Source: Adapted from Alexander Kuznetsov, Admiral Makarov State Maritime Academy, St. Petersburg, Russia.

Cost Structure of Point-to-Point and Hub-and-Spoke Networks

In a conventional service, the total transport cost is simply a function of the transshipment and shipment costs. The above figure, for simplification purposes, assumes ports of similar size located along two maritime facades as well as a similar demand for each pair of ports. In a point-to-point service, each chain would have a similar transport cost. Thus the total transport costs from one port to the other (3,000 units) would be the summation of loading costs at the port of origin, the shipment costs across the ocean and the unloading costs at the port of destination. The usage of a hub-and-spoke network structure reduces the total transport costs through a services reorganization. While the loading or unloading costs would remain the same, changes in transport distances and economies of scale for the single transoceanic link significantly changes the cost structure. The ports that have become the hubs are now advantaged comparatively to others, even if the total transport costs of every single service is lower.