Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
CHAPTER 8: Transpor tation
CHAPTER 8: Transpor tation
8-2
•
Transport functionality and participants
•
From regulation to a free market system
•
Transportation modal structure
•
Specialized transportation service
•
Transportation economics and pricing
•
Transportation pricing
•
Documentation
•
Product pricing and transportation
Overview of transportation
8-3
•
Product movement is the movement of inventory to specified destinations
–
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, financial, and environmental resources
–
Transportation is more than 60% of the cost of logistics
–
One of largest consumers of oil and gas in US
–
Impacts traffic congestion, noise and air pollution
Transport functionality primarily consists of product movement
services
8-4
Transport also functions as storage services for products while in a
vehicle
•
In-transit inventory is captive in the transport system
–
Managers strive to reduce in-transit inventory to a minimum
•
Product can also be stored in vehicles at origin or destination (trailers, trucks, railcars, etc)
–
Usually more expensive than traditional warehousing
•
Must pay rental or demurrage charges on vehicles used for storage
•
Diversion occurs when a shipment destination is changed after a product is in transit
8-5
Two fundamental transport principles
•
Economy of scale is the cost per unit weight decreases as the size of the shipment increases
–
At least until you totally fill the carrying vehicle!
–
Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment
•
Economy of distance is the cost per unit weight decreases as distance increases
–
Often called the tapering principle
–
Longer distances allow fixed cost of the carrier to be spread over more miles, lowering the per mile charge
•
Goal is to maximize the size of the load and distance shipped while still meeting service expectations
8-6
Transport participants
•
Shipper
•
Consignee (Receiver)
•
Carrier and Agents
•
Government
•
Internet
•
Public
8-7
Major relationships among transportation participants
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
Figure 8.1 Relationship Among Transportation Participants
8-8
Transportation infrastructure supports the flow of our nations
economy
Table 8.1 The Nations’ Freight Bill ($ billions)
8-9
•
Shipper and consignee have a common interest in moving goods from origin to destination within a given time at the
lowest cost
•
Carriers desire to maximize their revenue for movement while minimizing associated costs
•
Agents (brokers and freight forwarders) facilitate carrier and customer matching
•
Government desires a stable and efficient transportation environment to support economic growth
•
Public is concerned with transportation accessibility, expense, and standards for security, safety and the environment
Role and perspective of participants
8-10
•
The Internet now provides the vital communications links between the transactional participants
(shipper-carrier-consignee)
–
Replacing phone and fax technologies
•
Web-based enterprises provide information marketplaces
–
Freight matching
–
Fuel, equipment, parts and supplies purchases
Role of the Internet in transportation
8-11
Transportation regulation by the government focuses on
•
Economic regulation seeking to make transportation equally accessible and economical to all without discrimination
–
Government created infrastructure (roads, canals, ports)
–
Intended to prevent carriers from taking advantage of suppliers while ensuring long-term financial stability for carriers
•
Social regulation which takes measures to protect public safety and environment
–
Department of Transportation (DOT) (1966) has active role in hazardous material safety and driver safety
–
Hazardous Materials Transportation Uniform Safety Act (1990) took precedence over state and local regulations
8-12
History of transportation regulation
•
In 1800’s, rise of steamships and railroads created immense wealth and monopolies
–
(e.g. Commodore Vanderbilt and the railroad “barons” )
•
Interstate Commerce Commission (ICC) created in 1887 to oversee regulation of interstate transportation
–
To stop the railroad monopolies
•
Other regulatory acts passed from 1906 to 1973 placed motor carriers, shipping, air transport and pipeline transport
under ICC oversight
•
By 1970, ICC had oversight on 100% of rail and air, 80% of pipeline, 43% of trucking and 6% of water carrier operations
8-13
•
Motor Carrier Act of 1980 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 of 1980 deregulated the rail industry
–
Provide 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 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
Transportation deregulation (1980)
8-14
•
Electronic Signatures in Global & National Commerce Act of 2000
–
Gave digital signatures legal status
•
Patriot Act of 2001
–
Increased inspections at ports, airport security, and increased security at border crossings
•
Continued Dumping and Subsidy Act
–
Fines for artificial underpricing and “dumping” of foreign goods in U.S. markets
•
Jones 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
Transportation regulation in the new millennium is stimulated by technology and
global issues
8-15
Transportation structure
•
Consists of rights-of-way, vehicles, and carriers
operating within five basic modes
•
A mode identifies basic transportation method or form
–
Rail
–
Highway
–
Water
–
Pipeline
–
Air
8-16
Table 8.1
Nation’s freight bill
1960 1970 1980 1990 2000 2009
Truck 32.3 62.5 155.3 270.1 481.0 542.0
Railroad 9.0 11.9 27.9 30.0 36.0 50.0
Water 3.4 5.3 15.3 20.1 26.0 29.0
Pipeline 0.9 1.4 7.6 8.3 9.0 10.0
Air 0.4 1.2 4.0 13.7 27.0 29.0
Other Carriers 0.4 0.4 1.1 4.0 10.0 28.0
Other shipper costs 1.3 1.4 2.4 3.7 5.0 9.0
Grand Total 47.8 83.9 213.7 350.8 594.0 697.0
GNP (Trillions) 0.5 1,046 2,831 5,832 9,960 14,256
Grand Total of GNP 9.00% 8.03% 7.55% 6.02% 5.92% 4.89%
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc., 2010, p. 25.
8-17
Table 8.2
Domestic
shipments
by mode and volume
Mode
and Volume
Freight Volumes
(Millions of Tons)
Mode Share % Percent Change
2009 2015 2021 2009 2015 2021 2009 - 2015
Truck 8,849 10,515 11,498 68.0% 69.8% 70.7% 29.9%
Rail 1,773 1,957 2,033 13.6% 13.0% 12.5% 14.6%
Rail Intermodal 139 193 253 1.1% 1.3% 1.6% 82.6%
Air 12 15 18 0.1% 0.1% 0.1% 57.3%
Water 829 929 964 6.4% 6.2% 5.9% 16.4%
Pipeline 1,417 1,453 1,502 10.9% 9.6% 9.2% 6.0%
Total 13,018 15,061 16,269
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc., 2010, p. 25.
8-18
Table 8.3
Domestic shipments by mode and revenue
Mode
and Revenue
Freight Volumes
(Billions of Dollars)
Mode Share % Percent Change
2009 2015 2021 2009 2015 2021 2009 - 2015
Truck 544 748 933 81.9% 82.8% 83.0% 71.4%
Rail 40 51 61 6.0% 5.7% 5.4% 51.6%
Rail Intermodal 9 16 24 1.4% 1.7% 2.1% 151.1%
Air 20 29 40 3.0% 3.2% 3.6% 99.5%
Water 10 13 15 1.5% 1.5% 1.3% 51.5%
Pipeline 41 46 51 6.2% 5.1% 4.5% 24.6%
Total 665 903 1,123
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc., 2010, p. 25.
8-19
Rail mode has historically handled the largest number of ton-miles within continental
US
•
Track mileage has declined by over half since 1970
•
Traffic shifted from broad range of commodities to
hauling specific freight in traffic segments
–
Carload
–
Intermodal
–
Container
•
New technologies include articulated cars, unit trains
and double-stack cars
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
8-20
Truck mode has expanded rapidly since the end of World War II
•
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)
8-21
•
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
Water mode is the oldest form of US transport dating back to the birth of our nation
8-22
•
Have the highest fixed cost and lowest
variable cost of all modes
•
Unique transportation mode
–
Can operate 24 hours a day, 7 days a week
–
No emissions
–
No empty container or vehicle to return
•
Not flexible, and limited to liquids and gases
Pipeline mode accounts for about 68 percent of all crude and petroleum ton-mile
movements in US
8-23
•
Accounts for only 1% of intercity ton-miles
•
Fastest of all the modes
•
Fixed cost is 2
nd
lowest but variable costs are
extremely high
•
Most products air-shipped have high value,
high priority or extreme perishability
Air mode is the newest and least utilized transport mode for freight
8-24
Comparison of fixed and variable cost structure of each transport
mode
Table 8.4 Cost Structure For Each Model
8-25
•
Speed is the elapsed movement time from origin to destination
•
Availability is ability of a mode to service any given pair of locations
•
Dependability is the potential variance from expected delivery schedule
•
Capability is the ability to handle any load size or configuration
•
Frequency is the quantity of scheduled movements a mode can handle
Operating
characteristics
used to classify transport modes