1. Chapters 5 Transportation Systems & Management

2. 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

3. 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

4. The Basic Modes of Transportation
____, ____, ____, ____, ____, and __________.
Distribution of ton-miles* for the various mode
Recreated by Coyle, Bardi, and Langley (2003).

5. 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)

6. 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.

7. Current Major Carrier Network
BNSF
CSX

8. 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

9. 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).

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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

18. 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 __________.

19. 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

20. Intermodal Transportation
Use of two or more modes of transportation cooperating on the movement of shipment by publishing a _________ rate.
Prerequisites of IM
Containerization

21. 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

22. 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

23. Types of Intermodal Services
© 2003, Coyle, Bardi, and Langley.

24. 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

25. 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.

26. 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 …

27. 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.

28. Value Per Ton of U.S. Freight Shipments by Transportation Mode, 2002
Source: BTS.
© , Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

29. 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

30. Distance, Modal Choice and Transport Costs
______ C3
Transport costs per unit
_____
_______ D1 D2
Distance
© , Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

31. 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

32. 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.

33. 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.

34. 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

35. 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.

36. 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

37. 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

38. 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

39. 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

40. 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.

41. 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.

42. 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

43. 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.

44. Principal Carrier Selection Determinants
_________
___________ – to deal with ____, ______, and ________
Capability
__________
Infrastructure to deal with capability and _________
___________________
Environment