Transportation

Fundamentals
Dr. Anurag Tiwari
 https://www.youtube.com/watch?v=iei_sIoPrEo

 https://www.youtube.com/watch?v=NEY60B8Ocg4
Fundamental of Logistics
 Fundamental logistic are-where should resources be moved to, and by what mode and
route; when should resources be moved.
 The “where : questions includes the topic of terminal location, vehicle routing and
shortest path methods and network flow allocations.
 The “When” question includes the topic of distribution rules.
 Definition

 Transport and transportation is the movement of people or goods from one location to
another location
 Transport is the movement of products from one node in distribution channel to another
Transport Fundamental

 Transport involves
 Equipment (truck, planes, boats, pipeline)
 People (drivers, loaders &un-loaders)
 Decision(routing, timing , quantitates , equipment size , transport mode)

 In developing countries we often find it necessary to locate production close to both

market and resources
 Role of Transportation in Logistics

 Transportation is the physical link connecting the firms to its suppliers and customers.
 In a nodes and link scenario, transportation is the link between fixed facilities (nodes)
 Transportation also adds value to the product by providing time and place utility for the
firm’s goods
 Strategy

 The Strategy, must acknowledge the following elements

 Customer Requirements
 Timely Shipment
 Mode Selection
 Carrier Relationships
 Measurement
 Regulatory Impact
 Flexibility
 Transportation Selection

 Transport decision-making depends on:

 Responsiveness
 Reliability
 Relationships
 Transportation functions, principles
participants
 Transportation Functions
 Product Movement
 Product Storage

 Transportation Principles
 Economy of Scale
 Economy of Distance (Tapering Principle)

 Transportation Participants
 (shipper, Consignee, public, government, carrier and agents )
 Economies of Scale
 The more items (weight) is transported the less the transportation costs per item (unit of
weight) 100$/Book

Transportation
Costs per book

.10 $/Book

Number of books in Shipment 1000

1
 Economies of Distance
 The larger the distance, the less the transportation costs per unit of distance (e.g. per
mile) 100$/Book

.10$/mile

Transportation Tapering Principle

Costs per mile

1000 miles
1 mile 500 miles
Shipment Distance
 Transportations Functions, Principles,
Participants
 Transportation Functions
 Product Movement
 Product Storage

 Transportations Principles
 Economy of Scale
 Economy of Distance
 Transportation Participants
 (Shipper, consignee, public, government, carrier, and agents )
 Transportation Participants

I need something
I need something Public delivered at the
shipped at the lowest
possible cost lowest possible cost

Government

Shipper Carrier Agents Consignee receiver

Internet
 Transportation Participants

Carrier: We can find a shipper Public Carrier: We have the

Shipper: We can find a carrier equipment

Government

Shipper Carrier Agents Consignee receiver

Internet
 The Transportation
Transportation Participants
System is vital for
the country’s
economic health

Public Track shipments

Government

Shipper Carrier Agents Consignee receiver

Purchase fuel, Match products needing

transportation, to be shipped with
equipment, supplies available capacity
Internet
 Transportation Participants
Create demands for
transportation by
purchasing products
Public

Government

Shipper Carrier Agents Consignee receiver

Internet
 Transportation Network Data

 It is a (directed) link connecting an origin (supplier or facility)to the

destination (facility or market) along which a product may flow.
Transportation Network Sub-models
 The Transportation Models of a typical supply chain are as follows:
 The Inbound transportation network linking the company’s supplier to its
facilities
 The Inter-facility transportation network connecting to its facilities to another
 The Outbound transportation network connecting the company’s facilities to its
customers and markets.
 Routes of Goods

Air Terminal Plane

Air
Goods at
shipper
Sea
Container
Terminal
May Change Freight
Sea Bulk Transportation forwarder
Freight Vessel
goods Modes warehouse
forwarder Mid
Pier stream
warehouse land

barge
land

Railway Goods at
consignees

Truck
 Transportation Regulation
 Types of Transportation Regulation
 History of Regulation
Types of Transportation Regulation

Economics
• Investment in Transportation
infrastructure
• (e.g. highways. Airports and ports)
• Control of route, pricing and schedule

Social Safety
• Protect the public, the environment
• Make sure equipment operate safely, cleanly
• Safe transportation of hazardous material
• Regulation hour work
 History of Transportation Regulation
 Pre-1920-establish initial government control
 Act of Regulate Commerce (1887)
 Interstate commerce commission
 1920-1940-Rehulatory formalization, extension to other transportation modes
 Motor Carrier Act(1935(
 Civil Aeronautics Act(1930)
 Civil Aeronautics Board (1940)
 Federal Aviation Administration (FAA)
 National Aeronautics & Space Administration (1951)
 History of Transportation Regulation

 1940-1970
 Regulation of water transportation by ICC (1940)
 Rail board Revitalization and Regulatory reform Act of 1976
 AMTRAK
 CONRAIL
 1970-1980- Prelude to deregulation
 Shift from regulation/Control to fostering competition
 Department of transpiration (DOT) 1961
 Airline Deregulation Act 1978
 History of Transportation Regulation

 1980-2000-deregulation
 Motor Carrier Act 1980
 Staggers(Rail) Act 1980
 Interstate Commerce Commission (ICC) abolished 1996
 Ocean Shipping & Reform Act 1998
 2000-Present-Focus on Technology, safety, and security
 Patriot Act
 Jones Act
Transportation Industry Structure
 Five Basic Transportation Mode
 Pipeline
 Water
 Air
 Rail
 Highway
 Railroads
 Capable of carrying a wide variety of products , much more so than other modes
 Very small number of carrier; likely only one will be able to serve any one customer
location.
 Trend is to merge smaller companies into larger one with ultimate goal of having
perhaps two transcontinental rail carrier.
 This would permit seamless dock-to-dock service by one company; a distinct
improvement over current systems.
 Rail is a long haul, large volume system
 Accessibility can be a problem
 Transit times are spotty but are generally long
 Railroads
 Reliability and safety are improving and are generally good
 Premium intermodal services
 Straight piggyback and containerized freight
 Double Stacks
 RoadRailer service
 Unit Train Service
 Intermodal Marketing Company
 It is difficult to assess the railroad industry without getting into the subject of service
 Shipper complain; rail carriers say they are trying to improve
 Walls street says that improving service is imperative
 Actual improvements are coming , but slower than the demand for faster, more reliable and
cheaper service.
 Motor Carriers
 The motor carrier industry is characterized by a large number of small firms. In 1999,
there were 505,000 registered motor carriers.
 Low cost of entry cause these large number
 Used by almost all logistic systems and account for 82 percent of U.S. freight
expenditures.
 Consists of for-hire and private carriers.

Overview of Interstate Motor Carrier
Industry
Motor Carrier Industry

For Hire Private

Interstate State/Local

Contract Regulated Exempt Exempt

 Motor Carriers
 Large number of small firms; in 1999, 505,000 total of which 12,500 were regulated
carriers, only 7% of which had revenues. $10 million, with 76% having revenues ,$3
million.
 Characterized by low fixed costs and high variable costs.
 Do not own their right-of-way.
 Limited operating authority regarding service areas , routes, rates and products carried.
 High accessibility
 Transit times faster than rail or water
 Reliability can be affected greatly by weather
 Small vehicle size coincides with lower inventory strategies and quick replenishment
(QR)
 Relatively high cost compared to rail and water ; trade off is faster service
Overview of Domestic Water Carrier
Industry
Domestic Water Carriers

For Hire Private

Contract Regulated Exempt

Waterway used

Internal Water Great Lakes Coastal and Inter

Coastal
 Domestic Water Carrier
 Available along the Atlantic, Gulf and Pacific coasts, along the Mississippi Missouri,
Tennessee and Ohio River system and the Great Lakes
 Regulated common and contract carrier haul about 5% of the freight, while private and
exempt carriers haul the other 95% of the ton-miles.
 Relatively low cost mode; do not own the rights-of-way; easy entry and exit.
 Typically a long distance mover of low value, bulk-type mineral, agricultural and forest
products.
 Low rates but long transit times,.
 Low accessibility but high capability.
 Internal 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
 Tankers
 Specially designed for liquid cargoes
 Largest vessels a float, some VLCCs at 500K+tons
 Container Ship
 High Speeds for ships; increasingly more common and important
 Larger vessels can handle more than 7500 containers (TEU’s)
 Internal 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
 Barge (not transoceanic)
 Air Carrier
 Limited number of large carriers earn about 90% of the revenue.
 Any of the air carriers can carry air freight although some haul nothing but freight.
 Cost structure is highly variable; do not own rights-of-way.
 Transit times are fastest of the modes, but rates are highest.
 Average revenue per ton mile 18 times higher than rail; twice that of motor carriers?
 Seek goods with a high value of weight ratio.
 Accessibility is low as is capability
 Reliability subject to weather more than other modes.
 Pipeline
 Refer only to the oil pipelines, not natural gas.
 Not suitable for general transportation
 Some research has been performed to move minerals in a liquid medium, but outside of
a few attempts to transport slurried–coal via pipeline, no real successes have occurred.
 Accessibility is very low.
 Cost structure is highly fixed with low variable costs.
 Own right-of-way much like the railroads
 Major advantage is low rates.
 Transportation Costs
 Transportation costs are those associated with the flow of products on links between
facilities.
 They are the following 2 types of costs
 Flow costs: direct cost per unit associated with product flows between facilities
 Transportation resource costs: indirect costs per unit associated with managing flows.
 Transportation Costs Characteristics
 Fixed Costs:
 Terminal Facilities
 Transport equipment
 Carrier administration
 Roadway acquisition and maintenance

 Variable Costs:
 Fuel
 Labor
 Equipment maintenance
 Handling, pickup & delivery, taxes.
 Cost Structure for each transportation mode

Rail Highway

High Fixed Costs(land, tracks) Low fixed costs(government builds maintains highway)

Low variable costs (operating costs, e.g. labor, fuel) Medium-high variable costs(operating costs, e.g. labor.
Fuel)

Slow, but inexpensive way to transport heavy freight that Most accessible mode(more highways than railroads,
doesn’t require special handling, long distance waterways, pipeline); best for transporting medium to
high value products short to moderate distance
 Cost Structure for each transportation
mode
Water Air

Moderate fixed costs(ships and freight handling Low fixed costs(aircraft and freight handling equipment)
equipment)
Low variable costs(operating costs, e.g. labor, fuel) Highest variable costs(e.g. labor, fuel, maintenance)

Very slow, but inexpensive way to transport large, heavy Very fast, used for transporting high value and/or high
freight over long distances (e.g. oceans, river, inland perishability product over short to medium distances
waterways, lakes)
 Cost Structure for each transportation
mode
 Pipeline:
 Highest fixed costs(right of way & construction costs of equipment's)
 Lowest variable costs (no significant labor or fuel costs)
 Slow, but dependable (e.g. no weather, traffic disruptions); no flexibility with regards to type
of products that can be transported-must be liquid (e.g. petroleum)
 Transportation Services
 Traditional Transportation Carriers
 Package Services
 Intermodal Transportation
 Non Operating Intermediaries
 Freight Forwarders
 Transportation Brokers
 Shipper Association /Cooperatives/Agents
 Legal Classification of Carrier
 Common Carriers
 For-hire carrier that serves the general public at reasonable rates and without
discriminations.
 Stringent economic regulation designed to protect the public
 Must transport all commodities offered
 Commodities are limited to those that the carrier equipment will handle
 Carrier is liable for damages to product carried.
 Exceptions to liability includes acts of God, acts of the public enemy, acts of public
authority, acts of the shipper and defects inherent in the goods.
 Continued services is assisted by ceiling and floor limits on the rates charged
 Backbone of the transportation industry
 Legal Classification of Carrier
 Regulated Carriers
 Regulated carriers are found in motor and water carriage
 The ICC Termination Act of 1995 eliminated most of the common carrier economics
regulation for these two modes, including entry controls, reasonable rates, and
nondiscrimination provisions.
 When acting as a contact , not subject to STM economic regulations.
 Must provide safe and adequate service.
 Legal Classification of Carrier

 Contract Carrier
 For-hire carrier that does not have to serve the general public.
 May serve one or a few shippers exclusively
 May offer specialized equipment
 Not subject to regulation on services; rates usually lower than common or regulated
carriers.
 Other aspects of the carrier/shipper relationship sare made a part of the contract
between the two parties.
 Becoming more popular as logistics managers use contract carriage to assure rates and
service levels,.
 Legal Classification of Carrier

 Exempt Carriers
 For-hire carrier exempt from economic regulation regarding rates and services.
 Limited entry controls; low rates.
 Usually haul agricultural products, but there are special rules as to what may be hauled
by each mode of transportation, .eg. Rail piggyback is exempt..
 Limited number of carriers restricts availability
 Legal Classification of Carrier
 Private carriage is the firms own transportation.
 Not for-hire and not subject to Federal regulations.
 May not be the firm’s primary business but can charge a intracompany fee for
transportation services.
 Almost exclusively motor, but some rail, air and water also exist.
 Firms gain ultimate control over shipments and achieve maximum flexibility in moving
goods,.
 Backhauls are usually empty or return materials to the firm’s plants and/or warehouses.
Not any longer
 Requires a large capital investment .
 Requires management time and expertise.
 Intermodal Transportation
 Refer to use two or more modes of transportation cooperating on the movement of
shipment by publishing a through rate.
 Logistic managers are looking for the best way to move shipments and these often
attempt to take advantage of multiple modes of transportation, each of which has
certain useful characteristics.
 Types of Intermodal Services
Birdyback
Coordinated air and Truck
Rail Air

birdyback
Piggyback
Piggyback
Trailer on flat car (TOFC) Fishyback
Container on flat car(COFC) Trainship
Truck
Containership
Fishyback

Water Pipeline
Intermodal Transportation: Containerization
 Referred to as Container-on-Flat-Car (COFC); goods are placed in a large box, where they are
untouched until they arrive at the consignee’s unloading dock.
 Reduce theft, damage , multiple handling costs and intermodal transfer time.
 Change materials handling from labor intensive to capital intensive and may reduce costs from
10 to 20 %
 Land bridge concepts may apply for internal shipments where ocean are separated by a large
land mass.
 For example , container moving from Japan to Europe may dock at Long Beach , CA<
transfer the containers to a railroad, and reload the container onboard another ship in Norfolk,
VA. Continuing on to a European port.
Intermodal Transportation Piggyback
 Trailer-on-Flat-Car (TOFC)
 Over the road trailers ride in special rail cars.
 Takes advantages of motor flexibility and rail’s long haul economic advantage.
 Multiple service plans for shippers.
 Some railroads provide varying levels of service , differentially priced.
Intermodal Transportation Roadrailers
 Newest concepts 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 rail flat car.
 Saves weight and locomotive power and thus fuel for the railroad
 Special lower rates
 Motor competitive transit times.
 Specialized Carrier

 Basic Package Service

 Example are UPS, RPS
 U.S> postal service
 Premium Package Service
 EX: FedEX, Emery Worldwide
 Transportation Services
 Traditional Transportation Carriers
 Intermodal Transportation
 Package Services
 Non Operating Intermediaries
 Freight Forwarders
 Transportation Brokers
 Shipper Associations/Cooperatives Agents
 Freight Forwards
 A freight forwarder, forwarder, or forwarding agent is a person or company that
organizes shipments for individuals or other companies and may also act as a carrier.
 A forwarder is often not active as a carrier and acts only as an agent, in other words as a
third-party(non-asset-based) logistics provider that dispatches shipment via asset-based
carriers and that books or otherwise arranges space for these shipments.
 References

 Supply Chain Management (Theory and Practices) By R P Mohanty & S.G>

Deshmukh
 The Management of Business Logistics : A supply Chain Perspective BY John J Coyle,
Edward J. Bardi and C. John Langley