Importance of an Effective Transportation System

1. Importance of an Effective Transportation System • Accessibility to markets • Greater competition • more distant markets can be served • Economies of scale • wider markets => greater production volume • production points need not be close to markets • Lower prices • increased competition among suppliers • lower production and transportation costs

2. Basic Transportation Modes • Rail • Truck • Air • Water • Pipeline

3. Basic Transport Mode -Rail • long haul • (avg.= 720 ml) • slow mover of raw materials • (22 mph, 64 ml/day) • large loads • common carrier or private • carload, less-than-carload, multiple carload • consolidation, stop-off, re-route Costs • high fixed costs • terminal costs, loading/unloading, yard switching of multi-product multi-shipment trains • low variable costs • proportional to distance

4. Basic Transport Mode -Truck • avg. haul: • 646 miles (LTL) • 244 miles (TL) • avg. shipment less than 10,000 lbs. • Door-to-door convenience • good speed and frequency (small dispatch lots) • cannot carry large loads • common, contract or private Costs • Low fixed costs • carrier do not own roads • high variable costs (50-60 %) • fuel, tolls, taxes, maintenance

5. Basic Transportation Mode - Air • expensive (2  truck, 16  rail) • avg. haul = 1,300 miles • fastest speed • 565 mph air travel speed • terminal time (taxi-ing, holding, ground handling) • constrained by cargo space and lifting capabilities • security high Costs • Fixed costs • terminal and equipment depreciation • Variable costs • inversely related to length of haul • Total cost high, esp. for short deliveries

6. Basic Transportation Mode - Pipeline • limited capabilities • crude oil, water • slow (3-4 mph) • 24-hour service • high capacity • 3 mph, 12-in pipe = 90,000 gal/hr • reliable • low risk of disruption and damage Costs • high fixed costs • pipes, pumping equipment • own or lease right-of-way • Variable costs • pump operation • depends on throughput and pipe diameter • loss through seepage

7. Basic Transport Mode - Water • limited in scope • inland waterways • coastal • heavy , bulk commodities • slow (5 mph on Mississippi) • avg haul: • 500 ml. Inland • 1775 ml. Coastal • affected by weather (freezing, floods) Costs • Fixed costs • mainly transport equipment • waterways and harbours publicly owned • teminal costs: harbour fees, loading/unloading(high costs if not containerised) • Variable costs (low) • no charge for use of waterways • favours bulk commodity goods

8. Intermodal Transport • Truck-Rail “piggyback” • Truck-water “fishyback” Trailer on Flat Car (TOFC) • long haul cost economy of rail • convenience and accessibility of trucks at origin/destination • shipper: door-to-door service at lower than truck rates • rail: more business • 17-fold increase 1960-1996 • now 55% of rail loading in USA Service Plans Plan Shipper Pickup/delivery Rail Haul I S T T/R II S R/T R II 1/4 S R R II 1/2 S R/S R III S S S/R IV S S S(+railcars)/R V S T & R joint service

9. International Transportation • Mainly by Water • over 50% by value • 99% by weight • By Air: 21% by value • Complexities: • customs documentation • limited entry/exit points to a country • limited carrier liability • increased protective packaging

10. Containerised Freight (COFC) • first trip: trailers on a WWII tanker from New Jersey to Texas in 1956 • soon after: specially converted ships to stack van-sized boxes on deck • now: • 75% of US ocean merchandising trade • 70 % by weight of cargo movement of Hong Kong • containerised air freight gaining popularity • standard size avoids re-handling • 8 x 8 x 20 (TEU) • 8 x 8 x 40 or 8 x 8 x 45

11. Foreign Trade Zones • allow customs-free location for storage and repackaging of goods for re-export • pays duty only when goods leave FTZ and enters country (See Figure 6-2 of Ballou)

12. Transportation Costs • Fixed Costs • road/railway acquisition and maintenance, terminal facilities, transport equipment, carrier administration • Variable Costs • fuel, labour, equipment maintenance, handling, pickup and delivery • Cost Allocation Difficult • By shipment? Weight? Volume? • Insurance value? Delivery guarantees? Back Haul Costs?

13. Transportation Rates • Volume-related • minimum charge (AQ) rate • less-than-vehicle-load rate • vehicle load rate • special rate for high volume shipments • Distance related • uniform rate • proportional rate • tapering rate • blanket rate • simplicity • competition • Demand related rates

14. Transportation Rates Freight classification • determined by density, stowability, ease of handling, value, liability, substitutability, risk of damage, fairness • Class Rates • standardised tariffs by weight and distance • “break weight” • Contract Rates • discount rate from class rate tariffs • depends on volume, direction of movement, valued customer? • Freight-All-Kinds • used by freight forwarders • mixed shipments

15. Other Transportation Rates • Incentive rates • for large shipment • Cube rates • for light and bulky goods • Import/Export rates • Deferred rates • used to fill out available space (esp. in air or water mode) • Released value rates • limited liability for carrier • Ocean freight rates • by weight or space basis • set by “carrier conference”

16. Special Service Charges • Diversion and Re-consignment • change destination or change consignee • ship perishables before markets crystallise • use carriers as warehouse • Transit or Stop-off privileges • cost lower than two separate rates • partial loading/unloading • Protection • refrigeration/heating/ventilation • additional bracing • Interlining • carrier transfer shipment and pays 2nd carrier • Terminal services • pickup/deliver, rail switching • detention and demurrage penalty • allowed free time: 48 hours for rail cars • straight plan vs. average plan

17. Documentation • Bill of lading • legal contract between shipper and carrier for freight movement with reasonable dispatch and free of damage • certification of classification and tariffs of goods received • contract of carriage • documentary evidence of title • straight bill of lading (cannot be sold) • order bill of lading (can be endorsed) • Freight bill • invoice of carrier charges • prepaid by shipper or collected from consignee • Freight claims • loss, damage and delay claims • carrier liable for full value • overcharge/misclassification amendments

18. International Transport Documents • Exporting • Importing (see page 180 of Ballou)

19. Transport Service Selection Considerations • Price • line haul, terminal handling, delivery • door-to-door • Average Transit time • Transit Time Variability • increases for multi-modal or consolidated shipments • Loss and Damage Cost, speed and dependability considered most important

20. Transport Service Selection • Trade-off between transport costs and associated inventory costs • Example: Ballou, p. 187, 289 • Competitive considerations • increased patronage due to better transport services • better transport reflected in goods price • transport volume effect on supplier inventory levels

21. Privately-Owned Carrier Fleet Reasons: • service reliability • short order cycle time • emergency response • improved customer contact