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Chapters 5 Transportation Systems & Management
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Transportation Overview
The physical modes connecting the firm to its suppliers and customers (i.e., fixed facilities). Economic utilities and added value time and place utilities Major cost of doing business Importance of transportation has intensified – why? Transportation is a huge demand It is needed due to the desire for other services
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Lean and Logistics Trade-offs
Between transportation and operation costs trade-offs higher transportation cost means _______ inventory costs Key strategy for reducing inventory costs Meeting Logistics customer service requirements Costs Systems Alternatives US PO Less Inv
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The Basic Modes of Transportation
____, ____, ____, ____, ____, and __________. Distribution of ton-miles* for the various mode Recreated by Coyle, Bardi, and Langley (2003).
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Rail door to door service Main goods shipped Characteristics
Capable of carrying a wide variety of products. Esp. goods for _____ volume E.g., ____, ____, fertilizer, mineral, lumber, autos, containers Characteristics ____ haul and ____ volume based on _____________ system Economical land-trans mode (compared with trucking) for long haul. Relatively secure transportation Can offer _______ service for long haul. Capital intensive: high ______ costs Special services: Intermodal (about ____ % of rail revenue); unit train services (for uniform product transport)
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Limited number of Class I carriers
Rail Industry Limited number of Class I carriers Annual rev. > $ ______ mil. Mergers and Acquisitions Pros: Mega-firms are expected to provide customers seamless ____-to-____ service. Cons: Transit times are spotty, but are generally long. Reliability and safety are improving.
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Current Major Carrier Network
BNSF CSX
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Motor Carriers door to door service capability
Used by almost all logistics systems 30% of all intercity freight and near ___% of local freight Characteristics Transit times _____ than rail or water for short distance. Flexibility _______, _____ vehicle size, and speed Cost structure Relatively _____ cost compared to rail and water ____ fixed costs and _____ variable costs. Do not own their rights-of-way. Limited operating authority regarding service areas, routes, rates and products carried. Limited “zone of rate” still exists – “_________________” within 10% of price range. Used for ____ inventory strategies (E.g., ___, ___) due to cost structure & flexibility
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Motor Carrier Industry
Low cost of Entry: National HW (incl. 45K miles Interstates): 160,000 miles Even _ truck-trailer can do. A large number of small carriers: 505,000 registered motor carriers in 1999. Among 12,500 regulated carriers, only 7% of which had revenues >$__ million (Class I), with 76% having revenues <$__ million. The remaining 17 % are Class II carriers. (Common) Recreated by Coyle, Bardi, and Langley (2003).
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Legal Classifications: 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 provide _____ and adequate service. Carrier is liable for damages to products carried. Exceptions to liability include acts of ___, acts of the public enemy, acts of ________, acts of the shipper and defects inherent in the goods. The __________ Act of 1995 eliminated most of the common carrier economic regulation: e.g., entry controls, reasonable rates, and nondiscrimination provisions. When acting as a contract carrier, not subject to ___ (Surface Transportation Board) economic regulations.
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Legal Classifications: Contract Carriers
For-hire carrier that does not have to serve the general public. May serve one or a few shippers exclusively. May offer __________ equipment. _____ subject to regulation on services Rates usually _____ than common or regulated carriers. Other aspects of the carrier/shipper relationship are made a part of the contract between the two parties. Becoming ____ popular as logistics managers use contract carriage to assure rates and service levels.
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Legal Classifications: Exempt Carriers
For-hire carrier exempt from economic regulation regarding rates and services. ______ entry controls; _____ rates. Usually haul ______ 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.
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Legal Classifications: Private Carriers
The firm’s own transportation. Not for-hire and thus ____ subject to Federal regulations. Pros: Cons: Requires ___________ are usually empty or return materials to the firm’s plants and/or warehouses. Almost exclusively motor, but some rail, air and water also exist.
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Air Carriers ___-to-____ service
Passenger/freighter combo or all freighter Carry goods with a high value to weight ratio (i.e., _____ density). Characteristics Extremely rapid Rates are _____________ Do not own rights-of-way. Accessibility is low as is capability (B747 = 120 ton/12 ton). Reliability subject to weather more than other modes.
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Goods Shipped by Air (2003) Source: Clancy, B. and D. Hoppin (2004) The MergeGlobal World Air Freight Forecast, MergeGlobal, Inc. Thus, ________________________________________ _____________________________________________ Source: Clancy, B. and D. Hoppin (2004) The MergeGlobal World Air Freight Forecast, MergeGlobal, Inc.; Prepared by Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University.
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Air Carrier Industry Limited number of large carriers earn about ___% of the revenue. Average revenue per ton mile ___ times higher than rail and twice that of motor. Rapid growth in global demand Most secured and at the same time vulnerable to weather more than other modes.
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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 ___% of the freight, while private and exempt carriers haul the other ___% of the ton-miles. Relatively low cost mode; do not own the rights-of-way; ____ entry and exit. Typically a ____ distance mover of low value, bulk-type mineral, agricultural and forest products ____ rates but long transit times Low accessibility but high capability
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Pipelines Refers only to the oil pipelines, not natural gas
Accessibility is very ______. Not suitable for general transportation Cost structure is highly fixed with low variable costs. Own rights-of-way much like the railroads. Major advantage is __________.
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Comparisons of Different Modes
highly efficient for moving large quantities of gas and liquid provides fast delivery at a high cost for bulky products that are not time sensitive highly flexible, relatively fast, for short to medium distances low cost, best for bulk goods going long distances
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Intermodal Transportation
Use of two or more modes of transportation cooperating on the movement of shipment by publishing a _________ rate. Prerequisites of IM Containerization
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Driving Forces of Containerization and Multimodal Transport
Cellular ships Specialized terminals Land consumption Gantry cranes Multi-rate structure Management and coordination Mergers Logistics Source: adapted from Hayuth (1987) Control over cargo Multimodal operators Multimodal Transportation © , Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University
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Intermodal Equipments
Containers highway trailers ______ standard freight containers (10 – 45 ft. long) > 90 % of ISO containers: ___ or ___ ft. long, ___ or ___ ft. high containers. Non-ISO std containers: 45 – 53 ft. long & 9.5 ft. high. Special Types: flat racks, open tops, refrigerated, heated thermal, vented, ventilated, tank, etc. Handling Equipments Lifting equipment: _____ crane & spreader, forklifts, straddle carriers, stacking gantry cranes, side loaders
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Types of Intermodal Services
© 2003, Coyle, Bardi, and Langley.
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Interchangeability / Consolidation of Intermodal Transportation
Composition ‘Last mile’ Interchange Transfer ‘First mile’ Local / Regional Distribution Decomposition National / International Distribution Transport Terminal © , Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University
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Intermodal Transportation
Benefits of IM to international trade Cargo is loaded _________ reachable by rail/truck. Single “_________.” (i.e., 1 contract for multiple modes) No need of making the various interconnecting arrangements ____ to ___ service _________________ time - reliability Reduced damage thanks to few handling Reduced pilferage owing to reduced exposure of merchandise and/or protection.
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Indirect and Special Carriers
Small-Package Carriers Evolved to carry small, irregular shipments Fast service, premium rates Examples are UPS, FedEx, RPS (FedEx Ground, B-to-B), etc. Consolidators and __________________ Consolidates many small shipments Saves shippers by using CL or TL rates Examples are J.E.S. Forwarding, AAA Cooper, Averitt, Southerneastern Freight Lines, etc. Shippers Associations Acts as a consolidator for members Object is also to get lower rates Examples are …
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Indirect and Special Carriers
Brokers Acts as an intermediary May be licensed by ____ Often used to provide backhauls for private carriers Intermodal Marketing Companies (IMC) An intermediary that solicits shipments for rail/motor intermodal service. Can speed traffic through consolidation (fills the normal two-trailer load on an intermodal flat car, avoiding delays waiting for another trailer going to the same destination). Particularly advantageous for small (one trailer) shippers.
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Value Per Ton of U.S. Freight Shipments by Transportation Mode, 2002
Source: BTS. © , Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University
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Transportation Spectrum Diagram
Inter-Modal Rail Truckload LTL Parcel Big Slow $ Cheap $ Lowers Cost Small Fast $ Expensive $ Improves Service* *T/L is generally faster than LTL, but not always as readily available
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Distance, Modal Choice and Transport Costs
______ C3 Transport costs per unit _____ _______ D1 D2 Distance © , Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University
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Chapter 10 Transportation Management Strategy:
Impacts of Deregulation Shipper’s Initiatives Proactive Management Approach Reducing the Number of Carriers Negotiating with Carriers Contracting with Carriers: Carrier Evaluation Transportation Rates Documentations
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Federal Transportation Deregulation History
____ Transportation was first deregulated in 1977. The ______________ Act of 1980: rail and motor transportation. the ___________________ Act of 1995: Virtual deregulation. Major effects of deregulations: Transportation carriers became able to negotiate rates and services with shippers rather than adhere to published rates and services. Motor and Water Carriers Rate and tariff-filing regulations eliminated except for household and noncontiguous trade (b/w 48 states and Alaska, Hawaii, Puerto Rico, or an insular territory or possession of the United States). ________________________________. All carriers may contract with shippers. _____________________ for collective ratemaking for single line abolished.
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Federal Transportation Deregulation
Freight Forwarders and Brokers Both are required to register with the Surface Transportation Board (STB). Brokers must also post a $________ bond to ensure payment to the carriers. No economic rate or service controls. Freight Forwarder is considered a _____ and is thus ______ for freight damages.
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Effects of Deregulation 1
Dynamic, Rapidly-Changes – why? Changing business environment ____________________ Deregulation Greater pricing and _______________ __________________ concept Service customization Mergers and acquisition for efficiency (_________) and effectiveness (______________) Financial Success leads to investment in innovation, infrastructure, and safety Technological Innovation Transportation Management System (TMS) for better allocating resources and tracking
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Order Shipment Receipt
What is a TMS? Shipment Planning - ____________________ load building/optimization/routing ____________________ Shipment Execution - load tendering/bidding ________________ Freight Accounting - audit/payment control ______________ allocation/accruals Rate Plan Tender Ship Track Pay Account Order Shipment Receipt © 2004 Logility, Inc.
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Effects of Transportation Deregulation 2 Constant Dollars Where Appropriate, Indexed to 1981 = 100
Data Source: AAR Fact Books. Chart Design: R.E. Gallamore 300 Staggers Rail Act* 250 200 150 Productivity Volume Revenue Price / Mix 100 50 1990 1964 1970 1985 2000 2003 1975 1995 1981 * The Staggers Rail Act was passed in 1980, but implementation did not begin until 1981. © John R. Meyer, Harvard University, and Robert E. Gallamore, Northwestern University
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Transportation Initiatives at Shipper Firms Today
Competition and innovation is good: More __________ and more ___________. Improved Planning and Control of Transportation Shift from Transactional to Contractual Basis As ____________ increases ________ (e.g., ) matters more than price. Concentration of Business Into Fewer Suppliers For better price and _______________ Integration of Transportation Needs with Broader Logistics Requirements New Partnerships Forming For integrated service across regions, functions, etc. toward competitive advantage
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Proactive Management Approach
Creativity in problem solving no longer restricted by fixed regulations thanks to deregulation. Broader Scope of Transportation Manager’s Responsibilities Carrier Selection Rate/Service/Contract Negotiation Tracing, Expediting, and Claims Upgraded Set of Accountabilities _____________ (to control and reduce costs via bill review, vendor evaluation, etc.) Customer Service Overall Quality and Customer Satisfaction Greater Awareness of and Interest by Executive-Level Management
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Trends in Automation of the Shipper Transportation Management Function
Source: LaLonde, et. al., The Evolution, Status, and Future of the Corporate Transportation Function, AST&L, 1991
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Negotiating & Contracting with Carriers
Deregulation made possible negotiations between carriers and customers . Rate negotiation is a common outcome of deregulation Elevating the carrier to partnership status in the supply chain philosophy assists in assuring a win-win arrangement between the partners. As in any contract, special and/or custom services such as _____ can be negotiated. Shippers are often rewarded with lower rates as the amount shipped increases. Contracts may be written with minimum shipment size per shipment or for annual cumulative shipment size. Quantity discounts are real savings that the carriers pass on to shippers.
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Reducing the Number of Carriers
Consolidation of freight increases the shippers leverage with the remaining carriers. Being one of a carrier’s largest customers gives the shipper increased negotiating power. Shippers become more important to the carriers as they funnel larger volumes to fewer carriers. For example, one shipper went from 131 to ____ carriers. Improved service from the remaining carriers decreased its inventory by $30 million. Supply chain strategic alliances are also created through consolidation.
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Comparison of Basic Modes of Transportation
Cost/Price Market Coverage Degree of Competition Predominant Traffic Types Avg. Length of Haul (Domestic) Equipment Capacity Step I Step II
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Performance Rating of Modes
Selection Determinants Railroad Motor Modes Water Air Pipeline Cost 1 Transit time --- Reliability Capability 5 Accessibility Security © 2003, Coyle, Bardi, and Langley.
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Principal Carrier Selection Determinants
_________ ___________ – to deal with ____, ______, and ________ Capability __________ Infrastructure to deal with capability and _________ ___________________ Environment
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