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

% of Total % of Total % of TotalMode US Intercity US Tons US Transport.

Ton-miles 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

% of TotalTonsCommodity

100.0133,718,995Total

6.2%8,281,576Other

4.2%5,565,281Iron & Steel

2.5%3,312,471Ores

6.3%8,430,536Petroleum

6.4%8,571,485Chemicals

11.3%15,056,445Aggregates

18.9%25,288,293Coal

44.3%59,212,908Agriculture

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.

• 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.

Air

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.

• 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!

Pipeline

Relative Delivery Product Mode Price Time Value Damage

Water 1 4 1 1

Railroad 3.5 3 2 4

Truck 35 2 3 3 Air 80 1 4 2

1=fastest 1=least 1=least

Size: 1 barge = 15 rail cars = 60 trucks

Mode Comparison

• 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.

Intermodal Services

• 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.

Small Shipments

• 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.

International Transportation

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

• 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.

International Transportation

• U.S. - Asia travel: 13-15 days

• Major ports:

Hong Kong Seattle/TacomaKaohsiung (Taiwan) Long Beach/LAPusan (Korea) San FranciscoMumbai (Bombay, India)Sydney (Australia)

Pacific 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 & Porto Alegre (Brazil).

– South Africa: Durban, Capetown, Port Elizabeth.

– U.S.: Houston, New Orleans, New York, Norfolk.

Atlantic Ocean Transportation

• 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.

Problems at Ports

• 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.

Transportation 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.

Features of Regulation

• 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

• Many new carriers, especially trucking firms.

• Larger carriers created.– Existing carriers expand.– Many mergers & acquisitions.

• Lower rates (?)

• Good or Bad?

Deregulation Outcomes

• 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 Costs

• 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.

Transportation 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.

Line-haul Rates

• Pickup and delivery.

• Changing destination.

• Use of multiple carriers.

• Switching in rail yards.

• Demurrage and detention: retaining vehicles longer than agreed.

Additional Charges

• 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.

Documentation