Factors behind the Development of Transport Systems

Scale Environmental Historical Technological Political Economic

Hydrography and Culture and

Local Roads Zoning Employment
geomorphology settlement patterns

Taxation and Modal competition and

Regional Altitude Colonies Railways and canals
regulations complementarity

Colonialism /
Continental Distance Sea routes Trade agreements Markets
imperialism

Air transport and Multilateral Interdependency and

Global Oceanic masses Globalization
telecommunications agreements (WTO) comparative advantages

Major Commercial Actors in Freight Distribution

Transport Sector Function
Control long distance segments of the global freight distribution linking major
Maritime shipping
markets. Highly capital intensive industry. Decide of their network configuration
companies
(ports of call and routing).

Global port terminal Control important intermodal infrastructures (terminals) within the world's largest
operators container ports. Have strong linkages with maritime shipping companies.

Manage and plan port infrastructures. Tend to lease terminal operations.

Port authorities
Important intermediaries for regional distribution (hinterland).

Maritime lock and canal Operate strategic passages in global and national distribution (e.g. the Panama
operators Canal, the Suez Canal or the St. Lawrence Seaway).

Develop logistics zones (build to lease, build to suit), often in coordination with
Real estate promoters terminal operators (rail and port) or port authorities. Manage a real estate
portfolio of distribution centers (leases).

Strategic inland freight carriers transporting a wide array of raw materials and
Rail and rail terminal
commodities. Responsible for many of the transshipments between rail and road,
operators
particularly for containerized freight.

Control vast and diverse assets that include critical segments of freight
Trucking industry
distribution in all economic sectors. Short and medium haul transport.

Important managerial and organizational skills within supply chains. Often act as
Third party logistics
brokers between transport customers and service providers. Some own and
providers
operate transport assets.

Air freight transport

Important assets for the rapid distribution of high value added freight. Decide of
companies and air freight
their network configuration (airports serviced).
terminals

Perform tasks such as packaging, labeling and the consolidation of shipments on

Freight forwarders behalf of their customers. Operate distribution centers. Define how markets are
serviced. Can subcontract to third party providers.
 Factors behind Freight Transport Demand
Factor Rationale

General derived demand impact. Linked with the GDP. Function of the
Economy
structure of the economy in terms of resources, goods, and services.

Industrial location Effect on ton-kms and on modal choice.

Effect on ton-kms. Function of international trade structure.

Spatial structure
Containerization and intermodal transportation.

International Both concerning trade and transportation. Economic specialization.

agreements Increased transborder traffic. Simplified custom procedures.

JIT practices and Decreased inventories. More shipments. Smaller line hauls. Shift to
warehousing faster and more reliable modes. Use of 3rd party logistics providers.

Between carriers, shippers and often producers and retailers. Lower

Strategic alliances
distribution costs.

Packaging and Increased transportability of products. Lower freight density. Reverse

recycling distribution.

Regulation and Increased competition, level of service and lower costs. Growth of
deregulation intermodal transportation.

Fuel costs, taxes Large and volatile cost components, specifically for energy intensive
and subsidies modes. Preferred mode or carrier.

Infrastructure and
Efficiency, operating costs and reliability.
congestion

Safety and
environmental Operating speed, conditions and costs. Capacity and weight limits.
policies

Containerization, double-stacking, automation and robotics, handling

Technology and interchange systems and automated terminals. Information systems.
Lower costs, increased efficiency and reliability and new opportunities.
Socioeconomic Benefits of Transportation
 Bosporus
Gibraltar
Suez
Hormuz

Bab el-Mandab
Panama
Malacca

Good Hope

Magellan
Milk run
A milk run, in logistics, is a round trip that facilitates either distribution or collection.

Milk run - The terms are defined by the customer or by the service providers.

Here, the exact number of suppliers, each of which defines the available volume and
weight, and the time window for collection from the respective suppliers and the time
window for delivery to the customer.

With consistent planning, capacity increases to an average of 90% can be achieved.

On the round trips are either goods collected from several suppliers and transported to
one customer, or goods collected from one supplier and transported to several
customers.

In contrast to the groupage traffic, there is no handling, except to transport the goods.

Something more specialised, the Milk-run is described as a concept that is a

sequential collection of goods from multiple sources and the direct service to the
customers without intermediate handling features of the goods.

As a prerequisite for the Milk-Run approach is the spatial proximity between the
supplier and the customer.

The procedure for development of a Milk-Run-Concept consists of the following

steps:

1. Fixation of weight and volume of suppliers in a particular region.

2. Selection of potential milk run suppliers based on the maximum amount of
charge, delivery frequency as although volume and weight limits.
3. Selection of milk run suppliers because of the conditions and the milk run
potential.
4. Definition of milk run parameters to the weight and volume limits, time slots,
delivery frequency and maximum number of Milk-Run-Suppliers.
5. Development and evaluation of milk run alternatives.
6. Specification of milk runs with respect to the fourth point under these
parameters, plus the necessary contingency plans.
7. Implementation of milk runs: Definition of a milk run schedule, conduct
supplier workshops, testing and controlling.

The main benefit of milk runs is, in the higher utilization of vehicles and the
resulting reduction of transport costs by up to 30%.

In addition, the reduction of stock, both at the supplier side and at the customer side,
avoidance in delays at the loading ramp, due to the consolidation of several suppliers
and the specified time windows, high security planning and integration of reusable
container recycling.
Reduction of pollution of the environment, both by consolidation and the resulting higher
utilization of trucks, and by the reduction of transportation vehicles, compared to JIT or
groupage traffic.

The disadvantages of the Milk run are the following:

• Not all suppliers are able to implement a milk run.

• The increasing dependence on road/run conditions.
• In the case of poor planning, the number of extra trips can increase, and lead to
additional costs.

Cross Docking
The container ports and ‘hub-and-spoke’ networks
Container lines have sought to minimize costs by limiting the number of port
calls. In so doing they have re-emphasized the importance of regional hub ports,
notably Singapore and Hong Kong. Cargo to and from the region served by a
hub port is handled by feeder shipping and/or by land transport.

In archipelagic South East Asia, an extensive network of regional feeder services

has evolved.

The emerging pattern of mainline and feeder services is analogous with the
`hub-and-spoke' system.

The feeder networks based on major hub ports are expanding geographically.

Thus, the feeder network operating from Singapore, developed to serve South
East Asia (Malaysia,

Indonesia, Thailand), has spread eastward to Vietnam and the Philippines,

westward to the Indian sub-continent and the Gulf, as well as southward to
Australasia. In some cases feeder links into major hubs have replaced direct
services.

Economic forces appear to be favoring the emergence of ‘super-hubs’: the

changing pattern of port calls by vessels in the Europe-Far East trade suggesting
that Singapore, Hong Kong and Tokyo are strengthening their competitive
position vis-a-vis other hubs in East Asia.

Frequent changes in the pattern of mainline and feeder services suggest that the
system is still evolving; that the economic forces driving change have not as yet
been fully accommodated. Rapidly changing trade patterns, especially in East
and South East Asia, add to this instability.
A likely long-term future scenario implies the use of container ships with 8,000-
15,000 TEU capacity on the major east-west routes, calling at just four or five
mega hubs, i.e. only one or two on each continent. These mega hubs will be
almost entirely based on transshipped cargo, implying various levels of regional
and sub-regional transshipment centers. Containers are increasingly
transshipped, and hub ports that provide transshipment services have
experienced particularly high growth rates.
 Pros and Cons of H&S

Pros Cons
Spokes are simple, and new ones can be Inflexible, changes at the hub, or even in a
created easily. single route affects the whole network.

Scheduling is convenient since there are few The hub constitutes a bottleneck in the
routes, with frequent service. network.

Complicated operations can be carried out Delays at a spoke can also affect the whole
at the hub, rather than at every node. network.

Small number of routes generally leads to Cargo must pass through the hub before
more efficient use of transportation reaching its destination, results in longer
resources. journey.

The main advantages of hubs are:

Economies of scale on connections by offering a high frequency of services.
For instance, instead of one service per day or per week between any two pairs
in a point- to-point network, four services per day or per week could be possible.
Economies of scale at the hubs, enabling the potential development of an
efficient distribution system since the hubs handle larger quantities of traffic.
Economies of scope in the use of shared transshipment facilities. This can
take several dimensions such as lower costs for users as well as higher quality
infrastructures. Many transportation services have adapted to include a hub-
and-spoke structure at the global, national and regional levels.

However, potential disadvantages may also occur such as additional

transshipment as less point- to-point services are offered, which for some
connections may involve delays and potential congestion at the hub as the hub
becomes the major point of transshipment.
Pricing Structures
▪ Cost-of-service: “cost plus” method

▪ Value-of-service: “market based” method

▪ Combination: a middle of the road approach using cost (minimum) and value
(maximum)

▪ Net Rate Pricing: All-inclusive prices specific to customers’ needs (not discount-
based)

Transportation Decisions

i) Mode Selection
ii) Network Design - Routing and Scheduling
iii) Freight Consolidation
a) Inventories
b) Vehicles - LTL/FTL
c) Warehouses – large/small, distant/close
d) Temporal consolidation – order accumulation

Factors Affecting Transportation Decisions

A) Carrier’s Perspective ( RoI Maximisation)

a) Vehicle-related costs
b) Fixed Operating Costs
c) Trip-related costs
d) Quantity-related costs
e) Overhead costs
f) Processing costs
g) Loading/unloading costs
h) Market demand
i) Price that the market will bear
a. Cost of service principle
b. Value of service principle
c. Price that the market will bear
B) Shipper’s perspective (Total Cost Minimisation)
a) Transportation cost
b) Inventory cost
c) Facility/Warehousing cost
d) Processing cost
e) Service level costs – delivery commitments
Transportation Network Design (Routing and Scheduling)

a) Direct Shipment
b) Direct shipment with Milk-Runs (Tear-drop, Sweep)
c) Direct shipment via Distribution Centre
d) Direct shipment via Distribution Centre (cross-docking)
e) Direct shipment via Distribution Centre with Cross-Docking, using Milk-Runs (Hub
& Spoke)
f) Tailored Network

Comparison of Various Transportation Networks

Netw ork Structure Pros Cons

Direct Shipment No intermediate warehousing High inventory costs ^ lots sizes)

Simple to co-ordinate Significant receiving and sending expenses

Direct shipment with Milk-Runs Lower transportation costs Incresed co-ordination and complexity
Lower inventories

Direct shipment via Distribution Centre Lower inbound transportation costs Increased inventory costs
(with storage/ inventory accumulation) Increased handling costs

Direct shipment via Distribution Centre Lower inbound transportation costs Much incresed co-ordination
(cross-docking) Much lower inventory requirement Much incresed complexicity

Direct shipment via Distribution Centre Much lower transportation costs Greater co-ordination
(with cross-docking, using Milk-Runs) even for small lots Greater complexity

Tailored Network Best transportation choice and best suited Highest co-ordination
as per individual product and customer needs Greatest complexity