Chapter 9:

The Transportation System

The Role of Transportation in

Logistics

Transportation is the physical link

connecting the firm to its suppliers and
customers.
In a nodes and links scenario,
transportation is the link between fixed
facilities (nodes).
Transportation also adds value to the
product by providing time and place
utility for the firms goods.
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The Role of Transportation in

Logistics

As firms engage in global competition,

transportation costs are becoming even
more significant.
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.

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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%.
Outbound transportation was clearly the
largest component of total physical distribution
costs.
Cost trade-offs abound in transportation and
are typified by trading lower inventory costs
for higher transportation costs.

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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.

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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.

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Figure 9-1
The Carrier Selection
Decision

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Management of Business Logistics, 7th

Ed.

The Transport Selection

Decision

Carrier Selection Determinants:

Cost
Transit time and reliability

Can be a competitive advantage

Lowers customers inventory costs

Capability
Accessibility
Security

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Management of Business Logistics, 7th

Ed.

Figure 9-2 Carrier Selection

Determinants and User
Implications

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The Transport Selection

Decision

The Pragmatics of Carrier Selection:

Transit time reliability
Negotiated rates
Consolidating shipments among a few
carriers
Financial stability

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The Basic Modes of

Transportation3

The basic modes available to the

logistics manager are rail, motor, water,
pipeline, and air.
Distribution of ton-miles*

*(a ton-mile is one ton of cargo carried one mile,

and is a standard statistical measurement
used in the transportation industry).

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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.

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The Basic Modes of

Transportation: Railroads

This would permit seamless

dock-to-dock service by one
company; a distinct
improvement over current
systems.
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.

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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
Unit train service
Intermodal Marketing Company
(IMC)

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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.

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Figure 9-4 Overview of

Interstate Motor Carrier
Industry

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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.
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The Basic Modes of

Transportation: Motor
Carriers

High accessibility
Transit times faster than
rail or water.
Reliability can be affected
greatly by weather.
Small vehicle size coincides
with lower inventory
strategies and quick
replenishment (QR).
Relatively high cost
compared to rail and water;
trade-off is faster service.

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The Basic Modes of

Transportation: International
Water Carriers

General cargo ships

Large high capacity cargo
holds
Engaged on a contract basis
Many have self-contained
cranes for loading/unloading
Bulk carriers
Specially designed to haul
minerals
Can handle multiple cargoes

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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.

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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
Other
OBO multipurpose carriers
Barges (not transoceanic)

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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
rates are highest.

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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.

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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.
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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.

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Table 9-2:
Performance Rating of Modes
Selection
Determinan Railroa
ts
d
Cost
3
Transit time
3

Motor
4

Modes
Water
2

Air
5

Pipelin
e
1

---

Reliability

---

Capability

Accessibilit
y

---

Security

---

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Legal Classifications of
Carriers: Common Carrier

For-hire carrier that serves the

general public at reasonable rates
and without discrimination.
Stringent economic regulation
designed to protect the public.
Must transport all commodities offered...
Commodities are limited to those that the
carriers equipment will handle.

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Legal Classifications of
Carriers: Common Carrier

Carrier is liable for damages to

products carried.
Exceptions to liability include
acts of God, acts of the public
enemy, acts of public authority,
acts of the shipper and defects inherent in
the goods.
Continued service is assisted by ceiling and
floor limits on the rates charged.
Backbone of the transportation industry.

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Legal Classifications of
Carriers: Regulated Carrier

Regulated carriers are found in motor and water

carriage.
The ICC Termination Act of 1995 eliminated
most of the common carrier economic
regulation for these two modes, including entry
controls, reasonable rates, and
nondiscrimination provisions.
When acting as a contract carrier,
not subject to STB economic
regulations.
Must provide safe and adequate
service.

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Legal Classifications of
Carriers: Contract Carriers

For-hire carrier that does

not have to serve the
general public.
May serve one or a few
shippers exclusively.
May offer specialized equipment.
Not subject to regulation on services;
rates usually lower than common or
regulated carriers.

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Legal Classifications of
Carriers: Contract Carriers

Other aspects of the carrier/shipper

relationship are made a
part of the contract
between the two parties.
Becoming more popular
as logistics managers
use contract carriage
to assure rates and
service levels.

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Legal Classifications of
Carriers: Exempt Carriers

For-hire carrier exempt from

economic regulation regarding
rates and services.
Limited entry controls; low rates.
Usually haul agricultural
products, but there are special
rules as to what may be hauled
by each mode of transportation,
e.g., rail piggyback is exempt..
Limited number of carriers
restricts availability.
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Legal Classifications of
Carriers: Private Carriers

Private carriage is the firms own

transportation.
Not for-hire and not subject to
Federal regulations.
May not be the firms primary
business but can charge a
intracompany fee for
transportation services.
Almost exclusively motor, but some rail, air
and water also exist.

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Legal Classifications of
Carriers: Private Carriers

Firms gain ultimate control

over shipments and achieve
maximum flexibility in
moving goods.
Backhauls are usually empty or return
materials to the firms plants and/or
warehouses.
Requires a large capital investment.
Requires management time and expertise.

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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.
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Figure 9-6
Types of Intermodal Services

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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.

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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 consigees 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%.
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Intermodal Transportation:
Containerization

Land bridge concept

may apply for international

shipments where oceans are separated by a
large land mass.
For example, containers moving from Japan
to Europe may dock at Long Beach, CA,
transfer the containers to a railroad, and
reload the containers onboard another ship
in Norfolk, VA., continuing on to a European
port.
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Intermodal Transportation:
Piggyback

Trailer-on-Flat-Car (TOFC)
Over the road trailers ride
in special rail cars.
Takes advantage of motor
flexibility and rails long haul
economic advantage.
Multiple service plans for shippers.
Some railroads provide varying levels of
service, differentially priced.

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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
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End of Chapter 9 Slides

The Transportation System