Chapter 11 Global Transportation Execution

Chapter 11 Global Transportation Execution
Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 11 Global Transportation Execution © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction Global shipment execution is complex
Involves multiple carriers from different modes Many border crossings and long distance shipments Flawless transportation execution requires: Internal expertise and attention to detail Strong relationships with capable service providers Chapter organization Global freight flows and key execution activities Key players in global transportation execution Customs clearance © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Overview of Global Freight Flows
Global freight: two primary service options Direct service Direct origin-destination (one country to another country shipment), no interim stops-offs Typically between bordering countries Single mode of transport, typically motor carrier Indirect service Typically, shipment requires multiple modes, i.e. intermodal transportation Multiple interim stops required to transfer freight between carriers or modes © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

© 2011 Cengage Learning. All Rights Reserved
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Overview of Global Freight Flows Intermodal Transportation
Definition: Two or more modes used to move shipment from origin-destination Facilitates global trade by combining inherent advantages of each mode Greater accessibility is created for ocean or air line haul transport by combining with truck or rail Overall cost efficiency can be achieved without sacrificing service quality or accessibility Flexibility to suit the shipment situation © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Model combination options – most frequently used combinations are: Carrier, rather than shipper typically makes determination of which combination to use Pick up Linehaul Delivery Truck Air Truck or rail Ocean Rail © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Primary freight types Containerized freight Freight loaded into/onto a container or pallet that is shipped to destination with no interim handling of freight Containers are efficient way to handle and ship freight Standard height and width specifications Ships and landside loading/unloading facilities designed to efficiently handle and store standard sized containers Five common container lengths © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Containerized freight (continued) Container capacity expressed in twenty-foot equivalent units (TEU). TEU is a measure of containerized cargo capacity equal to one standard 20 ft. (length) by 8 ft. width container Accounts for 90% of non-bulk cargo worldwide Continued growth due to: Application of info. systems to track containers Development of intermodal terminals for efficient transfers of containers between modes New generation of ships, railcars and trucks specifically designed for containerized freight © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transload freight Goods (shipments) handled individually, not put in containers or on pallets Typically consists of bulk raw materials that must be scooped, pumped, lifted, or conveyed when transferring between modes Due to weight and volume of typical shipment, air transport rarely used for linehaul Ocean, rail, and pipeline are primary modes used © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Intermodal routing alternatives to all-water routing Land bridge: movement from one seaport to another substituting rail for portion of ocean trip Two primary land bridge routes Asia-America-Europe Rail substitutes for Panama Canal portion of trip Shorter total transit time, larger ships may be used Asia (Japan, Southeast Asia)-Europe Substitutes Trans-Siberian rail across Russia for voyage around Cape of Good Hope or through Suez Canal © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Mini-bridge A port is the origin or destination, rail and ocean transport are used for line haul Example: Seattle to Baltimore via rail coupled with ocean voyage from Baltimore to Rotterdam (called an ocean focused mini-bridge) Micro-bridge Similar to mini-bridge except origin or destination is an inland port Example: St. Louis to Baltimore via rail coupled with ocean voyage from Baltimore to Rotterdam © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Intermodal challenges Landside congestion U.S. seaport capacity, particularly Pacific coast ports Road and rail congestion on port access routes Intermodal rail equipment shortages Labor issues © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Overview of Global Freight Flows Preparing Freight for Movement
Principal activities Packing the freight to prevent damage Four potential in-transit problems to protect against Breakage Moisture Pilferage Excess weight Normally, air transport requires less protective packaging than ocean transport Proper carton markings is critical consideration © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Overview of Global Freight Flows Preparing Freight for Movement
Insuring the goods against key risks Risks to international cargo shipments higher than for domestic shipments Typically, risk is managed by purchasing freight insurance Completing necessary documentation to control shipment Four primary documents Invoices Export and import documents Transportation documents © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Overview of Global Freight Flows Policy and Regulatory Issues
As in domestic transport, safety, security, and environmental impacts have high priority Primary security-focused legislation Maritime Transportation Security Act of 2002 Container Security Initiative Advanced Manifest Rules Has been enhanced by the Importer Security Filing regulation, commonly known as the “10+2” rule © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Transportation Providers
All modes, including pipelines, involved in global transport market Most freight moving between continents (intercontinental) is shipped by ocean or air Ocean carriers transport 98% of containerized trade volume and 60% of trade value Most intra-continental freight moves by truck The focus of this section is on intercontinental ocean and air transport © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Transportation Providers Ocean Shipping
Service options Liner service Ships sail on published, regular schedules Sail over fixed trade routes with pre-determined ports of call. Example route: Trans-Pacific between Asia and N. America Some may sail on “around the world” schedules Different types and sizes of ships used Ships assigned to routes based on capacity, draft and cargo handling capabilities May carry containers or break-bulk freight © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Charter service Ships hired for specific voyage or period of time Ship owner leases (charters) vessel to customer (charterer) Four common types of charters Each varies on the basis for charging rates and on the degree of vessel control assumed by charterer Voyage and time charters, bareboat charter, demise charter Private service Ship owed or leased on long-term basis by firm owning the goods transported Example: Chiquita Brands International’s fleet of refrigerated ships © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Ship registry Each ship operating in commercial service is registered in a country Registration requirements vary by country Most ships registered in “flags of convenience” nations rather than owner’s country of citizenship Offer advantageous fees and few regulations Most popular countries are: Panama, Liberia, China, Malta, and the Bahamas © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Equipment (vessel) types Containerships High capital cost but designed for quick unloading/loading Port turnaround time: 12 hours vs. days for break-bulk ships Enables higher ship utilization and return on investment Lower labor costs – lifting/moving done mechanically by dockside cranes, but, limited to ports with such crane systems Dominant vessel for packaged goods ocean shipping Number and size of vessels increasing Largest Panamax ships carry 5,000 TEUs Post-Panamax ships introduced in 1996, 6,400 TEU capacity Newest post-Panamax vessel carries 13,800 TEUs © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Break-bulk ships Versatile, multi-purpose vessels Capable of carrying varied and unusual sizes of freight On-board crane systems increase flexibility – not limited to ports with dockside crane systems Smaller capacity but lower capital cost than containerships Varied sizes of freight increase loading/unloading labor intensity and greatly slow port turnaround times Declining share of international trade RORO ships Specialized design enables wheeled vehicles to be driven on and off ship © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Bulk carriers (vessels) Varied vessel types dedicated to specific type of bulk product Crude carriers (tankers) move petroleum products Extremely large vessels, limited to deep water ports Dry-bulk carriers move grains, coal, ores, etc. Gas carriers move compressed gases like LNG Combination ships Small but very flexible vessels with on-board cranes Capable of handling containers, break-bulk cargo, and wheeled vehicles on same vessel Thrive in serving smaller or developing markets © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Rate structure – liner operations Total cost (capital + operating) structure is largely fixed and common 80-90% total cost is fixed Large common costs associated with marketing, management and business development Operating costs alone also largely fixed, meaning they do not vary with volume hauled Principal variable costs are for fuel and for loading and unloading operations © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Due to high portion of fixed costs, liner services rely on value of service pricing to maximize total revenue earned per trip Rates may vary over a wide range depending upon the traffic’s price elasticity of demand 80% of liner cargo moves under negotiated contract rates Ocean Shipping Reform Act (OSRA) of 1999 Reduced influence of collective rate-making shipping conferences Fostered a more market-driven rate making environment, leading to a much higher % of cargo moving under contract rates © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Rate structure – charter operations Total costs are largely fixed Charter rates are negotiated Rates are heavily influenced by supply-demand conditions that tend to be very fluid Negotiation process involves the ship owner and the charterer (customer) Typically each party negotiates through their shipbroker representative The product of the process is a charter party (contract) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Current issues Aligning supply with demand Demand can fluctuate relatively quickly while adding capacity takes years and is capital intensive When demand rises, there tends to be periods of rising rates and capacity shortages until additional ships are built When demand falls, there tends to be a capacity surplus and rapidly falling rates Rapidly fluctuation fuel prices, rising port fees Environmental protection legislation Freight security © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Transportation Providers International Air
Significance in global freight transport Small % of tonnage traded internationally, but accounts for 35% of value Air carriers focus on Small quantities of high value, low weight, semi-finished and finished goods Computers, precision instruments, electronics Pharmaceuticals, perishable foods, periodicals, fashion apparel © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Service options – two primary types Air cargo carriers Exclusively carry freight (no passengers) Customers have scheduled or charter service options Charter or on-demand services tend to be used in special circumstances, such as: Emergencies, e.g. prevent production line shutdown Oversize goods Locations not served by scheduled service carriers Customized services © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Air cargo carriers (cont.) Integrated carriers - Examples: FedEx, UPS, DHL Provide door-to-door services focused on time-sensitive goods Offer consistent schedule of pick-up and delivery windows Offer high degree of shipment visibility Non-integrated carriers – Examples: Cargolux, Polar Air Cargo Provide airport-to-airport, unscheduled service Advantage: speed including potential for same day delivery Utilizes freight forwarders or customers for pick-up, delivery Combination carriers Move freight and passengers, often in same plane Largest air cargo carriers © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Equipment types Distinguished by configuration of plane Air freighters dedicated solely to carrying freight Capable of carrying freight on pallets or in containers Passenger planes - freight carried in plane belly Shipments tend to be smaller, not palletized or in containers Combi aircraft Main deck can carry both people and freight © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Rate structure High proportion of variable costs Fixed costs relatively low as carriers do not have to invest in rights-of-way or airport terminals Rates based on combination of value and cost of service pricing principles Rate setting must be very sensitive to cargo density Carriers calculate dimensional weight (dim weight) Low density cargo rates based on dim weight © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

International air freight pricing Governed in part by International Air Transport Association (IATA) via the Air Cargo Tariff (TACT) Provides general guidelines for rate setting Carriers not required to use guidelines, major carriers do not TACT includes three types of rates General cargo rates, class rates, commodity rates Container rates Cost-based rate Rate applies to a minimum weight in the container © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Current issues Aligning supply with demand During economic downturn, many planes grounded, routes cut, and service frequencies reduced Fluctuating price of jet-fuel Cost of security mandates Homeland security fees and cargo screening costs Security personnel training costs and salaries Overall profitability of air cargo industry © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Transportation Providers Surface Transport
Trucking Primary mode for intra-continental shipments Inhibited by varying domestic regulations Truck dimension limits vary from country to country Safety regulations - speed limits, driver hours-of-service, inspection requirements - also vary Limitations on operations during certain hours of day Rail and pipeline are principal other modes © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Global Transportation Providers Ancillary Services
International freight forwarders Primary role: help shippers reduce transport costs Primary approach: shipment consolidation Other roles Help shippers navigate complexity of global transport Expertise in freight documentation, customs clearance Non Vessel-owning Common Carriers Specialists in less-than-container load consolidation Export packers Experts in export cargo packing and marking © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Port Operations and Customs Clearance
Most intercontinental trade moves through seaports or airports Most are owned by governments Most are managed by port authorities Governmental or quasi-governmental public agencies Port authorities are financially self-supporting Port authorities have power to develop infrastructure, set user fees, and in some cases, levy taxes Examples: Port Authority of New York and New Jersey © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Port Operations and Customs Clearance Seaports
Thousands of seaports globally Most freight moves through relatively small number of major ports Port infrastructure dictates port capabilities Cargo handling equipment Water depth and water basin width Number and size of ship berths Size of marshalling yards and warehouses Landside mode accessibility © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Port Operations and Customs Clearance Seaports
Current issues Increasing size of containerships Security: challenge of maintaining compliance with dynamic government initiatives. In U. S., these initiatives include Container Security Initiative Security and Accountability for Every Port Act (SAFE) Preparation for future growth or changing trade flows © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Port Operations and Customs Clearance Airports
Most intercontinental air freight moves through airports serving passengers and cargo A few new all-cargo airports are emerging Less congested and lower operating costs than multi-purpose airports Infrastructure Runway length and number determine capacity Cargo handling equipment Terminal and warehouse facilities © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Port Operations and Customs Clearance Airports
Current issues Adapting capacity to fluctuating demand conditions Preparing for future growth New security regulations require Better airport access control Better cargo screening facilities and equipment Ground safety and air traffic control systems © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Port Operations and Customs Clearance Customs Clearance
Can be very complex Customs brokers provide expertise In U.S., customs clearance is a six step process Entry filing (document filing) Goods arrival Goods examination Classification for charging of import duties Taxation Release of goods for domestic delivery © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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