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
Mode
US Intercity
Ton-miles
Cost

Water

15

Railroad

15
38

28

43

Air

0.4

0.1
18

US Transport.

5
25

Truck

Pipeline

% of Total
US Tons

80
4
16

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
Commodity

Tons

% of Total

Agriculture

59,212,908

44.3%

Coal

25,288,293

18.9%

Aggregates

15,056,445

11.3%

Chemicals

8,571,485

6.4%

Petroleum

8,430,536

6.3%

Ores

3,312,471

2.5%

Iron & Steel

5,565,281

4.2%

Other

8,281,576

6.2%

133,718,995

100.0

Total

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.

Air
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.

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.

Pipeline
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!

Mode Comparison
Relative
Mode

Delivery
Price

Product
Time

Value

Railroad

3.5

Truck

35

Air

80

Water

1=fastest

1=least

1=least

Size: 1 barge = 15 rail cars = 60 trucks

Damage

Intermodal Services
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 TEUs)
Pack at origin; do not open until destination.
Used extensively in ocean transportation.
Large ships may carry >4000 20 containers.

Small Shipments
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.

International Transportation
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.

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

International Transportation
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.

Pacific Ocean Transportation

U.S. - Asia travel: 13-15 days
Major ports:
Hong Kong
Kaohsiung (Taiwan)
Pusan (Korea)
Mumbai (Bombay, India)
Sydney (Australia)

Seattle/Tacoma
Long Beach/LA
San Francisco

Atlantic 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 &
Alegre (Brazil).
South Africa: Durban, Capetown, Port Elizabeth.
U.S.: Houston, New Orleans, New York, Norfolk.

Porto

Problems at Ports
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.

Transportation Regulation
1800s: 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.

Features of 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.

Deregulation
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 Outcomes
Many new carriers, especially trucking firms.
Larger carriers created.
Existing carriers expand.
Many mergers & acquisitions.

Lower rates (?)

Good or Bad?

Transportation Costs
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 Rates
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.

Line-haul 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.

Additional Charges
Pickup and delivery.
Changing destination.
Use of multiple carriers.
Switching in rail yards.
Demurrage and detention: retaining vehicles
longer than agreed.

Documentation
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.