1. Transport Fundamentals
Chapter 6
CR (2004) Prentice Hall, Inc.

2. The Role of Transportation in Logistics
In 1999, U.S. firms spent an estimated $554 billion to move freight, or 9.9% of the GNP1; this is up from 397 billion, or 6.3% of the GDP in 1993.

3. The Role of Transportation in Logistics
In 1999, as a percentage of sales, transportation was 3.24%, warehousing 1.84%, customer service 0.48%, administration 0.38%, and carrying cost 1.52%.

4. 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, firms need to keep the big picture in mind when attempting to select a carrier.

5. The Transport Selection Decision
The Carrier Selection Decision:
Various modes of transportation should be considered.
Choose a carrier or carriers within the selected mode, if there is a choice.
Carefully examine the service capabilities of the carrier as services can vary widely between carriers.

6. Figure 9-1 The Carrier Selection Decision

7. The Transport Selection Decision
Carrier Selection Determinants:
Cost
Transit time and reliability
Can be a competitive advantage
Lowers customers’ inventory costs
Capability
Accessibility
Security

8. Figure 9-2 Carrier Selection Determinants and User Implications

9. 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

10. Figure 9-3 Importance Ranking of Carrier Selection Determinants

11. The Basic Modes of Transportation3
The basic modes available to the logistics manager are rail, motor, water, pipeline, and air.

12. 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.

13. The Basic Modes of Transportation: Railroads
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.

14. 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

15. 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.

16. 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.

17. The Basic Modes of Transportation: Motor Carriers
High accessibility
Transit times faster than rail or water.
Reliability can be affected greatly by weather.
Relatively high cost compared to rail and water; trade-off is faster service.

18. 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.

19. The Basic Modes of Transportation: Domestic Water Carriers
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

20. 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

21. 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.

22. 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

23. 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.

24. 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.

25. 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.

26. 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.

27. Table 9-2: Performance Rating of Modes
Selection
Determinants
Railroad
Motor
Modes
Water
Air
Pipeline
Cost 3 4 2 5 1
Transit time
---
Reliability
Capability
Accessibility
Security

28. Importance of Modes (Cont’d)
By Volume Moved
Percent
Transportation
of total
mode
volume
Railroads
36.5%
Trucks
24.9
Inland waterways
16.3
Oil pipelines
22.0
Air
0.3
Total
100.0
CR (2004) Prentice Hall, Inc.

29. Relative Costs of Performance
Price,
Mode
¢/ton -
mile
Rail
2.28
Truck
26.19
Water
0.74
Pipeline
1.46
Air
61.20
CR (2004) Prentice Hall, Inc.

30. Rate Types Class rates Exception rates Commodity rates Contract rates
Freight all kinds (FAK)
Released value rates
Differed rates
Container rates
Special service charges
CR (2004) Prentice Hall, Inc.

31. Special Carriers and 3PL
Freight forwarders
Shippers’ association
Transportation brokers
Container leasing Co.
Freight audit/payment
Equipment leasing (e.g., Ruan)
CR (2004) Prentice Hall, Inc.

32. Intermodal Transportation
Refers to use of two or more modes of transportation cooperating on the movement of shipment by publishing a through rate.
Logistics 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.

33. Figure 9-6 Types of Intermodal Services

34. Intermodal Transportation
Biggest disadvantage is that carriers are reluctant to participate.
Cultural bias towards using only one mode and this makes change more difficult.
Certain types have been fairly well developed, such as rail/water, motor/water, rail/motor, and motor/air.

35. 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 consigee’s unloading dock.
Reduces theft, damage, multiple handling costs and intermodal transfer time.
Changes materials handling from labor intensive to capital intensive and may reduce costs from 10 to 20%.

36. 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