transportation.doc

TransportationThe Role of TransportationAn industrialized society without an efficient transportation system seems a contradiction in terms. As consumers, we often take for granted that products will move from where they are produced to where they are consumed with a minimum of difficulty in terms of both time and cost. The transportation sector of most industrialized economies is so pervasive that we often fail to comprehend the magnitude of its impact on our way of life. Transportation expenditures constitute approximately 8 percent of U. S. expenditures for goods and services (GNP). D. F. Pegrum analyzed the integral role transportation plays in the economy:The unique position which transportation occupies in economic activity arises from the reduction by it of the resistance of time and space to the production of economic goods and services. The significance of this in terms of the allocation of economic resources is indicated by the fact that probably at least one third of our national wealth is directly devoted to transportation. So important is it that without it organized human activity would be impossible; complete stoppage of a communitys transport services is the quickest way to assure complete paralysis of cooperative effort: economic, political and social.Logistics involves the movement of products (raw materials, parts, suppliers, finished goods) from point-of-origin to point-of-consumption. A product produced at one point has very little value to the prospective customer unless it is moved to the point where it will be consumed. Transportation achieves this movement.Movement across space or distance creates value or place utility. Time utility is mostly created or added by the warehousing and storage of product until it is needed. But transportation is also a factor in time utility; it determines how fast a product moves from one point to another. This is known as time-in-transit. If a product is not available at the precise time it is needed, there may be expensive repercussions, such as lost sales, customer dissatisfaction, and production downtime. So transportation creates utility.Transportation SystemThere are five transportation modes motor, rail, air, water, or pipeline, hi addition; certain modal combinations are available, including rail-motor (piggyback), motor-water, motor-air, and rail water. Such inter-modal combinations offer specialized or lower cost services not generally available than a single transport mode. Finally, other transporters (sometimes called indirect or special earners or non-operating third parties) offer a variety of services to shippers. These transporters include freight forwarders, shipper cooperatives, parcel post, United Parcel Service (UPS), and other parcel services such as Federal Express and Roadway Express. Special carriers usually act as transportation middlemen and use one or more of the basic modes for moving their customers products.Factors Influencing Transportation CostsBecause a firms transportation cost can be significant, the firm must identify and control the factors that affect those costs. In general, factors influencing transportation costs can be grouped into two major categoriesproduct-related factors and market-related factors.Many factors related to product a characteristics influence the cost of transportation. They can be grouped into the following categories: (1) density; (2) stow-ability; (3) ease or difficulty of handling, and (4) liability.In addition to product characteristics, important market-related factors also affect transportation costs. The most significant are: (l) degree of intra-mode and inter-mode competition; (2) location of markets (i.e., distance goods must be transported); (3) nature and extent of government regulation of transportation carriers; (4) balance or imbalance of freight traffic in a territory; (5) seasonality of product movements; and (6) whether the product is being transported domestically or internationally. Each of these factors, in combination, affects of transporting products.Transportation Service CharacteristicsCustomer service is a vital component of logistics management. Each activity of logistics management contributes to the level of service a company provides to its customers, although transportations impact on customer service is one of the most significant. The most important transportation service characteristics affecting customer service levels are: dependability (consistency of service) ; time-in-transit; market coverage (the ability to provide door-to-door service); flexibility (with respect to the variety of products that can be handled and meeting the special needs of shippers) ; loss and damage performance; and the ability of the carrier to provide more than just basic transportation service (i.e., to become part of a shippers overall marketing program).The Economic and Service Characteristics of Motor TransportationDuring the late 1960s, motor carriage replaced rail carriage as the dominant form of freight transport in the United States. Motor carriers transport over 75 percent of the tonnage of agricultural products such as fresh and frozen meats, dairy products, bakery products, confectionery items, beverages, and cigars. Many manufactured products are transported by motor carriers, including amusement, sporting, and athletic goods, toys, watches, clocks, farm machinery, radios, televisions, phonographs, records, carpets and rugs, clothing, drugs, and office and accounting machines. Most consumer goods are transported by motor carriers. Usually, motor carriers compete with air for small shipments and rail for large shipments. An efficient motor carrier can compete with an air carrier on point-to-point service for any size shipment if the distance involved is 1,000 miles or less. This is so because motor carriers realize greater efficiencies in terminal, pickup, and deli very operations.Motor carriers are more flexible and versatile than other modes. The flexibility of motor carriers is made possible by a wide range network of roads, thus enabling them to offer point-to-point service between almost any origin-destination combinations. Motor carriers are versatile in that they can transport products of varying sizes and weights over any distance. Virtually, any product, some for which equipment modifications are necessary, can be transported by motor carriers. Their flexibility and versatility has enabled them to become the dominant form of transport in the United States and in many other parts of the world.In general, motor carriage offers the customer fast, reliable service with little damage or loss in transit. Motor carriers give much faster service than railroads and compare favorably with air carriers on short hauls. Many motor carriers, particularly those involved in just-in-time programs, operate on a scheduled timetable. This results in very short and reliable transit times. Loss and damage ratios for motor carriers are substantially lower than for rail and are slightly higher than for air freight. No other mode can provide the market coverage offered by motor carriers.The amount of freight transported by motor carriers has steadily increased over the years. That trend is likely to continue in the years ahead. As long as it is able to provide fast, efficient service at rates between those offered by rail and air, the motor carriage industry will continue to prosper.The Economic and Service Characteristics of Rail TransportationSince World War II, when rail transported about 70 percent of the ton-mile traffic, its share of the U.S. market has continually declined. Most of the freight once shipped by rail has been shifted to motor carriers. Some traffic also has been lost to water and pipeline carriers, which generally compete with railroads for bulk commodities. But in China, rail is still the dominant transport mode.Rail service is available in almost every major metropolitan center in the world, and in many smaller communities as well. However, the rail network is not nearly as extensive as the highway network in most countries. Therefore rail transport lacks the versatility and flexibility of motor carriers because it is limited to fixed track facilities. As a result, railroads, like air, water and pipeline transport, provide terminal-to-terminal service in lieu of point-to-point service.Rail transport generally costs less than air and motor carriage. For many shipments, rail does not compare favorably with other modes on loss and damage ratios. It has disadvantages compared to motor carriers in terms of transit time and frequency of service. Trains travel on timetable schedules, but departures are less frequent than those of a motor carrier. If a shipper has strict arrival and departure requirements, railroads are at a competitive disadvantage compared to motor carriers. Some of this disadvantage may be overcome through the use of piggyback or trailer-on-flatcar (TOFC) service, which offers the economy of rail movement combined with the flexibility of trucking. Truck trailers are delivered to the rail terminals, where they are loaded on flatbed railcars. At the destination terminal they are off-loaded and delivered to the consigneethe customer who receives the shipment.An additional area in which railroads suffer in comparison to motor carriers is equipment availability. Railroad lines use each others oars, and at times this equipment may not be located where it is most needed. Railcars may be unavailable because they are being loaded, unloaded, moved within railroad sorting yards, or undergoing repair. Other cars may be standing idle or lost within the vast rail network. A number of development in the rail industry have helped to overcome some of these utilization problems. Advances have included: computer routing and scheduling; the upgrading of equipment, roadbeds, and terminals; improvement in railcar identification systems; and the use of unit trains, cars owned or leased by the shipper; and dedicated through-train service between major metropolitan areas (nonstop shipments of one or a few shippers products). Railroads own approximately 80 percent of their car fleet. The remaining 20 percent are either leased or owned by shippers.It is uncertain whether the railroads can recapture the traffic lost to trucks, pipelines, and water carriers. Certainly, improvements in equipment and facilities, upgrading of roadbeds, and better monitoring and control of rail fleets are necessary. The relative energy-efficiency advantage railroads have over motor carriers, along with the deregulation of the rail industry, offers a promise of better things to come and perhaps a rebirth of the rail industry.The Economic and Service Characteristics of Air TransportationDomestically, air carriers transport less than 1 percent of ton-mile traffic:. Although increasing numbers of shippers are using air freight for regular service, most view air transport as a premium, emergency service because of its higher cost. But in instances where an item must be delivered to a distant location quickly, air freight offers the shortest time in transit of any mode. For most shippers, however, these time-sensitive shipments are relatively few in number of frequency.Domestic air freight directly competes to a great extent with motor carriers and to a much lesser degree with rail carriers. Where countries are separated by large expanses of water, the major competitor for international air freight is water carriage.Air carriers generally transport products of high value and low density or weight. Air freight usually cannot be cost-justified for low-value items, because the high price of air freight would represent too much of the product cost. For example, consider an electronic component and a textbook that weigh the same but differ significantly in price. If it costs the same to air freight, both of them from point A to point R, transportation charges will consume a greater portion of the textbooks total cost and a smaller portion of the electronic components cost. Customer service considerations may alter the standard reasoning in this situation, but only in certain instances.As noted, products shipped by air freight are not usually of high density or weight. Railcars and track trailers have large weight capacities, but the lift capacity of an aircraft how much it can carry given its design capability is much less because most air freight is shipped in the holds or bellies of passenger aircraft. At the present time, the only aircraft that can compete domestically on a lift basis with the other modes is the all-cargo 737, which can carry over 100 tons. The limited capability of most aircraft means that air freight shipments usually cube out (take up all available space) before the lift capacity is reached.Air transport provides rapid time-in-transit, but terminal and delivery delays and congestion may appreciably reduce this advantage. On a point-to-point basis, motor transport often matches or outperforms the total transit time of air freight:Surface transportation via dedicated, well-managed earners, such as contract or private carriage, can also compete favorably with air freight on shipments up to 2,500 miles, when total transit time (from pickup at vendor to delivery to customer) is considered. For example, a national retailer of womens fashion apparel regularly uses its contract carrier to deliver emergency shipments to West Coast stores from its national distribution center located in the Midwest. The company found that the time air shipments spent on the ground (e.g., pickup, delivery, waiting for scheduled aircraft departures), plus transit time, exceeded the total transit time provided by motor carriage.It is the total transit time that is important to the shipper rather than the transit time from terminal-lo-terminal. Generally, the frequency and reliability of air freight service is very good, since the majority of freight is moved on passenger flights. Service coverage is usually limited to movements between major points, although there is limited service to smaller cities.The volume of air freight has grown over the years and shows continuing growth even in the face of higher rates. Undoubtedly, as customers demand higher levels of service in the future, and as international shipments increase, air freight will continue to have a strategic role in the distribution plans of many firms.The Economic and Service Characteristics of Water TransportationWater transportation can be broken down into several distinct categories: (1) inland waterway such as rivers and canals; (2) lakes; (3) coastal and inter-coastal ocean; and (4) international deep sea. Water carriage competes primarily with rail and pipeline, since the majority of commodities carried by water are semi-processed or row materials transported in bulk.Water carriage by nature is particularly suited for movements of heavy, bulky, low-value-per-unit commodities that can be loaded and unloaded efficiently by mechanical means in situations where speed is not of primary importance, where the commodities shipped are not particularly susceptible to shipping damage or theft, and where accompanying land movements are unnecessary.Businesses primarily use water movement for inbound transportation. They transport bulk materials such as iron ore, grains, pulpwood products, coal, limestone, and petroleum internationally or domestically to points where they can be used as inputs into the manufacturing process. Other than in international deep sea transport, water carriers are limited in their movement by the availability of lakes, rivers, canals, or inter-coastal waterways. Depending on the geographic area, water carriage may account for a large share of freight movement or an insignificant amount. In the United States, for example, approximately 15 percent of the total inter-city freight is moved by water. In Europe, water carriage is much more important because of the vast system of navigable waterways and the accessibility to major population centers provided by water routes. In Germany, waterways account for more than 30 percent of all freight transported, and in Belgium and Holland the percentage is substantially higher. The average length of haul varies tremendously depending on the type of water transport. For international deep sea movements, the length of haul can be many thousands of miles.Water carriage is perhaps the most inexpensive method of shipping high-bulk, low-value commodities- But because of the inherent limitations of water carriers, it is unlikely that water transport will gain a larger role in domestic and international commerce, although international developments have made marine shipping increasingly important. The development of very large crude carriers (VLCCs), or supertankers, has enabled marine shipping to assume a vital role in the transport of petroleum between oil-producing and oil-consuming countries. Because of the importance of energy resources to industrialized nations, water carriage will continue to play a significant role in the transportation of energy resources. The deregulation of the marine shipping industry with the passage of the Shipping Act of 1984 also promises to bring about higher levels of ocean productivity and efficiency. In addition, container ships have greatly expanded the use of water transport for some productsMany domestic and most international shipments involve the use of containers. The shipper in one country places cargo into an owned or leased container at its facility or at point-of-origin. Then the container is transported via rail or motor carriage to a water port for loading onto a container ship. After arrival at the destination port it is unloaded and tendered to a rail or motor carrier in