ADC’s initial plan (which we refer to as Option A) was to package the milk powder in tins at its plant and ship the tins by sea to Singapore. ADC’s production cost, before packaging and logistics, was $3 per kilogram. The existing tin design was cylindrical and measured 21 centimeters in diam- eter and 22 centimeters in height externally. Each tin cost $3 from a local packaging materials supplier and weighed 0.3 ki- logram. Therefore, each tin that was filled with milk powder weighed 3.3 kilograms. These tins would have to be pallet- ized and shrink-wrapped to withstand a sea journey, before being loaded into temperature-controlled shipping contain- ers. The internal dimensions of these containers were as fol- lows: 2.28 meters wide by 2.12 meters high by 11.84 meters long. To stack and fit well within such a container, each pal- letized load must not exceed 1.067 meters in length, 1.067 meters in width, and 1 meter in height. Each wooden pallet (including shrink-wrapping materials) weighed 15 kilograms, cost $25, and was good for one-use only.
The loaded containers would be trucked from the processing plant to the Port of Adelaide at a cost of $500 per container. The total shipment weight could not exceed 20,000 kilograms per container because of highway weight restrictions. Insurance costs were 3 percent of the value of the shipment ready to be loaded aboard ship in Adelaide (that is, all of the company’s costs up to this point). The ocean freight cost from the Port of Adelaide to any ad- dress in Singapore was $2,500 per container.
For Option B, ADC’s supplier proposed a new tin design, so that pallet density could be increased. This new 3-kilogram capacity tin was also cylindrical, but measured
19.4 centimeters in diameter and 24.5 centimeters in height. Compared with the existing design, 20 more tins of the new design could be packed into the standard pallet un- der a triangular packing arrangement (similar to a honey- comb pattern). However, this redesigned tin would only be procured in smaller quantities, for the international market, and hence cost slightly more at $3.10 each.
To reduce wastage of packaging materials, ADC was also evaluating Option C. This involved first shipping milk powder in bulk (using unpalletized stackable drums loaded into shipping containers) from Adelaide to Singapore. Each airtight cylindrical drum, measuring 1 meter in height and 0.75 meter in diameter externally, had a capacity of 200 ki- lograms and weighed 32 kilograms when empty. Although a new drum cost $100, it could be resold for $80 in Sin- gapore to be reused by a transporter of hazardous waste.
A qualified contractor could then be hired in Singapore to repackage the milk powder into 3-kilogram tins identical to the ones in Option A. While the repackaging contractor could supply these tins for just $2 each, it would charge a further $0.50 per kilogram to repackage and deliver the milk powder locally to the retailer’s warehouse.
QUESTIONS
1. How many tins of milk powder can be loaded into a con- tainer under Option A?
2. How many tins of milk powder can be loaded into a con- tainer under Option B?
3. How many drums of milk powder can be loaded into a container under Option C?
4. What are the total costs of delivering the milk powder to the retailer under Option A?
5. What are the total costs of delivering the milk powder to the retailer under Option B?
6. What are the total costs of delivering the milk powder to the retailer under Option C?
7. Which option would you recommend? Why?
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12
Transportation, which can be defined as the actual, physical movement of goods and people between two points, is pivotal to the successful operation of any supply chain because it carries the goods, literally, as they move along the chain. Transportation influences, or is influenced by, the logis- tics activities discussed in previous chapters. These include:
1. Transportation costs are directly affected by the location of the firm’s plants, warehouses, vendors, retail locations, and customers.
2. Inventory requirements are influenced by the mode of transport used. High-speed, high-priced transportation systems require smaller amounts of inventories in a logistics system, whereas slower, less-expensive transportation requires larger amounts of systemwide inventory.
3. The transport mode selected influences the packaging required, and carrier classification rules dictate package choice.
4. The type of carrier used dictates a manufacturing plant’s materials handling equipment, such as loading and unloading equipment and the design of the receiving and shipping docks.
5. An order-management philosophy that encourages maximum consolidation of shipments between common points enables a company to give larger shipments to its carriers and take advantage of volume discounts.
6. Customer service goals influence the type and quality of carrier and carrier service selected by the seller.
This chapter begins with a brief look at the transportation infrastructure in various countries throughout the world. This is followed by a thorough discussion of the five different types, or modes, of transportation: air, motor carrier (truck), pipeline, rail, and water (listed in alphabetical order). The chapter also discusses intermodal transportation and transportation specialists and con- cludes with an examination of transportation regulation and the legal classification of carriers.
In keeping with past practice in this and other basic logistics texts, the discussion of trans- portation will primarily be presented from the perspective of the United States and will primarily focus on domestic (within the U.S.) transportation. Having said this, readers should recognize that an individual country’s topology, economy, infrastructure, and other macroenvironmental factors could result in a different transportation system from that found in the United States. Moreover,
TransporTaTion
Learning Objectives
12.1 To compare and contrast transportation infrastructures in several countries 12.2 To identify the five modes of transportation and learn about their respective
characteristics
12.3 To discuss intermodal transportation
12.4 To describe several types of transportation specialists
12.5 To explain how different types of regulation impact transportation 12.6 To identify the legal classification of transportation carriers
the globalization of the world’s economy means that an increasing number of shipments are being transported between multiple countries (international transportation), a topic that will be discussed in Chapter 14.
COMAPARING AND CONTRASTING TRANSPORTATION INFRASTRUCTURE
Because many readers of this text reside outside the United States, we believe it would be helpful to present a brief comparison of the transportation infrastructure that exists in five highly populated countries located on various continents. These infrastructure data, shown in Table 12.1, indicate wide disparities in the various infrastructures; at a minimum, a lack of infrastructure makes it difficult to use that mode in domestic (within-country) transportation.
The relevant infrastructure statistic for air transportation in Table 12.1 is the number of paved runways over 3,047 meters (approximately 10,000 feet). This length is significant because a 10,000- foot runway has generally been viewed as adequate for accommodating the largest existing wide- body aircraft; wide-body aircraft are essential to long-haul international movements of both freight and passengers. According to Table 12.1, the United States by far has the most airports with paved runways of at least 10,000 feet, an indication that the United States is well positioned to participate in long-haul international movements. Although China currently reports over 70 airports with 10,000 foot runways, this number is expected to increase because the country plans to construct nearly 40 new commercial airports by 2020.
The infrastructure statistics for highway, pipeline, and water, presented in kilometers (1 kilo- meter is equivalent to approximately .62 miles), provide some interesting findings. For example, although Brazil and China are approximately the same geographic size, China currently has about 16 times more paved highway kilometers than Brazil. (It’s worth noting that China has added over 1,800,000 kilometers of paved highways since 2010.) The data also indicate that oil pipelines are much more prevalent in the United States, and that China has much more extensive inland water- ways, relative to the four other countries listed in Table 12.1.
The Table 12.1 information on rail gauge (the distance between the inner sides of two paral- lel rail tracks) is also enlightening. The United States uses only one size—standard—rail gauge (1.435 meters) in its rail infrastructure. Brazil and China, by contrast, use broad gauge (1.676 meters), standard gauge, and narrow gauge (1.000 meter) in their rail infrastructure, whereas Nigeria primarily uses narrow gauge rail—with Nigeria’s narrow gauge measured at 1.067 meters rather than 1.000
Learning
Objective 12.1
Brazil China Germany Nigeria United States
Aira 7 71 14 10 189
Highway 212,798 km 3,453,890 km 645,000 km 28,980 km 4,304,715 km (paved)
Pipeline (oil) 4,831 km 23,072 km 2,826 km 4,441 km 240,711 km Broad gauge
(1.676 meters) rail
5,822 km 100 km Standard gauge
(1.435 meters) rail 194 km 190,000 km 43,209 km 293 km 293,564 km Narrow gauge
(1.000 meter) rail
23,341 km 670 km 220 km 3,505 kmb
Water (inland) 50,000 km 110,000 km 7,467 km 8,600 km 41,009 km
aNumber of paved runways over 3,047 meters (approximately 10,000 feet).
bgauge=1.067 meters
Source: The World Factbook, www.cia.gov, 2016.
TAblE 12.1 Infrastructure Statistics in Several Countries
meter. The data on rail gauge are important because nonuniform rail gauge within a country, or between neighboring countries, means that shipments moving by rail will need to be transferred from one vehicle to another, which adds to both delivery time and costs. For example, China and India share a common border; while China primarily uses standard rail gauge, India, by contrast, primarily uses broad rail gauge.1
TRANSPORTATION MODES
Each of the five modes of transportation exists because of certain attributes that provide one or more advantages over the other modes of transportation. The attractiveness of a particular mode depends on the following attributes:2
• Cost (price that a carrier charges to transport a shipment)
• Speed (elapsed transit time from pickup to delivery)
• Reliability (consistency of delivery)
• Capability (amount of different types of product that can be transported)
• Capacity (volume that can be carried at one time)
• Flexibility (ability to deliver the product to the customer)
It is important to recognize that public policy can affect a mode’s performance on these attri- butes. Railroads, for example, were the dominant mode, as measured by ton miles (the number of tons multiplied by the number of miles transported) and revenues, in the United States from the nineteenth century through the middle part of the twentieth century. However, the development of the U.S. Interstate Highway System allowed motor carriers to improve their speed, reliability, and flexibility, and although railroads still have the largest share of ton miles, motor carriers now account for the majority of freight revenues.
From a public policy perspective, construction costs of the Interstate Highway System were primarily paid for by the U.S. government (90 percent), with the remaining construction costs paid for by state governments. This funding by both the federal and state governments is significant because U.S. railroads have been responsible for the construction costs of their track systems, whereas rail construction costs in other nations are often covered by the national government. As such, the U.S.
railroads have a substantial cost disadvantage relative to motor carriers, and this cost disadvantage must be captured in railroad pricing practices.
We will take a rather detailed look at each of the five modes in this section. The discussion will be presented alphabetically by mode, beginning with airfreight.
Airfreight
When one thinks of air transportation, one immediately thinks of speed, particularly on the line-haul (terminal-to-terminal movement of freight or passengers); modern jet aircraft are capable of trav- eling between 500 and 600 miles per hour, a speed that far exceeds any other form of transporta- tion. Indeed, air is generally the fastest mode of transportation for shipments exceeding 600 miles although some motor carriers now offer overnight service of between 600 and 700 miles.
However, air transportation is a quite expensive form of transportation, and the line-haul cost of airfreight service is regarded as its primary disadvantage; many companies simply cannot afford to have their shipments travel by air. Moreover, because most shippers and consignees (receivers of freight) are not located at an airport, this requires transportation from the shipper to the origin airport as well as from the destination airport to the consignee. This accessorial service (transpor- tation service that is supplemental to the line-haul) adds to both transportation costs and transit time
1The World Factbook, www.cia.gov, 2016 Learning
Objective 12.2
2Drawn from David J. Bloomberg, Stephen LeMay, and Joe B. Hanna, Logistics (Upper Saddle River, NJ: Prentice Hall, 2002), Chapter 7.
and also increases the number of times a shipment is handled (thus increasing handling costs and the opportunities for loss and damage).
Unlike other forms of transportation, the great majority of airfreight is carried in the freight compartments of passenger airplanes (so called belly freight). This belly freight limits the capacity available for air shipments and is particularly problematic with respect to narrow-body (single-aisle) aircraft. For example, a United Airlines narrow-body Boeing 737-900 offers approximately 1,825 cubic feet of belly space, whereas a United Airlines wide-body Boeing 777-200 offers approximately 6,925 cubic feet of belly space.3 However, wide-body aircraft devoted to all-cargo service have impressive carrying capacity; the latest version of an all-cargo Boeing 747 can carry approximately 155 tons of freight.
The cost, speed, and capacity attributes mean that, for the most part, airfreight is best suited to high-value, lower-volume products that are of a perishable nature or otherwise require urgent or time-specific delivery. Airfreight rates discourage bulky cargo and use dimensional weight (also called dim weight), which considers a shipment’s density (the amount of space occupied in relation to actual weight) to determine a shipment’s billable weight.4 Examples of products that move by air include:
• Auto parts and accessories
• Cut flowers and nursery stock
• Electronic or electrical equipment, such as cell phones and iPods
• Fruits and vegetables
• Machinery and parts
• Metal products
• Photographic equipment, parts, and film
• Printed matter
• Wearing apparel
The reliability of airfreight is somewhat problematic. On the one hand, air’s tremendous speed relative to the other modes offers the potential to “make up lost time” that isn’t possible with the other modes. Alternatively, because so much airfreight is belly freight, the increasing congestion and resultant delays associated with air passenger transportation mean congestion and delays for airfreight. Moreover, weather conditions such as fog, snow, and thunderstorms can have an adverse effect on the reliability of airfreight transportation. Indeed, FedEx located its first (and still primary) air cargo hub in Memphis, Tennessee, in part because Memphis rarely experiences foggy conditions.
Motor Carriers
The backbone of the U.S. highway system is the Interstate Highway System (its formal name is the Dwight D. Eisenhower System of Interstate and Defense Highways), which was approved by federal legislation in 1956. This nearly 47,000-mile, high-speed, limited-access highway system has had a profound impact on economic development in the United States. From a logistics perspective, many companies began to locate manufacturing, assembly, and distribution facilities in close proximity to interstate highways. Indeed, accessibility to highways consistently ranks as the most important factor in annual surveys of corporate location decisions.5
The most important business user of the highway system is the motor carrier (trucking) indus- try. One way of classifying motor carriers is according to whether they carry less-than-truckload (LTL) or truckload (TL) traffic. Less-than-truckload (LTL) shipments range from about 150 to 10,000 pounds; they are often too big to be handled manually, yet they do not fill an entire truck.
Trucks that carry LTL freight have space for and plan to carry shipments of many other customers
3Data derived from www.unitedcargo.com/shipping
4http://www.ups.com/content/us/en/resources/ship/packaging/dim_weight.html?srch_pos=1&srch_phr=dim+weight
529th Annual Survey of Corporate Executives: A Realignment of Location Priorities
simultaneously. Unlike TL carriers, LTL carriers operate through a system of terminals (a facility where freight is shifted between vehicles), and from each terminal small trucks go out to custom- ers, delivering and picking up shipments. These shipments are then taken to a terminal, where they are loaded aboard line-haul trucks, which are driven to a terminal near the freight’s destination. The goods are unloaded from the line-haul carrier, move through the terminal, and are loaded aboard a small truck for local delivery. Prominent LTL carriers include ABF Freight, FedEx Freight, UPS Freight, and YRC Freight.
Truckload (TL) carriers focus on shipments of greater than 10,000 pounds, and although the exact weight depends on the product, it is close to the amount that would physically fill a truck trailer. For glassware, this might be 18,000 pounds; for canned goods, it might be 40,000 pounds.
Although TL traffic may involve only one customer, it is possible that large shipments (greater than 10,000 pounds) from several customers can be consolidated into a truckload shipment. Whereas LTL shipments are routed through terminals, TL shipments tend to move directly from the shipper’s location to the consignee’s location. Prominent TL carriers include J.B. Hunt, Schneider National, Swift Transportation, and Werner Enterprises.
Although LTL companies tend to be limited in the type of freight that they haul—primarily dry freight such as apparel, books, and greeting cards, among others—TL companies can carry a plethora of freight types. These include, but are not limited to, dry freight, foodstuffs, refrigerated products, liquid products, animals and livestock, automobiles, and steel. Overall, although motor carriers have the ability to haul many different kinds of freight, their capacity is limited by highway weight and size (width, length) restrictions. For example, motor carriers using the Interstate Highway System are limited to a maximum gross vehicle weight of 80,000 pounds. With respect to size con- siderations, truck trailers can be a maximum of 102 inches wide; the maximum length for tractor–
trailer combinations varies from state to state. You should recognize that some countries do not have size and weight restrictions for motor carriers.
Although U.S. motor carriers can travel wherever there are roads, their length of haul is miti- gated by several factors, such as speed limits and hours-of-service (HOS) rules. HOS rules have been the subject of constant legislation and litigation in the United States since the beginning of the twenty-first century, and rather than trying to articulate the relevant rules, suffice it to say that—
unlike automobile drivers—truck drivers are limited in terms of the number of hours that can be driven in a 24-hour period, as well as the number of hours that can be driven in a one-week period.
Both HOS and highway speed limits have long been justified on the basis of safety concerns, and several states (e.g., California, Oregon, Washington) mandate a two-tier speed limit policy in which the maximum speed for motor carriers is lower than for automotive vehicles. Having said this, several U.S. states have eliminated, or are in the process of eliminating, the lower maximum speed limit for truckers, which could potentially increase motor carriers’ length of haul. Readers should recognize that each country may have its own hours of service rules for motor carrier operators as well as its own speed limits. Canada, for example, has different hours of service rules depending on whether one is driving north or south of 60 degrees north latitude. In addition, 120 kilometers per hour (approximately 75 miles per hour) is the maximum speed limit in Canada’s British Columbia province, compared to 100 kilometers per hour in the province of Ontario.
Without question, the primary advantage for motor carriers is flexibility, or the ability to deliver the product to the customer (or where the customer has relatively easy access to it). For example, if you bought this textbook at your university’s bookstore, this book was delivered there by some type of motor carrier, perhaps an LTL carrier. If you bought this textbook from an online site, then it was most likely delivered to your residence by a truck, perhaps a small package truck. Indeed, a longtime slogan of the American Trucking Associations (a trade group that represents motor carrier interests) was, “If you have it, it moved by truck.”
As was the case with airfreight, weather considerations also affect the reliability of motor carrier delivery, and relevant weather considerations include ice, fog, snow, flooding, and high winds (which can affect bridge crossings). The reliability of motor carrier service is also affected by highway congestion, which is caused by increased travel demand, weather, roadway incidents (e.g.,