B-routes, we have developed heuristics to obtain good
solutions within practical time limits.
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Received February 2004;
accepted June 2005 after two revisions
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