Chapter 6: Transport Fundamentals
Skip Transit Privileges (pp. 172-175)
• Five Modes.
• Intermodal and International.
• Regulation/Deregulation.
• Costs & Rates.
• Documentation.
Transportation
• Most important component of logistics cost.
– Usually 1/3 - 2/3 of total cost.
• Shapes economy and society.
• Links production and consumption.
• Increases competition, availability and variety.
• Permits economies of scale in production.
Five Modes of Transport
Mode
% of Total
US Intercity
Ton-miles
% of Total
US Tons
% of Total
US Transport.
Cost
Water
15
15
5
Railroad
38
25
8
Truck
28
43
80
Air
0.4
0.1
4
Pipeline
18
16
3
Trends for Intercity Ton-Miles
• Water use will increase.
• Rail use will decrease.
• Truck use will stay about the same.
• Air use will increase.
– Fastest growth, but small %.
– High growth between US & Asia.
• Pipeline use will stay about the same.
Water
• Products: Nonperishable bulk cargo.
– Liquids, minerals, grain, petroleum, lumber, etc.
• System:
– Mississippi system: 55% of traffic; 11,000 miles;
7500 miles over 6 ft. deep.
– Coastal & other: 35% of traffic; 17,000 miles.
– Great Lakes: 10% of traffic; 95,000 square miles.
• Average trip:
– Internal: 400-500 miles.
– Coastal: 2000 miles.
Water
• Public ownership of waterways.
• Slow speed: 5-10 mph
• Very large size:
–
–
–
–
1 barge = 35 ft. x 195 ft.
1 barge = 1500 tons (3,000,000 lbs).
Up to 40 barges per tow (60,000 tons).
Can haul very large objects.
• Disruptions of service: drought, flood, ice.
Water Transport & St. Louis
• St. Louis is major inland port.
– Most northern ice-free port.
• Loads/unloads 50-100 barges each day.
• Above St. Louis: 15 barges per tow.
• Below St. Louis: 30-45 barges per tow.
• St. Louis - New Orleans travel time?
– 1053 miles.
Inland Waterways Information
• Inland water transportation is about a $3.5
billion annual industry.
• Over 11,000 federally maintained linear miles
of navigable waterways.
• Corps of Engineers manages the
infrastructure, Coast Guard manages the
navigation.
• 37 Lock Sites
• 1,200 Miles of River
Lock and Dam No. 21
1999 Upper Mississippi – Illinois Waterway
Commodity Flows
Commodity
Tons
% of Total
Agriculture
59,212,908
44.3%
Coal
25,288,293
18.9%
Aggregates
15,056,445
11.3%
Chemicals
8,571,485
6.4%
Petroleum
8,430,536
6.3%
Ores
3,312,471
2.5%
Iron & Steel
5,565,281
4.2%
Other
8,281,576
6.2%
133,718,995
100.0
Total
Rail
• Products: Heavy industry, minerals, chemicals,
agricultural products, autos, etc.
– 60% of coal; 67% of vehicles; 68% of paper and pulp
• System: 120,000 miles of line.
– 1.2 million rail cars.
– Most are boxcars or hoppers.
• Average trip: 700 - 800 miles.
Rail
• Private ownership of right-of-ways.
– Few very large US railroads.
– Mergers lead to fewer, larger railroads.
• Average speed: 20-25 mph.
– 80% of time spent loading, unloading & waiting.
• Large size:
–
–
–
–
1 car = 80-100 tons.
Average 60-80 cars per train.
2-5 locomotives per train.
Most shipments are CL (carload).
Trucks (Motor Carriers)
• Products: Medium and light manufacturing,
food, clothing, all retail goods.
• System: 3,800,000 highway miles.
– 42,500 miles of Interstates.
• Average trip:
– Truckload (TL): 200-300 miles.
– Less-than-truckload (LTL): 600-700 miles.
Trucks (Motor Carriers)
• Public ownership of roadways.
–
–
–
–
Many, many trucking companies (>300,000).
Most are very small.
Truckload (TL): > 10,000 lbs.
Less-than-truckload (LTL): < 10,000 lbs.
• Door-to-door service.
• Small size:
– 1 trailer = 40,000 lbs.
– 40-53 feet long (small trailers are 28.5 ft.)
– Can have 2 or 3 trailers per tractor in some places.
Air
• Products: Perishable and time sensitive goods.
– Flowers, produce, electronics, mail, emergency
shipments, documents, etc.
• System: 160,000 miles.
• Average trip: 1300 miles.
Air
• Public ownership of airways.
– Terminal & ground facilities may be privately owned.
• Very fast: 500-600 mph.
– Door-to-door service requires trucks.
• Size:
– Large aircraft can carry 100 tons.
– Can carry 8x8x40 ft containers.
• Aircraft are very expensive to buy and operate.
Pipeline
• Products: Petroleum, oil, natural gas.
– 3/4 of all crude petroleum.
• System: 170,000 miles.
– Texas has 1/4 of total.
• Very dependable.
• Can store large amount in transit.
Pipeline
• Private ownership of pipelines.
• Very slow, but large capacity.
– Can move 24 hr/day, 7 days per week.
• Size:
– 4-26 inch diameter.
– Alaska pipeline: 48” diameter; moves 2 million barrels
per day.
• No vehicles!
Mode Comparison
Mode
Water
Relative
Price
Delivery
Time
Product
Value
Damage
1
4
1
1
Railroad
3.5
3
2
4
Truck
35
2
3
3
Air
80
1
4
2
1=fastest
1=least
Size: 1 barge = 15 rail cars = 60 trucks
1=least
Intermodal Services
• Combine two or more modes.
– Rail+Truck or TOFC: trailer on flat car.
• Used by 70% of shippers.
• Containers:
–
–
–
–
8’ x 8’ x 20’ (TEU) or 8’ x 8’ x 40’ (2 TEU’s)
Pack at origin; do not open until destination.
Used extensively in ocean transportation.
Large ships may carry >4000 20’ containers.
Small Shipments
• Many options:
– LTL motor carriers, US Postal Service, UPS.
• Freight Forwarders:
– Do not own long haul equipment.
– Handle transportation for shippers.
– Can consolidate small shipments and arrange TL
service.
• Express shipments:
– Federal Express, US Postal Service, UPS.
International Transportation
• Water is most important mode.
– 99% of world trade volume by weight.
– 50% of world trade volume by value.
• Top US ports:
– By tons: Houston, New Orleans, New York, Norfolk.
– By value: LA/Long Beach, New York, Seattle/Tacoma,
Houston.
• Air handles 21% of world trade volume by
value.
US Imports & Exports
Imports and Exports in Billions of $ (2000)
Mexico
Canada
Europe
Pacific Rim
US Exports
100
150
170
190
US Imports
135
230
240
415
International Transportation
• Legal issues, regulation and documentation can
be extensive and detailed.
• Political issues important.
• Foreign trade zones encourage international
transportation.
• Regional free trade agreements:
– NAFTA, European Community.
Pacific Ocean Transportation
• U.S. - Asia travel: 13-15 days
• Major ports:
Hong Kong
Kaohsiung (Taiwan)
Pusan (Korea)
Mumbai (Bombay, India)
Sydney (Australia)
Seattle/Tacoma
Long Beach/LA
San Francisco
Atlantic Ocean Transportation
• Travel between U.S. and:
– Europe: 10-12 days
– South America: 20-30 days
– South Africa: 35-40 days
• Major ports:
– Europe: Liverpool (England), Antwerp (Belgium), Rotterdam
(Netherlands), Bremerhaven & Bremen (Germany), Genoa
(Italy), Oporto (Portugal), Istanbul (Turkey).
– South America: Buenos Aires (Argentina), Santos &
Alegre (Brazil).
– South Africa: Durban, Capetown, Port Elizabeth.
– U.S.: Houston, New Orleans, New York, Norfolk.
Porto
Problems at Ports
• Container imbalances.
– More into U.S. than out of U.S.
• Congestion - in water and on land.
• Labor issues:
– Lockout on U.S. west coast ports: 2002
• Inspections into U.S.
– Security.
– Animal (insect) pests and diseases.
Transportation Regulation
• 1800’s: Railroad boom:
– Near monopoly on inland transportation.
– Led to abuses of shippers.
• 1887: Railroads regulated:
– Rates must be reasonable, fair and published.
– ICC established for enforcement.
• Other modes:
– 1906: Pipelines regulated.
– 1935 - 1940: Motor carriers, airlines and water
carriers regulated.
Features of Regulation
• Government control over:
– Rate adjustments.
– Entry, expansion, acquisition & merger.
– Safety.
• Principle: Service change must benefit
customers.
– Burden of proof on carriers.
• Little incentive for improved service.
Deregulation
• Transportation Deregulated: 1977-1985:
– Rate can be changed as long as reasonable.
– Entry, expansion, acquisition & merger rules relaxed.
– Safety still addressed at federal and state level.
• Burden of proof shifted to shippers.
• Major changes for carriers and shippers.
Deregulation Outcomes
• Many new carriers, especially trucking firms.
• Larger carriers created.
– Existing carriers expand.
– Many mergers & acquisitions.
• Lower rates (?)
• Good or Bad?
Transportation Costs
• Fixed Costs:
–
–
–
–
Vehicles.
Infrastructure (road, rail, pipeline, navigation, etc.).
Terminal facilities.
Administration.
• Variable: Proportional to distance or volume.
– Fuel, labor, handling, pickup & delivery, taxes.
• Cost structure varies by mode.
– Railroads: High fixed cost; Low variable cost.
– Trucks: Low fixed cost; High variable cost.
Transportation Costs
• Allocating costs to shipments can be very
complicated.
– Many shipments move on same vehicle.
– Marginal cost for additional shipment may be very low
or very high.
– Traffic imbalances (backhauls).
• How to incorporate backhauls (return trips)?
– Allocate all costs to forward haul?
– Allocate some costs to backhaul?
Transportation Rates
• Rate is price carrier charges for service.
– Should reflect costs and value of service.
– Linehaul rate + additional charges for special services.
• Line-haul rate from origin terminal to
destination terminal.
• Additional charges for terminal services, extra
protection, stop-offs, etc.
Line-haul Rates
• Depend on product, distance and volume
(weight).
• Strong economies of scale:
– Cost per cwt decreases with weight.
– Cost per mile decreases with distance.
• Under regulation, pricing was very complicated.
– Rating or classification system for EVERY product.
• Simpler now, and negotiation is important.
Line-haul Rates
• Carriers offer discounts from published rates.
– Published rates may be based on rating system.
– FAK (Freight-all-kinds) rate applies to any product.
• Rates may be negotiated based on:
–
–
–
–
Products.
Lane.
Volumes on a given lane.
Volume of business overall.
Additional Charges
• Pickup and delivery.
• Changing destination.
• Use of multiple carriers.
• Switching in rail yards.
• Demurrage and detention: retaining vehicles
longer than agreed.
Documentation
• Bill of Lading: Legal contract between shipper
and carrier.
• Freight Bill: Charge for service
• Freight Claim:
– For loss, damage or delay.
– For overcharges.
• Much more documentation is usually required
for international transportation.