Moving Freight over the Road

Lecture Objectives:
1. Why companies choose to move freight on the road.
2. Cost structure is majority fuel and driver wages
3. Infrastructure is made up of vehicles and terminal

Lecture Summary:
Service Characteristics

 Accessibility
 Speed
 Reliability
 Flexibility

Types of Vehicles

 City trucks
 Line-Haul (40 foot and 53 foot trailers)
 Special vehicles

Motor Freight Terminals

 Pickup and delivery

 Cross-dock terminals
 Break-bulk terminals
 Relay terminals

Cost Structure

 fuel 39%
 driver salary 26%
 cab and trailer 17%
 maintenance 12%
 insurance and fees 5%
Motor Carriers
Lecture Objectives:
1. Understand how motor carriers operate
2. How motor carriers compete
3. Look into the future of the industry

Lecture Summary:
Motor Carrier Industry Structure

According to the American Trucking Association (ATA):

 Trucks moved roughly 67% of the nation's freight by weight

 About 3 million class 8 trucks used for business purposes
 About 6 million commercial trailers registered

According to US Department of Transportation (in 2010):

 1.3 million total trucking companies

 408,782 for-hire carriers
 662,544 private carriers
 168,680 other interstate motor carriers

Most trucking companies are small businesses:

 90.2% operate 6 or fewer trucks

 97.2% operate fewer than 20 trucks

Trucking is a vital industry for the economy:

 About 7 million people employed throughout the economy in jobs that relate to
trucking activity
 About 3 million truck drivers employed

Basic Operations

Truckload (TL)

 Moved directly from shipper to consignee

 Average 242 miles
 Many small carriers
 Weight 20,000 to 50,000 lbs.
Less-than-Truckload (LTL)

 Picked up, moved to a terminal, reloaded for line-haul, delivered to terminal, locally
delivered
 Average distance about 550 miles
 Requires national or regional network
 Weight 50 to 10,000 lbs.
 About 150 carriers

Parcel

 Home/business pickup, consolidated, moved to sortation facility,

trucked/flown/railed to distribution center and home/business delivered
 Weight 1 to 150 lbs.
 Fast (good for time-sensitive goods)
 Very expensive

Competition

There are few ways in which firms can differentiate themselves, the main area of
competition is price.

 Cost structure: high variable costs (70-90%), low fixed costs (10-30%)
 Government support of highway structure
 Terminals not too capital intensive
 Operating cost in the United States are currently between$1.20 - $1.80 per mile
 Carriers use fuel surcharges to recover some of cost
Flying Freight
Lecture Objectives:
1. What makes air freight attractive to shippers?
2. Cost structure is majority fuel and equipment
3. What kind of equipment is used?

Lecture Summary:
Air Freight Service Characteristics

When importance of speed outweighs cost, then air is attractive for freight!

 Emergency shipments
 Typical commodities include mail, communications products, racehorses, etc.

Speed of service considerations

 Speed, travel time advantage can be off-set by flight frequency and timing
 Smaller communities have experienced reduced frequencies
 In-direct routing due to hub and spoke networks

Cost Structure

The industry operates at: high variable costs (70-90%), low fixed (10-30%)

 Government support of highway structure

 Terminals not too capital intensive

High variable costs (about 60% of total, but can be as high as 80%)

 About 30% attributable to flight operations

 About 12% for maintenance
 About 17% for aircraft and traffic servicing

How to deal with fuel costs:

 Increases have major impact on operating costs

 More fuel efficient aircraft and smaller planes on low-density routes

Types of Equipment

We need different planes for different purposes.

All cargo

 Extra-large planes
 Wide body
 Narrow body

Belly cargo

 Existing airliners
 Smaller loads – maybe a few containers
Air Carriers
Lecture objectives:
1. Understand how air carriers operate
2. How air carriers compete
3. Look into the future of the industry

Lecture Summary
Operations

 All-cargo airlines are operating similar to TL - you rent the entire plane.
 Commercial airlines are able to carry smaller quantities as belly cargo - similar to
LTL.
 Parcel carriers are also using planes for small shipments - but they are often very
expensive.

Rates

The rates in air transportation are often a mystery to many. While the rate is quoted by
weight, the actual rate charged corresponds to that weight if the package has a certain
density. This is also known as the volumetric density.

So what happens when it is not the 'right' density?

 If it is less dense, then you get charged for the volume translated to the
corresponding weight
 If it is heavier then you pay for the actual weight

Competition

 Fuel costs: who can best manage the largest expense and hedge against future price
increases
 Who can manage the delays put on by security concerns. Technology is starting to
help alleviate these issues.
Containers on a Train
Lecture objectives
1. What is intermodal?
2. Why use different modes together?
3. What makes it work?

Lecture Summary
What is intermodal?

Most products have the ability to trade time versus cost. As a basic rule - if the cargo comes
in full containers then it is a good candidate for intermodal. The key to intermodal is the use
of containers and its seamless transfer from one mode to another. Think about it this way –
if we can easily move freight from one truck to another then we can simply substitute
another mode of transportation that is more efficient on that part of the lane - the cargo in
the container stays untouched.

Advantages:

 On long distances rail transportation has a significant advantage over truck in terms
of fuel efficiency – which translates into a large cost advantage.
 On long distances (over 500 miles) rail is not much slower than truck
 Accessibility: by combining the advantages of rail and truck, the freight can reach
any spot a regular truck could reach
Express Delivery
Lecture Objectives
1. How do express delivery firms integrate different modes?
2. Cost structure is majority fuel and driver wages
3. Infrastructure is made up of vehicles and terminals

Lecture Summary
Express delivery firms use several modes to the best of their advantage:

1. Rail is the cheapest and reasonably fast over long distances

2. Motor is fast for short distances and can pickup and deliver everywhere
3. Air is fastest and cost is justified for certain items.

The general purpose of these terminals is fourfold:

1. To receive shipments from across their network

2. To send individual packages to customer
3. To collect individual packagers from shippers
4. To route packages to their destinations
Speed
Truck: approximately 50 miles (or 80 kilometers) per hour over the highway for up to 500
miles (800 kilometers)

Train: approximately 30 miles (or 50 kilometers) per hour over almost any distance.

Air: upwards of 200 miles (or 320 kilometers) per hour for distances of more than 500
miles (800 kilometers), including ground operations.

Distance
Truck: up to 500 miles (800 kilometers) is the ideal distance, but there are still advantages
over the other modes up to 750 miles (1200 kilometers).

Train: for distances of more than 750 miles intermodal has some speed advantages, but the
average distance for intermodal is somewhere around 1,700 miles.

Air: at least 500 miles (800 kilometers) but typically more than 2000 miles.

Cost
Truck: current rates are highly variable, but $1.50 per mile is a reasonable starting value for
a TL shipment

Rail: intermodal freight shipments are typically much cheaper than TL and a common rule
of thumb is about 60-80% of the price of a TL shipment.

Air: typically we consider air freight to be about 6 to 8 times more expensive than truck
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