Transport Fundamentals
Chapter 6
CR (2004) Prentice Hall, Inc.
6-1
The Role of Transportation in
Logistics
In 1999, U.S. firms spent an estimated
$554 billion to move freight, or 9.9% of
the GNP1; this is up from 397 billion, or
6.3% of the GDP in 1993.
6-2
The Role of Transportation in
Logistics

In 1999, as a percentage of sales,
transportation was 3.24%, warehousing
1.84%, customer service 0.48%,
administration 0.38%, and carrying cost
1.52%.
6-3
The Transport Selection Decision

The Transportation – Supply Chain
Relationship
– Firms need to recognize that the lowest
cost carrier does not necessarily guarantee
that this carrier will result in the lowest
landed cost.
– Therefore, firms need to keep the big
picture in mind when attempting to select a
carrier.
6-4
The Transport Selection Decision

The Carrier Selection Decision:
– Various modes of transportation should be
considered.
– Choose a carrier or carriers within the
selected mode, if there is a choice.
– Carefully examine the service capabilities
of the carrier as services can vary widely
between carriers.
6-5
Figure 9-1
The Carrier Selection Decision
6-6
The Transport Selection Decision

Carrier Selection Determinants:
– Cost
– Transit time and reliability
• Can be a competitive advantage
• Lowers customers’ inventory costs
– Capability
– Accessibility
– Security
6-7
Figure 9-2 Carrier Selection
Determinants and User Implications
6-8
The Transport Selection Decision

The Pragmatics of Carrier Selection:
– Transit time reliability
– Negotiated rates
– Consolidating shipments among a few
carriers
– Financial stability
– Sales rep
– Special equipment
6-9
Figure 9-3 Importance Ranking
of Carrier Selection
Determinants
6-10
The Basic Modes of
Transportation3

The basic modes available to the
logistics manager are rail, motor, water,
pipeline, and air.
6-11
The Basic Modes of
Transportation: Railroads



Capable of carrying a wide
variety of products, much more
so that other modes.
Very small number of carriers;
likely only one will be able to
serve any one customer location.
Trend is to merge smaller
companies into larger ones with
ultimate goal of having perhaps
two transcontinental rail carriers.
6-12
The Basic Modes of
Transportation: Railroads



Rail is a long haul, large
volume system (high fixed
costs; own rights-of-way).
Accessibility can be a
problem.
Transit times are spotty,
but are generally long.
6-13
The Basic Modes of
Transportation: Railroads


Reliability and safety are
improving and are generally
good.
Premium intermodal services
– Straight piggyback and
containerized freight
– Double stacks
– RoadRailer service
6-14
The Basic Modes of
Transportation: Motor Carriers




The motor carrier industry is characterized by
a large number of small firms. In 1999, there
were 505,000 registered motor carriers.
Low cost of entry causes these large
numbers.
Used by almost all logistics systems and
account for 82 percent of U.S. freight
expenditures.
Consists of for-hire and private carriers.
6-15
The Basic Modes of
Transportation: Motor Carriers




Large number of small firms; in 1999, there were
12,500 regulated carriers, only 7% of which had
revenues >$10 million, with 76% having
revenues <$3 million.
Characterized by low fixed costs and high
variable costs.
Do not own their rights-of-way.
Limited operating authority regarding service
areas, routes, rates and products carried.
6-16
The Basic Modes of
Transportation: Motor Carriers




High accessibility
Transit times faster
than rail or water.
Reliability can be
affected greatly by
weather.
Relatively high cost
compared to rail and
water; trade-off is faster
service.
6-17
The Basic Modes of Transportation:
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
5% of the freight, while
private and exempt carriers
haul the other 95% of the tonmiles.
6-18
The Basic Modes of Transportation:
Domestic Water Carriers




Relatively low cost mode;
do not own the rights-ofway; easy entry and exit.
Typically a long distance
mover of low value, bulktype mineral, agricultural
and forest products
Low rates but long transit
times
Low accessibility
6-19
The Basic Modes of Transportation:
International Water Carriers

General cargo ships
– Large high capacity
cargo holds
– Engaged on a contract
basis
– Many have selfcontained cranes for
loading/unloading
6-20
The Basic Modes of Transportation:
International Water Carriers

Tankers
– Specially designed for
liquid cargoes
– Largest vessels afloat,
some VLCCs at 500k+ tons

Container ships
– High speeds for ships;
increasingly more common
and important
– Larger vessels can handle
up to 5,000 containers.
6-21
The Basic Modes of Transportation:
International Water Carriers

RO-RO (Roll on-Roll
off)
– Basically a large ferry
that facilitates the loading
and unloading process
by using drive on/off
ramps
– May also have the
capacity to haul
containers
6-22
The Basic Modes of
Transportation: Air Carriers

Limited number of large carriers earn about
90% of the revenue.

Any of the air carriers can carry air freight
although some haul nothing but freight.
Cost structure is highly variable; do not own
rights-of-way.
Transit times are fastest of the modes, but
6-23
rates are highest.


The Basic Modes of
Transportation: Air Carriers




Average revenue per ton
mile 18 times higher than
rail; twice that of motor
carriers.
Seek goods with a high
value to weight ratio.
Accessibility is low as is
capability.
Reliability subject to
weather more than other
modes.
6-24
The Basic Modes of
Transportation: Pipelines



Refers only to the oil
pipelines, not natural gas
Not suitable for general
transportation
Some research has been
performed to move minerals
in a liquid medium, but
outside of a few attempts to
transport slurried-coal via
pipeline, no real successes
have occurred.
6-25
The Basic Modes of
Transportation: Pipelines




Accessibility is very low.
Cost structure is highly
fixed with low variable
costs.
Own rights-of-way much
like the railroads.
Major advantage is low
rates.
6-26
Table 9-2:
Performance Rating of Modes
Selection
Determinan Railroa
ts
d
Cost
3
Motor
Modes
Water
Air
Pipelin
e
4
2
5
1
Transit time
3
2
4
1
---
Reliability
2
1
4
3
---
Capability
1
2
4
3
5
2
1
4
3
---
Accessibilit
y
Security
3
2
4
1
6-27
---
Importance of Modes (Cont’d)
By Volume Moved
Transportation
mode
Railroads
Trucks
Inland waterways
Oil pipelines
Air
Total
CR (2004) Prentice Hall, Inc.
Percent
of total
volume
36.5%
24.9
16.3
22.0
0.3
100.0
6-28
Relative Costs of Performance
Mode
Rail
Truck
Water
Pipeline
Air
CR (2004) Prentice Hall, Inc.
Price,
¢/ton-mile
2.28
26.19
0.74
1.46
61.20
6-29
Rate Types
Class rates
Exception rates
Commodity rates
Contract rates
Freight all kinds (FAK)
Released value rates
Differed rates
Container rates
Special service charges
CR (2004) Prentice Hall, Inc.
6-30
Special Carriers and 3PL
Freight forwarders
Shippers’ association
Transportation brokers
Container leasing Co.
Freight audit/payment
Equipment leasing (e.g., Ruan)
CR (2004) Prentice Hall, Inc.
6-31
Intermodal Transportation


Refers to use of two or
more modes of transportation
cooperating on the
movement of shipment
by publishing a through rate.
Logistics managers are looking
for the best way to move shipments and these
often attempt to take advantage of multiple
modes of transportation, each of which has
certain useful characteristics.
6-32
Figure 9-6
Types of Intermodal Services
6-33
Intermodal Transportation



Biggest disadvantage
is that carriers are
reluctant to participate.
Cultural bias towards using only one
mode and this makes change more
difficult.
Certain types have been fairly well
developed, such as rail/water,
motor/water, rail/motor, and motor/air.
6-34
Intermodal Transportation:
Containerization



Referred to as Container-on-Flat-Car
(COFC); goods are placed in a large
box, where they are untouched until
they arrive at the consigee’s unloading
dock.
Reduces theft, damage, multiple
handling costs and intermodal transfer
time.
Changes materials handling from labor
intensive to capital intensive and may
reduce costs from 10 to 20%.
6-35
Intermodal Transportation:
RoadRailers





Newest concept referred to as a “RoadRailer”
Essentially a trailer that has been reinforced to ride
on a rail bogey and be coupled together directly
without first being placed on a rail flat car
Saves weight and locomotive power and thus fuel
for the railroad
Special lower rates
Motor competitive transit times
6-36