Transportation Functionality
1.) Primarily consists of product movement services
Product movement is the transfer of inventory to specified destinations.
2.)Secondarily consists of product storage services while product is in a vehicle / conveyance
-In-Transit Inventory is captive in the transport system
--Managers strive to reduce in-transit inventory to a minimum
Two important aspects of transportation are:
Restrictive Element — in-transit inventory is "captive", usually inaccessible during transportation
Flexible Element — inventory can be diverted during shipment to a new destination
Transportation consumes time, finances, and environmental resources. Transportation:
-Accounts for more than 60% of the total cost of logistics
-Is one of the largest consumers of oil and gas
-Negatively impacts traffic congestion, noise and air pollution
Product can also be stored in transport equipment at
-Product can also be stored in transport equipment at origin or destination (trailers, containers, railcars, pipeline, etc.)
-Usually more expensive than traditional
warehousing
-Must pay rental or demurrage charges on transport
equipment used for storage
-Less secure
-Special handling, i.e. cold chain, could be an issue
Economy of Scale:
The cost per unit weight decreases as the size of the shipment increases
At least until you totally fill the conveyance (i.e. "max out" or "cube out").
Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment.
Economy of Distance:
The cost per unit weight decreases as distance increases
Often called the tapering principle
Longer distances allow the fixed cost of the carrier to be spread over more miles, lowering the per mile / per unit charge.
Fundamental Transport Principles
Economy of Scale and Distance
-The goal is to maximize the size of the load and distance shipped while still meeting service expectations
Transport Participants
Consignor (Shipper)
Consignee (Receiver)
Carrier and Agents
Government
Internet
Public
Exempt Carriers -
Exempt from regulation of services and rates if they transport exempt products like produce, livestock, coal, or newspapers.
Private Carriers -
not subject to economic regulation. Typically transport goods for the company owning the carrier.
Social Regulation
Social regulation which takes measures to protect public safety and the environment
-Department of Transportation (DOT) (1966) took an active role in hazardous material safety and driver safety
-Hazardous Materials Transportation Uniform Safety Act (1990) took precedence over state and local regulations
Economic Regulation
seeks to make transportation equally accessible and economical to all without discrimination
Government created infrastructure (roads, canals, ports, etc.)
Intended to prevent carriers from taking advantage of shippers while ensuring long-term financial stability for carriers
Regulation time period
1800's - The rise of steamships
and railroads created immense wealth and monopolies (e.g., Commodore
Vanderbilt and the railroad "barons")
1870's - Granger laws regulated the Railroads
1887 - Interstate Commerce Act created the Interstate Commerce Commission (ICC) to oversee interstate transportation
Primarily to stop the railroad monopolies
1920 - Transportation Act changed the Interstate Commerce Act
1935 - Motor Carrier Act brought motor carriers under Interstate Commerce Commission control.
1940 - Transportation Act established Interstate Commerce Commission control over domestic water transportation
1958 - Federal Aviation Act created air traffic and safety regulations and the national airport system.
1966 - Department of Transportation Act established to coordinate all transportation-related matters.
By 1970, ICC had oversight of
100% of rail and air
80% of pipeline
43% of trucking
6% of water carrier operations
1920 - Merchant Marine Act
Only U.S.-built ships operating under a U.S. flag with U.S. crews can ship goods directly from a U.S. port to another U.S. port
The thought at one time was that such a law would promote U.S. shipping
by providing preferential treatment of US vessels over "foreign"
vessels.
2000 - Continued Dumping and Subsidy Offset Act
Fines for artificial underpricing and "dumping" of foreign goods in U.S. markets. Repealed effective October 1, 2007
2001 - Patriot Act
Increased inspections at ports, airport security, and increased security at border crossings
C-TPAT, CSI, etc.
Transportation Deregulation
1976 - Railroad Revitalization and Regulatory Reform Act
Railroads could change rates without ICC approval
1977 - Air freight deregulated
1980 - Motor Carrier Act deregulated the motor carrier industries
Entry restrictions for new businesses were relaxed
Restrictions for types of freight and range of services were abolished
Individual carriers were given the right to price their services
Trucking industry's collective rate-making practices were abolished
Staggers Rail Act deregulated the rail industry
Provided railroad management with freedom necessary to revitalize the industry
Rail carriers were authorized to use selective pricing to meet competition and cover operating costs
Carriers were given increased flexibility with respect to surcharges
Contract rate agreements between individual shippers and carriers were legalized
Rail management given liberal authority to proceed with abandonment of
poorly performing rail service, i.e., eliminate unprofitable routes.
1984 -- Shipping Act
1984 - Shipping Act
Allowed ocean carriers to pool shipments, assign ports, publish rates, and enter into contracts with shippers
1995 ICC Termination Act and the 1998 Ocean Shipping Reform Act
ICC was eliminated and a requirement for ocean carriers to file rates ended
Transportation Regulation Pro's and Con's
Pro's - Regulation tends to
assure adequate transportation service throughout the country. Protects
consumers from monopoly pricing, ensures safety, and creates liability.
Con's - Regulation discourages competition and does not allow prices to
adjust based on free market demand or through negotiation.
-U.S. transportation industry remains mostly deregulated
Transportation security
2001 - Aviation and Transportation Security Act created the Transportation Security Administration (TSA)
2003 - Department of Homeland Security (DHS) was created to provide overall U.S. security leadership.
Transportation Structure
Consists of rights-of-way, vehicles (conveyances) , and carriers operating within five basic modes
A mode identifies
-a basic transportation method or form
Motor Carrier / Truck
Rail
Air
Pipeline
Water
Intermodal
Motor carrier has expanded rapidly since the end of world war II
-81% US Freight expense
-Nearly 1 million miles of highways in U.S.
Key benefits include
-Speed of transit
-Ability to operate door-to-door
-More efficient than rail for small shipments over short distances
-Dominate freight moves under 500 miles and from manufacturing to wholesalers to retailers
-Many companies run their own truck fleets as well (e.g., Walmart)
Most flexible mode of transportation.
Carries > 80% of U.S. Freight.
Competes with Rail and Air for short-to-medium hauls.
Specialized carriers
- transport commodities like liquid petroleum, household goods, building materials, and other types of specialized items.
Less-than-truckload (LTL)
carriers move small shipments, when you don't have enough to fill a truck. Stop at depots and transfer locations to match load to the final location.
Truck-load (TL)
carriers are used when you have enough to fill the truck, or you don't want other suppliers cargo on your truck (security, faster delivery)
Asset-based:
ex: Walmart
Carrier having their own tractors and trailers and responsible for
maintenance of all their equipment. Traditionally, truckload carriers
look to replace tractors every 3-4 years and trailers every 7-8 years.
Broker:
Person or company who does not own their own equipment. They contract with an asset-based carrier (or an owner operator) for the carriage of goods
Owner operator:
Person who owns his own tractor and is responsible for the maintenance and upkeep of his tractor.
Types of owner operators:
Sole source
Free agents
Characteristics:
Max Freight Weight: ~45,000 pounds
Entire truck weight cannot exceed 80,000 pounds
Typical tractor weighs 35,000 pounds
Standard trailer: 53' Long x 8'6" Wide x 9' High
Max Cube Utilization: 3,509 cube
Max Pallets: 60 (assuming 40"L x 48"W x 48"H)
Booking a shipment requires at least 24 hours advance notice
Team Service: roughly 10% - 15% up charge on standard rate (depending on the carrier)
Rate structure - flat rate or cost per mile
Drop trailers vs. live load/unload
Hours of Service (HOS) Rules STOP HERE
Total on-duty hours = 14 hours
Consecutive days hours = 11 hours
Mandatory break = 30 mins after 8 hours
On-duty "retstart" = 34 consectutive off duty hours
Penalities for not following rules for both DRIVERS and COMPANIES
Commodities are evaluated and grouped based on four characteristics:
Density (Primary) - Space in relation to its weight
Stowing - Ability to load other freight in the same trailer
Handling - How difficult it is to actually handle the freight
Liability (value and risk) - Potential claims from damage or loss
18 classes: (50-500)
Rates:
Each carrier has a minimum charge for LTL.
Some have one overall minimum charge, but many carriers are more specific for minimum charges for hard to reach destinations.
Rail
Rail has historically handled the largest number of ton-miles within continental US 9% total freight expense.
-Track mileage has declined by over half since 1970 (until 2005 and then stabilized)
-Traffic shifted from broad range of commodities to hauling specific freight in traffic segments (bulk items, heavy items)
-Carload
-Intermodal
-Container
-New technologies include articulated cars, unit trains and double-stack cars
HIGH FIXED COSTS and LOW VARIABLE COSTS
Rail ish more
Compete for transportation when the distance is long and the shipments are heavy or bulky.
Rail is slow and inflexible
Rail carriers have begun purchasing motor carriers and can now offer
point-to-point pickup and delivery service known as trailer-on-flatcar
(TOFC) service.
Rail companies use each other's rail cars. Keeping track of rail cars and getting them where needed can be problematic.
Railroad infrastructure and aging equipment are also problems for the railroads.
Paired with trucks for door-to-door delivery
AIR
EST AND LEAST UTILIZED only 1%
Accounts for only 1% of intercity ton-miles
Fastest of all the modes
Fixed cost is 2nd lowest
Variable costs are extremely high
More AIR shit
Expensive relative to other modes of transportation
Cannot carry extremely heavy or bulky cargo.
Mostly for light, high value goods over long distances quickly.
Half of the goods transported by air are carried by freight-only airlines, e.g., FedEx.
Paired with trucks for door-to-door delivery
Shipment size is > 150 lbs (70 KG)
Parcel/Express is < 150 lbs
Palletized
Parcel is never on a pallet
Who Uses Airfreight and Why?
Medical Device & Diagnostics (MD&D)
-Normal supply chain
-Inventory levels
-Product value supports the cost
Pharmaceuticals
-Normal supply chain
-Risk in transit
-Freight characteristics
-Product value supports the cost
Consumer Products
-Exception basis
-Risk to customer launch/promotions
-Unexpected demand
Parcel
FedEx:
-Has 2 separate operations
-One for air
-One for ground
-Drivers are independent contractors
UPS:
-Has one operation for both air and ground
-All drivers are UPS employees
Characteristics of parcel
Parcel Shipments are usually packages that weigh < 150 lbs
There are multiple service levels
Next Day, 2nd Day Air, 3rd Day Air, and Ground (1 - 5 days
Pipeline accounts for about 68 percent of all crude and petroleum ton-mile movements in US
Lowest per unit cost for transportation
Highest fixed cost. Lowest variable cost of all modes
Most reliable form of transportation
Can operate 24 hours a day, 7 days a week
No emissions
No empty container or vehicle to return
Little maintenance needed once the pipeline is running.
Not flexible. Limited in the variety of commodities they can carry.
-Materials are transported in a liquid or gaseous state
Ocean mode is the oldest form of US transport dating back to the birth of our nation
Percentage of ton-miles has stayed between 19 and 30% since 1960's
Ranks between rail and truck in fixed cost
Right of way (canals and rivers) maintained by Federal government
Ocean
Inexpensive
Slow and inflexible
Competes with rail and pipeline.
Includes inland waterway, coastal and intercostal, and deep-sea.
Inland waterway transportation is used for heavy, bulky, low-value materials (e.g., coal, grain). Barge
Paired with trucks for door-to-door delivery.
Stowage Planning
is the act of allocating space to containers on board a container ship in the order of the discharge ports.
-Scheduled list of ports that the ship will be calling at, in the order of rotation
-A summary of the number of containers - size/type/weight of containers per port that are planned to be loaded on the ship
-A summary of the number of hazardous, reefer and of dry containers per port that are planned to be loaded on the ship
-A list and summary of containers that are on board after discharge of the containers at your port
NVOCC (Non-Vessel Operating Common Carrier)
A company (often a forwarding agent) who does not own or operate the carrying ship, but who contracts with a shipping line for the carriage of the goods.
Steamship Line
Asset based company operating the
ships with whom both cargo owners (sometimes called BCO - Beneficial
Cargo Owner) and NVOCCs contract with for the carriage of goods.
Note, a steamship line cannot handle a LCL (less than container load)
booking directly. A Freight Forwarder would need to be involved.
Drayage
Commonly used to mean the transportation of containerized cargo by specialized trucking companies between ocean ports or rail ramps and shipping docks in intermodal freight transport.
Water/Ocean - Rates
FCL (Full Container Load) is a cost per container.
LCL (Less than Container Load) is a cost based on whichever is greater, the space in cubic meters or the weight in metric tons
Demurrage = Holding a container at port beyond a certain time limit and
incurring a penalty charge such as a daily rent after the free time
ends. This is commonly referred to as storage when container is held at a
rail yard.
Per Diem = Holding a container off port beyond a certain time limit and
incurring a penalty charge such as daily rent after the free time ends.
Fuel (BAF) = Bunker is the type of fuel burned by vessels. BAF, or
Bunker Adjustment Factor is a per container fee charged by the carriers
for this fuel.
Intermodal
interchange of equipment between
differing modes of transportation to execute a single transport, which
includes: rail, truck, or ocean.
Rail and motor carriers or rail and water carriers can offer point-to-point pickup and delivery service
Water and motor can offer point to point service for overseas manufacturers
-RO-ROs or roll-on-roll-off containership truck trailers and containers
can be directly driven on and off the ship without the use of cranes