You are on page 1of 27

The Basic Modes of Transportation: Railroads

Capable of carrying a wide variety of products, much more so that other modes. Very small number of carriers; likely only one will be able to serve any one customer location. Trend is to merge smaller companies into larger ones with ultimate goal of having perhaps two transcontinental rail carriers.

Chapter 9

Management of Business Logistics, 7th Ed.

The Basic Modes of Transportation: Railroads

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 (high fixed costs; own rights-of-way). Accessibility can be a problem. Transit times are spotty, but are generally long.
Management of Business Logistics, 7th Ed.

Chapter 9

The Basic Modes of Transportation: 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 (IMC)
Management of Business Logistics, 7th Ed.

Chapter 9

On the Line: Its the Service, Stupid

Its difficult to assess the railroad industry without getting into the subject of service Shippers complain; rail carriers say they are trying to improve. Wall Street says that improving service is imperative. Actual improvements are coming, but slower than the demand for faster, more reliable, and cheaper service. One problem is that standards continue to increase.
Chapter 9 Management of Business Logistics, 7th Ed. 4

The Basic Modes of Transportation: 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 causes these large numbers. Used by almost all logistics systems and account for 82 percent of U.S. freight expenditures. Consists of for-hire and private carriers.
Chapter 9 Management of Business Logistics, 7th Ed. 5

Figure 9-4 Overview of Interstate Motor Carrier Industry

Chapter 9

Management of Business Logistics, 7th Ed.

The Basic Modes of Transportation: Motor Carriers

Large number of small firms; in 1999, there were 12,500 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 rights-of-way. Limited operating authority regarding service areas, routes, rates and products carried.
Chapter 9 Management of Business Logistics, 7th Ed. 7

The Basic Modes of Transportation: Motor Carriers


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.

Chapter 9

Management of Business Logistics, 7th Ed.

Figure 9-5 Overview of the Domestic Water Carrier Industry

Chapter 9

Management of Business Logistics, 7th Ed.

The Basic Modes of Transportation: Domestic Water Carriers

Available along the Atlantic, Gulf and Pacific coasts, along the Mississippi, Missouri, Tennessee and Ohio River systems and the Great Lakes. Regulated common and contract carriers haul about 5% of the freight, while private and exempt carriers haul the other 95% of the ton-miles.

Chapter 9

Management of Business Logistics, 7th Ed.

10

The Basic Modes of Transportation: Domestic Water Carriers

Relatively low cost mode; do not own the rights-ofway; easy entry and exit. Typically a long distance mover of low value, bulktype mineral, agricultural and forest products Low rates but long transit times Low accessibility but high capability
Management of Business Logistics, 7th Ed.

Chapter 9

11

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.

12

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; increasingly more common and important Larger vessels can handle up to 5,000 containers.

Chapter 9

Management of Business Logistics, 7th Ed.

13

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, 7th Ed.

14

The Basic Modes of Transportation: Air Carriers

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.
Management of Business Logistics, 7th Ed. 15

Chapter 9

The Basic Modes of Transportation: Air Carriers

Average revenue per ton mile 18 times higher than rail; 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.
Management of Business Logistics, 7th Ed. 16

Chapter 9

The Basic Modes of Transportation: Pipelines


Refers 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.
Management of Business Logistics, 7th Ed.

Chapter 9

17

The Basic Modes of Transportation: Pipelines


Accessibility is very low. Cost structure is highly fixed with low variable costs. Own rights-of-way much like the railroads. Major advantage is low rates.

Chapter 9

Management of Business Logistics, 7th Ed.

18

Table 9-2: Performance Rating of Modes


Selection Railroad Motor Determinant s Cost Transit time Reliability Capability Accessibility Security 9 Chapter 3 3 2 1 2 3 4 2 1 2 1 2 Modes Water 2 4 4 4 4 4 Air Pipeline

5 1 3 3 3 1

1 ----5 ----19

Management of Business Logistics, 7th Ed.

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. Must transport all commodities offered... Commodities are limited to those that the carriers equipment will handle.
Management of Business Logistics, 7th Ed.

Chapter 9

20

Legal Classifications of Carriers: Common Carrier

Carrier is liable for damages to products carried. Exceptions to liability include acts of God, acts of the public enemy, acts of public authority, acts of the shipper and defects inherent in the goods. Continued service is assisted by ceiling and floor limits on the rates charged. Backbone of the transportation industry.
Management of Business Logistics, 7th Ed. 21

Chapter 9

Legal Classifications of Carriers: Regulated Carrier


Regulated carriers are found in motor and water carriage. The ICC Termination Act of 1995 eliminated most of the common carrier economic regulation for these two modes, including entry controls, reasonable rates, and nondiscrimination provisions. When acting as a contract carrier, not subject to STB economic regulations. Must provide safe and adequate service.
Management of Business Logistics, 7th Ed. 22

Chapter 9

Legal Classifications of Carriers: Contract Carriers

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.
Management of Business Logistics, 7th Ed. 23

Chapter 9

Legal Classifications of Carriers: Contract Carriers

Other aspects of the carrier/shipper relationship are 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.

Chapter 9

Management of Business Logistics, 7th Ed.

24

Legal Classifications of Carriers: 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, e.g., rail piggyback is exempt.. Limited number of carriers restricts availability.
Chapter 9 Management of Business Logistics, 7th Ed. 25

Legal Classifications of Carriers: Private Carriers

Private carriage is the firms own transportation. Not for-hire and not subject to Federal regulations. May not be the firms primary business but can charge a intracompany fee for transportation services. Almost exclusively motor, but some rail, air and water also exist.
Management of Business Logistics, 7th Ed. 26

Chapter 9

Legal Classifications of Carriers: Private Carriers

Firms gain ultimate control over shipments and achieve maximum flexibility in moving goods. Backhauls are usually empty or return materials to the firms plants and/or warehouses. Requires a large capital investment. Requires management time and expertise.

Chapter 9

Management of Business Logistics, 7th Ed.

27