This action might not be possible to undo. Are you sure you want to continue?
The Transportation System
Learning Objectives-After reading this
chapter, you should be able to do the following:
Explain the economic role transportation plays in the economy. Discuss the economic and service characteristics of the basic modes. Describe the carrier selection process. Discuss the economic effect of rates, transit time, reliability, capability, accessibility, and security in the carrier selection decision.
Chapter 9 Management of Business Logistics, 7th Ed. 2
Compare the advantages and disadvantages of using common, regulated, contract, exempt and private carriers --- the five legal classes of carriers. Discuss the economic and service characteristics of intermodal transportation and explain the dominance of rail-truck (piggyback) intermodal service.
Management of Business Logistics, 7th Ed. 3
Discuss the economic rationale of using containerization. Discuss the economic and service characteristics of indirect and special carriers.
Management of Business Logistics, 7th Ed.
33 to 35 percent of the $2.9 billion store, catalog, and E-commerce sales ship via the United States Postal Service (USPS). Victoria’s Secret uses Global Logistics, a package expeditor, to service its southeast USPS shipments, with the object of three to five day service. All loads to the USPS are palletized and are standing appointments and live uploads.
Management of Business Logistics, 7th Ed. 5
The Role of Transportation in Logistics Transportation is the physical link connecting the firm to its suppliers and customers. 7th Ed. Transportation also adds value to the product by providing time and place utility for the firm’s goods. Chapter 9 Management of Business Logistics. 6 . transportation is the link between fixed facilities (nodes). In a nodes and links scenario.
3% of the GDP in 1993. In 1999. 7 . Chapter 9 Management of Business Logistics. this is up from 397 billion.S. transportation costs are becoming even more significant. or 9.9% of the GNP1. 7th Ed. U. firms spent an estimated $554 billion to move freight. or 6.The Role of Transportation in Logistics As firms engage in global competition.
7th Ed.The Role of Transportation in Logistics In 1999. transportation was 3. Outbound transportation was clearly the largest component of total physical distribution costs.38%. 8 . and carrying cost 1. customer service 0.84%.52%. Cost trade-offs abound in transportation and are typified by trading lower inventory costs for higher transportation costs. Chapter 9 Management of Business Logistics.24%. warehousing 1. administration 0. as a percentage of sales.48%.
Management of Business Logistics. 9 Chapter 9 . firms need to keep the big picture in mind when attempting to select a carrier. 7th Ed.The Transport Selection Decision The Transportation – Supply Chain Relationship Firms need to recognize that the lowest cost carrier does not necessarily guarantee that this carrier will result in the lowest landed cost. Therefore.
The Transport Selection Decision The Carrier Selection Decision: Various modes of transportation should be considered. 7th Ed. if there is a choice. Choose a carrier or carriers within the selected mode. 10 Chapter 9 . Carefully examine the service capabilities of the carrier as services can vary widely between carriers. Management of Business Logistics.
Figure 9-1 The Carrier Selection Decision Chapter 9 Management of Business Logistics. 7th Ed. 11 .
The Transport Selection Decision Carrier Selection Determinants: Cost Transit time and reliability Can be a competitive advantage Lowers customers’ inventory costs Capability Accessibility Security Management of Business Logistics. 12 Chapter 9 . 7th Ed.
Figure 9-2 Carrier Selection Determinants and User Implications Chapter 9 Management of Business Logistics. 7th Ed. 13 .
7th Ed.The Transport Selection Decision The Pragmatics of Carrier Selection: Transit time reliability Negotiated rates Consolidating shipments among a few carriers Financial stability Sales rep Special equipment Management of Business Logistics. 14 Chapter 9 .
15 .Figure 9-3 Importance Ranking of Carrier Selection Determinants Chapter 9 Management of Business Logistics. 7th Ed.
7th Ed. motor. and is a standard statistical measurement used in the transportation industry). Chapter 9 Management of Business Logistics. pipeline. and air. 16 .The Basic Modes of Transportation3 The basic modes available to the logistics manager are rail. *(a ton-mile is one ton of cargo carried one mile. Distribution of ton-miles* for the various modes is outlined in Table 9-1. water.
Table 9-1 Modal Distribution of Ton-Miles Chapter 9 Management of Business Logistics. 17 . 7th Ed.
The Basic Modes of Transportation: Railroads Capable of carrying a wide variety of products. Trend is to merge smaller companies into larger ones with ultimate goal of having perhaps two transcontinental rail carriers. likely only one will be able to serve any one customer location. 18 Chapter 9 . 7th Ed. Very small number of carriers. much more so that other modes. Management of Business Logistics.
19 Chapter 9 . Rail is a long haul. Transit times are spotty. large volume system (high fixed costs.The Basic Modes of Transportation: Railroads This would permit seamless dock-to-dock service by one company. Accessibility can be a problem. Management of Business Logistics. own rights-of-way). but are generally long. a distinct improvement over current systems. 7th Ed.
The Basic Modes of Transportation: Railroads Reliability and safety are improving and are generally good. 20 Chapter 9 . Premium intermodal services Straight piggyback and containerized freight Double stacks RoadRailer service Unit train service Intermodal Marketing Company (IMC) Management of Business Logistics. 7th Ed.
One problem is that standards continue to increase. more reliable.On the Line: It’s the Service. 7th Ed. and cheaper service. but slower than the demand for faster. Wall Street says that improving service is imperative. 21 . Stupid It’s difficult to assess the railroad industry without getting into the subject of service… Shippers complain. Chapter 9 Management of Business Logistics. rail carriers say they are trying to improve. Actual improvements are coming.
Used by almost all logistics systems and account for 82 percent of U. freight expenditures. there were 505. Low cost of entry causes these large numbers. Consists of for-hire and private carriers.S. In 1999. 7th Ed. 22 .000 registered motor carriers. Chapter 9 Management of Business Logistics.The Basic Modes of Transportation: Motor Carriers The motor carrier industry is characterized by a large number of small firms.
23 . 7th Ed.Figure 9-4 Overview of Interstate Motor Carrier Industry Chapter 9 Management of Business Logistics.
Chapter 9 Management of Business Logistics. only 7% of which had revenues >$10 million. 24 . there were 12. with 76% having revenues <$3 million. routes.500 regulated carriers. Limited operating authority regarding service areas. Do not own their rights-of-way.The Basic Modes of Transportation: Motor Carriers Large number of small firms. in 1999. rates and products carried. 7th Ed. Characterized by low fixed costs and high variable costs.
Relatively high cost compared to rail and water. trade-off is faster service. 7th Ed. Reliability can be affected greatly by weather. 25 .The Basic Modes of Transportation: Motor Carriers High accessibility Transit times faster than rail or water. Small vehicle size coincides with lower inventory strategies and quick replenishment (QR). Chapter 9 Management of Business Logistics.
Figure 9-5 Overview of the Domestic Water Carrier Industry Chapter 9 Management of Business Logistics. 7th Ed. 26 .
while private and exempt carriers haul the other 95% of the ton-miles. Missouri. Tennessee and Ohio River systems and the Great Lakes. along the Mississippi. 7th Ed. Gulf and Pacific coasts.The Basic Modes of Transportation: Domestic Water Carriers Available along the Atlantic. Management of Business Logistics. 27 Chapter 9 . Regulated common and contract carriers haul about 5% of the freight.
The Basic Modes of Transportation: Domestic Water Carriers Relatively low cost mode. 7th Ed. bulktype mineral. agricultural and forest products Low rates but long transit times Low accessibility but high capability Management of Business Logistics. do not own the rights-ofway. Typically a long distance mover of low value. 28 Chapter 9 . easy entry and exit.
7th Ed. 29 .The Basic Modes of Transportation: International Water Carriers General cargo ships Large high capacity cargo holds Engaged on a contract basis Many have self-contained cranes for loading/unloading Bulk carriers Specially designed to haul minerals Can handle multiple cargoes Chapter 9 Management of Business Logistics.
7th Ed.000 containers. Chapter 9 Management of Business Logistics. 30 . increasingly more common and important Larger vessels can handle up to 5.The Basic Modes of Transportation: International Water Carriers Tankers Specially designed for liquid cargoes Largest vessels afloat. some VLCCs at 500k+ tons Container ships High speeds for ships.
31 . 7th Ed.The Basic Modes of Transportation: International Water Carriers RO-RO (Roll on-Roll off) Basically a large ferry that facilitates the loading and unloading process by using drive on/off ramps May also have the capacity to haul containers Other OBO multipurpose carriers Barges (not transoceanic) Chapter 9 Management of Business Logistics.
Transit times are fastest of the modes. 7th Ed.The Basic Modes of Transportation: Air Carriers Limited number of large carriers earn about 90% of the revenue. but rates are highest. Management of Business Logistics. Cost structure is highly variable. 32 Chapter 9 . Any of the air carriers can carry air freight although some haul nothing but freight. do not own rightsof-way.
Chapter 9 Management of Business Logistics. twice that of motor carriers. Seek goods with a high value to weight ratio. Accessibility is low as is capability. Reliability subject to weather more than other modes. 33 .The Basic Modes of Transportation: Air Carriers Average revenue per ton mile 18 times higher than rail. 7th Ed.
not natural gas Not suitable for general transportation Some research has been performed to move minerals in a liquid medium. no real successes have occurred. 7th Ed. Chapter 9 Management of Business Logistics.The Basic Modes of Transportation: Pipelines Refers only to the oil pipelines. but outside of a few attempts to transport slurried-coal via pipeline. 34 .
Own rights-of-way much like the railroads. 35 Chapter 9 . Management of Business Logistics. Cost structure is highly fixed with low variable costs.The Basic Modes of Transportation: Pipelines Accessibility is very low. Major advantage is low rates. 7th Ed.
7th Ed.Table 9-2: Performance Rating of Modes Selection Determinants Railroad Cost 3 Transit time Reliability Capability 3 Motor 4 2 Modes Water 2 4 Air 5 1 Pipeline 1 --- 2 1 2 3 1 2 1 2 4 4 4 4 3 3 3 1 --5 ----36 Accessibility Security Chapter 9 Management of Business Logistics. .
7th Ed. Commodities are limited to those that the carrier’s equipment will handle.Legal Classifications of Carriers: Common Carrier For-hire carrier that serves the general public at reasonable rates and without discrimination.. Stringent economic regulation designed to protect the public. Chapter 9 Management of Business Logistics.. Must transport all commodities offered. 37 .
acts of public authority. Exceptions to liability include acts of God.Legal Classifications of Carriers: Common Carrier Carrier is liable for damages to products carried. acts of the shipper and defects inherent in the goods. acts of the public enemy. Continued service is assisted by ceiling and floor limits on the rates charged. Backbone of the transportation industry. 7th Ed. 38 Chapter 9 . Management of Business Logistics.
Management of Business Logistics. 7th Ed. and nondiscrimination provisions.Legal Classifications of Carriers: Regulated Carrier Regulated carriers are found in motor and water carriage. including entry controls. Must provide safe and adequate service. 39 Chapter 9 . reasonable rates. When acting as a contract carrier. not subject to STB economic regulations. The ICC Termination Act of 1995 eliminated most of the common carrier economic regulation for these two modes.
Legal Classifications of Carriers: Contract Carriers For-hire carrier that does not have to serve the general public. Not subject to regulation on services. rates usually lower than common or regulated carriers. 40 Chapter 9 . May serve one or a few shippers exclusively. May offer specialized equipment. 7th Ed. Management of Business Logistics.
7th Ed. Becoming more popular as logistics managers use contract carriage to assure rates and service levels. Chapter 9 Management of Business Logistics. 41 .Legal Classifications of Carriers: Contract Carriers Other aspects of the carrier/shipper relationship are made a part of the contract between the two parties.
low rates. Limited number of carriers restricts availability. Limited entry controls. Chapter 9 Management of Business Logistics. e.. rail piggyback is exempt.. 42 . Usually haul agricultural products. but there are special rules as to what may be hauled by each mode of transportation.g. 7th Ed.Legal Classifications of Carriers: Exempt Carriers For-hire carrier exempt from economic regulation regarding rates and services.
air and water also exist.Legal Classifications of Carriers: Private Carriers Private carriage is the firm’s own transportation. Almost exclusively motor. but some rail. 7th Ed. May not be the firm’s primary business but can charge a intracompany fee for transportation services. 43 Chapter 9 . Management of Business Logistics. Not for-hire and not subject to Federal regulations.
Backhauls are usually empty or return materials to the firm’s plants and/or warehouses. Management of Business Logistics. Requires a large capital investment. 7th Ed. Requires management time and expertise. 44 Chapter 9 .Legal Classifications of Carriers: Private Carriers Firms gain ultimate control over shipments and achieve maximum flexibility in moving goods.
Logistics managers are looking for the best way to move shipments and these often attempt to take advantage of multiple modes of transportation. 7th Ed. each of which has certain useful characteristics. 45 .Intermodal Transportation Refers to use of two or more modes of transportation cooperating on the movement of shipment by publishing a through rate. Chapter 9 Management of Business Logistics.
7th Ed. 46 .Figure 9-6 Types of Intermodal Services Chapter 9 Management of Business Logistics.
motor/water. rail/motor. Management of Business Logistics. such as rail/water. 47 Chapter 9 . 7th Ed. Cultural bias towards using only one mode and this makes change more difficult. and motor/air.Intermodal Transportation Biggest disadvantage is that carriers are reluctant to participate. Certain types have been fairly well developed.
Changes materials handling from labor intensive to capital intensive and may reduce costs from 10 to 20%. 48 . goods are placed in a large box. Reduces theft. 7th Ed. Chapter 9 Management of Business Logistics.Intermodal Transportation: Containerization Referred to as Container-on-Flat-Car (COFC). where they are untouched until they arrive at the consigee’s unloading dock. multiple handling costs and intermodal transfer time. damage.
For example. CA. continuing on to a European port. VA. transfer the containers to a railroad.. 49 . 7th Ed. containers moving from Japan to Europe may dock at Long Beach. Chapter 9 Management of Business Logistics.Intermodal Transportation: Containerization “Land bridge” concept may apply for international shipments where oceans are separated by a large land mass. and reload the containers onboard another ship in Norfolk.
Takes advantage of motor flexibility and rail’s long haul economic advantage. Some railroads provide varying levels of service. 7th Ed. Chapter 9 Management of Business Logistics.Intermodal Transportation: Piggyback Trailer-on-Flat-Car (TOFC) Over the road trailers ride in special rail cars. 50 . differentially priced. Multiple service plans for shippers.
7th Ed. 51 .Intermodal Transportation: RoadRailers Newest concept referred to as a “RoadRailer” Essentially a trailer that has been reinforced to ride on a rail bogey and be coupled together directly without first being placed on a rail flat car Saves weight and locomotive power and thus fuel for the railroad Special lower rates Motor competitive transit times Chapter 9 Management of Business Logistics.
52 Chapter 9 . FedEx. premium rates examples are UPS. RPS.Indirect and Special Carriers Small-Package Carriers Evolved to carry small. etc. irregular shipments Fast service. 7th Ed. Consolidators and Freight Forwarders Consolidates many small shipments Saves shippers by using CL or TL rates Management of Business Logistics.
Indirect and Special Carriers Shippers Associations Acts as a consolidator for members Object is also to get lower rates Brokers Acts as an intermediary May be licensed by STB Often used to provide backhauls for private carriers Management of Business Logistics. 53 Chapter 9 . 7th Ed.
Particularly advantageous for small (one trailer) shippers. Can speed traffic through consolidation (fills the normal two-trailer load on an intermodal flat car. 7th Ed.Indirect and Special Carriers Intermodal Marketing Companies (IMC) An intermediary that solicits shipments for rail/motor intermodal service. Management of Business Logistics. avoiding delays waiting for another trailer going to the same destination). 54 Chapter 9 .
.Chapter 9: Summary and Review Questions Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 9.
End of Chapter 9 Slides The Transportation System .
This action might not be possible to undo. Are you sure you want to continue?