The relative success of the Hub-and-spoke system in the airline industry has impacted other transport sectors as well. In the past, the point-to-point system guided the transport industry, however, there were obvious flaws in this setup, causing logistics companies to lose money. As a response and an alternative, the hub-and-spoke system emerged.
Historically, the hub-and-spoke system has been used by different airline companies. Although the original conception of the hub-and-spoke system is still argued, it was first utilized in 1955 by Delta Airlines in the USA. In the 1970s, the system was popularized in the logistics industry by FEDEX and soon became integral to air and ocean freight. The system has also been adapted in other diverse fields such as telecommunication and information technology. There is now a growing interest in seeing the implementation of this system in the rail freight and trucking sectors.
Imagining the Hub-and-Spoke Network
The simplest way to understand the hub-and-spoke system is to start by imagining a bicycle wheel. The centre of the wheel acts as the hub, and the spokes emerging from it are the various routes diverging towards different directions. Once the imagery is grasped, the transport hub-and-spoke system can also be easily understood. Therefore, the hub-and-spoke system is defined as the organization of routes, where the central hub is connected via routes or spokes to various outlying points.
There are many benefits of this such a system in the freight industry:
1. Improved shipment tracking
2. Easier coordination
3. Hubs can conduct packaging and accounting, instead of being carried out at every node
4. Spokes are efficiently managed; therefore, new routes can emerge
5. Reduction of cost and other miscellaneous expenses
6. Optimizing processes and reducing trans-shipment issues
In the rail freight sector, both China and the EU are adopting the hub-and-spoke system with emerging terminals in both the geographical areas. Researchers are studying the impact of the hub-and-spoke system in these two regions, by considering the densest nodes and promoting them as suitable hubs. Although the hub-and-spoke system has still not been adopted at an administrative level, many in the logistics industries are exploring its possible benefits.
As of now, there are several hubs in China and the EU that already witness huge volumes growth, for example:
Hub-and-Spoke beneficial for SMEs
These are the most notable hubs, but many others are joining the list. Apart from that, there are significant hubs in Central Asia, that are vital points in the connections, such as Astana, Baku etc.
Specifically for the rail freight industry, the adoption of such a system will solve the problem of low volumes, by consolidating from outlying points to the hub and then transporting. This will be especially beneficial for trains going from Europe back to China that usually fail to return the same volumes. Another issue that can be tackled on the China side is the growing competition between cities and provinces for volumes. Establishing proper hubs will create a stable and secure rail network, allowing a smooth operation, especially for small and medium-sized players. Moreover, these hubs have the potential to increase the value of BRI assets.
The main benefit of the hub-and-spoke is for smaller players along the New Silk Road. The larger companies, still have the abilities to send high-volume cargo, without the real necessity of a specific hub. Contrarily, for smaller players, that are wishing to send lower cargo volumes, this system appears as a silver lining. The process of consolidating cargo to a specific hub is the most significant benefit for the SMEs. Since the hub-and-spoke system is relatively new, it is necessary to stay updated with the latest happenings, giving one the opportunity to leverage new prospects and growing one’s business.
1. How the Hub-and-Spoke Model Can Improve Distribution for Rail Networks
2. The Experts In Cold-Chain Along the BRI: Intermax Logistics Shares Its Wealth of Knowledge