Transportation Slides

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Transportation in a Supply Chain

• Chapter 9

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Purpose of TransportationHow do you select
transportation option (object)?

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Select from among many providers

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Transportation Drivers

• How important is transportation cost?
• What are the modal options?
• You need to know
• Properties of various transportation options
• What determines Costs?
• What are their performance characteristics?
• What is the interface between shipper, carrier
  and receiver?
• What are some ways you can utilize transportation
  options?
• How do you decide which option to use?

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How important is transportation costs?

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Graphical Presentation
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Truck Transportation cost to increase
dramatically.

• Turnover rate
• 119 per year for van drivers
• 4.5 if driver home every night
• Salaries
• 35,000 to 70.000
• Hours of Service rule changes
• 50 hours a week driving
• 35 hours loading, unloading and waiting
• Now all hours are on the 10 hour/day work week
• 3-5 increase in trucks on highway each year
• Fuel costs

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New pressures on rail

• Shift of trailers and container to rail
• Increase in number of containers importing goods
  into US
• Increase demand for land bridge between West and
  East coast
• Large number of retiring rail workers

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Airlines in severe cost crunch

• Older airlines have high wage rates developed
  during regulated era
• Competition from smaller startups with younger
  crews
• Limited airport capacity

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Transportation Cost for specific product
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What are the modes and types within mode?

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Modes

• Water
• Maritime
• RO-RO
• Container can hold from 2500 to 6500 containers
  on one ship
• Tankers
• Oil-bulk-ore
• Ocean Going Barge
• Intercostal
• River
• Rail
• Class I
• Class III
• Short Haul - serves a few communities
• Private company owns railroad to serve its own
  plant

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Coal River Traffic
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River Container Traffic
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Modes

• Truck
• For hire
• Private
• Air
• Airlines
• Commuters
• Taxis
• Freight
• Parcels

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Local Delivery
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Pipeline

• Petroleum
• Other Natural gas minerals
• Products that can be sent
• 38 grades of gasoline
• 7 grades of karosine
• 16 grades of home heating oil and diesel
• 1 grade of transmix
• 29 products are fungible not unique to shipper
  shipper will get same product but not actual
  product shipped

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Pipeline quantities

• Large lines
• 75,000 to 3,200,000 barrels
• Small lines
• 2,500 to 350,000 barrels
• 1 barrel 42 US gallons
• Travel speed 3- 5 mph
• 14 to 24 days from Houston to NYC
• 18.5 days average

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Number of Carriers

• Air
• Rail
• Water
• Motor
• Pipeline
• Transportation in Knoxville

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What are the characteristics of each mode?

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How important is each?
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Cost by Mode

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Visualization of Revenue/ton mile

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Volume Summary 1998
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How can you understand cost structure of each
mode?

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Cost Structure

• Fixed Capacity Cost Incurred whether the firm
  operates or not - typically less than 15
• Right of way
• Airport contracts
• Capital equipment
• Variable Capacity Cost Incurred when operated
  whether anyone uses it or not
• Equipment maintenance
• Fuel
• Operating crew
• Direct Delivery Cost Incurred when people or
  goods are actually transported - typically less
  than 10
• Meals
• Travel agents commission

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Economic of Capacity Organizations

• Fixed capacity cost fix regardless of activity
  level
• Scheduled capacity cost fixed regardless of
  load factor
• Out-of-pocket cost cost vary with load factor
• How does this structure affect the way the firm
  operates?

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Joint and Common Costs

• Joint If you provide service you incur both
  costs return trip
• Common costs cost are common to all people
  using service

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What are carrier concerns?

• Load balancing Why?
• Stable demand Why?
• Capacity Utilization Why?
• Handling Why?
• Consolidation, Disaggregation Why?
• Liability Why?
• Special services young children, COD, special
  delivery, negotiable bills of laden
• Compatibility of loads

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Characteristics - Rail

• Leave car you load
• Must go to right of way or build one to where you
  want it to go
• Carload shipments
• Build not schedule trains
• Major cost and delay is switching yards
• 60,000 to 80,000 pound per car/ 100 Plus cars per
  train
• Containers can be loaded quickly
• Bulk Material loaded quickly

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Characteristics - TL

• You load at your docks
• Container or van or reefer or specialized vehicle
• Accessible everywhere
• Direct, inexpensive, allow for DOT rules drive
  10 hour days
• Hard to find drivers Young people frequently do
  not want to drive
• Load balance avoid deadheading
• Scheduling
• Specialized Equipment
• Vans
• Reefers
• Specialized

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Characteristics - LTL

• Have shipments waiting or trailer spotted
• Time delay and expense of Break Bulk terminals
• Problem mixing freight
• Driver problem

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LTL vs TL operations

• Volume Move

• Small Shippments

Shipper
Shipper
Local Pickup
Sorting Hub
Direct Truck Load Shipment
Line Haul
Receiver
Sorting Hub
Local Delivery
Receiver
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Rules of Thumb for LTL Costs

• Delivery costs to locations 200 miles or more
  will average 1.00 per mile.
• Delivery costs in the city will average up to
  3.00 per mile.

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Characteristics - Maritime

• Heavy shift to containers, roll on-roll off or
  bulk
• Limited number of carriers, wait until they hit
  port, load and leave
• Transfer cost at port - 100/continer at
  Charleston you must get to port
• Travel around capes or through canals
• 1200 to 1800 to transport container across
  ocean

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Two types of containers

• Rail, truck, ship,
• Medium value cargo
• Aircraft
• Plane specific,
• Light
• High value cargo

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Container Advantage

• Security
• Seals on latches
• Only serial number on container
• Safety
• Metal boxes strong and protect cargo
• Workers are not near cargo

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Characteristics - pipeline

• Material critical pour point critical
• Pigs separate commodities but must be sequenced
• Slow but no weather problems
• Cheap
• Large initial investment
• Must have continuous flow volume limited

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Pipeline Construction

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Characteristics - air

• Light items
• Packing and size limitations
• Must get to airport and load
• Flight schedules
• Expensive
• Limitations on what can be shipped oxygen
  canister on Air Florida
• Weather restrictions
• Small containers typically not compatible with
  other containers

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Characteristics parcel carriers

• Size limitations
• Home delivery 1.4 attempts
• Expensive
• Outstanding tracking
• Post Office is lowest cost last mile carrier
• Airborne airships from lands end to nearest post
  office for final delivery

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One Lands End Shipping Mode

• Combination Move by Contain using multi modes

Lands End
Containers to Airport
Air to nearest city
Truck container to local post office
Post Office Delivery to home
Customer
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Characteristics - Intermodal

• Allows advantages of each mode
• Transfer cost expensive and time consuming
• Require intermodal facilities rail-truck,
  water-rail-truck
• Usually require a broker or specialty firm to
  coordinate

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Legal forms

• Through back to regulation
• Private Haul material they own
• Exempt Exempt from regulation
• Common Must transport for all at published
  rates
• Contract Contracts with a limited number of
  shippers Krogers, Burger King
• Who they can serve
• Liability standard

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Liability Standard

• Liable for cargo
• Act of God
• Earthquake
• Act of Public Enemy
• Bombing by Enemy
• Terrorism raises interesting question
• Act of Government
• Quarantine of shipment
• Default of Shipper or Owner
• Inadequate packaging
• Inherent Nature of the Goods

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What is role of land bridge?

• Water to port
• Rail to major port
• Water to rest of trip
• Common Routes

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Why is containerization important?

• Containerization
• Palletizing
• RORO
• Intermodal (What is critical factor?)

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Agencies

• Brokers
• Shippers Association
• Freight Forwarders
• Intermodal Marketing companies
• What is their function?

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Direct Shipments
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Milk Runs from Suppliers
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Example of Software Calculations

• Truck Routing
• Identify the distance matrix
• Identify the savings matrix
• Assign Customers to vehicles or routes
• Sequence customers within routes
• Truck loading software

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Your responsibility

• Understand the relationship between inventory,
  facilities, transportation and information system
  to serve customer expectations.
• I should be able to give a situation and you
  should be able to tell me what to change to
  respond

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Local Delivery
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Coal River Traffic
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Ocean Going Barge
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Intercoastal waterway bridge
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Mississippi River Tow
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Container Train
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Rail switching yard (hub)
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Load Container Ship
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Loading Coal (Bulk)
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Pipeline Pig
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Eurasian Land Bridge