6 Transportation

TRANSPORTATION MANAGEMENT

Introduction

Transportation plays a key role in economic success by allowing for the safe and efficient distribution

of goods and services throughout the supply chain.

Transportation links the various integrated logistics activities. Without transportation, the integrated

logistics system breaks down. Some view transportation as the glue that holds the entire system together.

Without the transportation link raw material cannot flow into the warehouses and plants, nor can be

finished product flow out of the plant to field warehouses and finally to the customer.

Transportation physically moves products from where they are produced to where they are needed. This

movement across space or distance adds value to products. This value added is often referred to as place

utility.

Time Utility is created by warehousing and storing products until they are needed. Transportation is

also a factor in time utility, it determines how fast and how consistently a product moves from one point to

another. This is known as time-in-transit and consistency of services respectively.

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, when the product is being used in the

manufacturing process. Transportation Ryder Integrated Logistics and United Parcel Services (UPS) have

achieved successes because they are able to provide consistent time-in-transit and thus increase the time

and place utility of their customer products.

Transportation Functionality

Transport functionality provides two major functions. Product Movement and Product Storage.

Product Movement

Where the product is in the form of materials, components, assemblies, work-in-progress or finished

goods, transportation is necessary to move it to the next stage of the manufacturing process or physically

closer to the ultimate customer. A primary transportation function is product movement up and down, the

Logistics Management TYBMS 1

value chain since transportation utilizes Temporal (time), financial and environmental resources, it is

important that items be moved only when it truly enhances product value.

The major objective of transportations to move product from an origin location to a prescribed destination

while minimizing temporal, financial and environmental resource costs, loss and damage expenses must

also be minimized.

Product Storage

A less common function is “Temporary Storage”. Vehicles make rather expensive storage facilities.

However, if the in-transit product requires storage but will be moved again shortly (say in few days), the

cost of unloading and reloading the product in a warehouse may exceed the per day charge of storage in

the transportation vehicle. In circumstances where warehouse space is limited utilizing transportation

vehicles may be a viable option.

1) One method may be involving loading product on the vehicle and then have it to take a circuitous

route or indirect route to its destination.

2) Another method is by way of diversion. This occurs when an original

shipment destination is changed while the delivery is in transit.

Principles:

There are 2 fundamental principles guiding transportation management:

1) Economy of scale

2) Economy of distance

1) Economy of scale

This refers to the characteristics that transportation cost per unit of weight decreases when the size of

the shipment increases. It is also generally true that larger capacity transportation vehicles such as rail or

water are less expensive per unit of weight than smaller capacity vehicles like truck and tempo.

Transportation economies of scale exist because fixed expenses associated with moving and loading can

be spread over the loads weight. The more the load, the lesser will be cost per unit weight. The fixed


expenses include administrative cost of taking the transportation order; time to position the vehicle for

loading and unloading, invoicing and equipment cost.

2) Economy of distance

Refers to the characteristic that transportation cost per unit of distance decreases as distance increases.

These principles are important considerations when evaluating alternative transportation strategies or

operating practices. The objective is to maximize the size of the load and the distance that it is shipped

while still meeting customer service expectations.

Participants in transportation Decisions:

1) Shipper

2) Carrier

3) Consignee

4) Public

5) Government

Modes of transportation

There are five major modes of freight transportation, airlines, motor carriers, pipelines, railroads and

water carriers. Each of these modes has distinct characteristics that give them advantage over the others.

Which mode is the best depends on the freight hauled cost, speed, reliability, capacity, length of haul and

flexibility.

Airlines

Airlines are the fastest terminal-to-terminal mode of transportation. That is the primary advantage. They

specialize in time sensitive movement of documents, perishable items, technical instruments, medical

supplies and high valued products. Also air transportation has the highest percentage of revenues coming

from passenger travel. While airlines are important for some freight movement, their primary business has

traditionally been passenger travel. Airfreight services cost more than other modes, primarily due to their

speed. Air carriers provide terminal-to-terminal service, meaning that direct delivery to a consumer's door

is the rarest of exceptions. Airlines are reasonably reliable. While weather related flight delays might

disrupt service, the disrupted service is often still the fastest than the next fastest mode, the motor carrier.

The airlines, speed advantage is most apparent for hauls over 500 miles. For trips less than 500 miles,

motor carriers can often outperform airlines door-to-door.


Airlines transport small volume shipments rather than large volumes, and packaged products rather than

heavy bulk commodities. The physical configuration and cost of air service also limit the variety of

products shipped by air. Measured by weight airlines transport very little freight. The percentage of total

freight dollars shipped by air is relatively small although the revenue growth rate is promising. As

customer service expectations increase, so does the demand for shorter transit times. As a result, many

shippers have turned to air transportation

Most airline costs change over a short period of time and depend on output making airlines

predominantly variable cost carriers. When the initial cost of the air fleet is significant these fixed costs

are spread over the long useful life of the aircraft. Terminals represent a major fixed cost in other modes,

but airline terminals are publicly owned facilities for which the airlines pay user fees. The significant start-

up costs associated with an airline limit the number of competitors creating an oligopolistic market

structure, with only a few large carriers.

Motor carriers (Road)

Motor carriers are the most flexible mode of transportation. This means better direct access to motor

carriage for more shippers and final consumers. Motor carriers compete with airlines for higher valued

products as well as time-sensitive products (electronics perishable etc,) within a 500 miles radius. Motor

carriage ranks as the second fastest mode of transportation, with the additional advantages of door-to-door

flexibility and broad geographic coverage. Because trailers vary in length, temperature control and form

motor carriers can carry a variety of products. In fact, they can carry almost anything. As industry saying

'if it got there, a truck brought it' rings very nearly true. Motor carrier rates are high compared with all

other modes but air. They also face gross weight and length restrictions, as well as other legal limits.

Motor carriers are susceptible to delays because of bad weather or traffic congestion. Almost, motor

carriers are not well suited to handle extremely heavy bulky products because the trailer is not properly

constructed to ship such significant weight efficiently even when permit allow the legal restriction to be

lifted.

Pipelines

Pipelines are unique mode of transportation. They are fixed in place, and the product moves through

them. This limits the type of products they can transport but within these limits they can move more tons

under a single shipment than any other mode of transportation (30,000 to 25,00,000 tons). They can

transport product only in a liquid or gaseous state. Petroleum is the number one product moved by


pipelines. Pipelines are cost effective where large quantities of liquid products need to be transported.

Pipelines offer one advantage that none of the other modes can offer. A pipeline is a continuous flow

mode. When the pipeline is full the product flows to the destination immediately and continues to do so

almost without fail. Pipelines are the most dependable mode of delivery unaffected by external factors like

weather. However, pipeline transportation is slow, rigid in terms of routes and product types and limited to

terminal-to-terminal service. A pipeline's average speed is usually between two and five miles per hour.

Pipelines can rarely deliver the product to the consumer's door and the origin and destination of the mode

are fixed-unless household water and gas lines are taken into account.

Many pipelines are built by private entities for private use. Different types of liquid can be shipped

through a pipeline at the same time separated by a batching plug. A batching plug is a mechanism

designed to allow for continuous flow through the pipeline while maintaining the integrity of each

individual product. Pipeline costs are predominantly fixed. Pipelines must build their own right-of-way, an

extremely expensive undertaking. Pipelines most often move large quantities of a liquid product from a

fixed origin to a fixed destination. The construction of a pipeline becomes cost effective only when the

high initial fixed cost can be spread over enough volume to keep the unit transportation cost competitive

with other modes.

Railroads

Railroads transport a significant amount of domestic freight. Railroads haul high-density low-valued

freight over long distances at rates lower than trucking and air, but higher than water and pipeline.

Products hauled include coal, stone, sand, metals, grain and automobiles. Their primary competitors

include domestic water carriers for large bulk products and motor products for higher valued goods.

Railroads can handle a wide variety of goods but generally have not. They lack flexibility and high-speed

delivery in their standard operation. Historically, railroads have been unreliable due to poor scheduling, a

substandard infrastructure and unreliable equipment. Railroads argue that their assets are older because

they must commit considerable resources to build their own right of way. Rail companies have attempted

to improve their reputation for customer service by updating old equipment, installing current

technologies and implementing customer-oriented strategies.

Like other modes, railroads are classified by annual sales figures. Railroads operate in an oligopoly,

with a limited number of interdependent competitors. Fixed costs are high compared with air, water and


motor carriage. The higher percentage of fixed costs stems from ownership and construction of the right-

of-way. Rail transportation has benefited from significant level of international inter modal freight, which

currently provides the industry with its highest growth and profits.

Water Carriers

Water carriers dominate international transportation because of their cost structure and ability to

transport large volumes. Their significant modal market share is derived from these international

operations. Advantage of water transport includes long haul capabilities-particularly for low-valued

products such as coal, stone, grain and ores-at low rates. They can and do haul a broad range of products

from ores and grains to Christmas toys.

Since water carriers haul a wide variety of commodities, they operate a variety of ships. Tankers primarily

carry liquid products like petroleum and crude oil. Measuring over 1.500 feet long and 200 feet wide,

these vessels are some of the largest on the ocean. Bulk carriers are constructed to haul commodities like

coal, iron ore, or agricultural products. Furthermore, significant growth in container ships shows the

impact containerization has had on water carriage. Standardized containers are loaded, placed on container

ships, and shipped across the ocean to their destination. A standard container measures either 8' by'8 by

20' or 8' by 8 by 40'.One twenty-foot container is referred to as one twenty-foot equivalent unit (TEU). A

forty foot container is two TEUs.

Water carriers compete heavily with railroads along certain routes and with pipelines for the movement

of some products, particularly petroleum. Water carriers cost structure and volume levels are such that

they can charge very low rates. Water carriers are relatively slow, unreliable and suffer from a high degree

of variability in delivery schedules. Two main types of for-hire carriers make up the deep-water industry.

Liners have fixed sailing times and fixed routes, while tramps sail when they reach capacity. Since liners

must sail at a specific time, they are not always filled to capacity. Tramps are usually the better choice

when service dates and times are not critical, and liners the better choice when these criteria are critical.

Water carriers operate in an oligopoly due to the large initial investment, which tends to limit the number

of carriers. However, over the life of the ship, variable cost dominates. The initial cost of the ship is

significant, but the volume transported over the useful life of the ship is so large that the cost per unit is

relatively low.


Mode Comparison- Dominant Traffic

MODE % SHARE NATURE OF TRAFFICRail 40% Agricultural products, ores, coal, heavy machines, etc.Road/ Highway

30% Medium & Light manufacturing distribution

Water 15 % Mining, cement chemicals, agricultural products, heavy machinery, etc.

Pipeline 10% Petroleum products, chemicals, gasAir 5% Emergency requirements of any material, small lots

Cost Structure For Each Mode

MODE FIXED COSTS VARIABLE COSTSRail High LowRoad Low capital Medium- fuel, maintenanceWater High/ medium LowPipeline Highest LowAir Medium High- fuel human operation

Relative operating Characteristics

OP. CHARTS

RAIL ROAD WATER PIPELINE AIR

Speed 3 2 4 5 1Availability 2 1 4 5 3Dependability 3 2 4 1 5Capability 2 3 1 5 4Frequency 4 2 5 1 3Total score 14 10 18 17 16

SCALE: 1 TO 5; 1 IS BETTER

Classification of carriers

Common carriers

The basic foundation of the public transport and system is the common carrier. They have the right to

transport any material within a specified zone. (Trucks and tempos).

Contract Carriers

Contract carriers provide transport services for selected customers. The basis for contract is an

agreement between a carrier and a shipper for a specified transportation service at a previously agreed

cost.Logistics Management TYBMS 7

Private Carriers

A private carrier consists of a firm providing its own transportation. They are 'not for hire'.

Specialized carriers

a) Oil tankers

b) Trailers to carry container (8 ft. high, 20 or 40 ft. length & 8 ft.wide) loads and special

products material.

c) Special closed trucks/tempos.

d) Parcel services-blue dart, Fed-ex. Etc.

Value Added Services

These are as follows:

a) Electronic tracking

b) Advanced label imaging system (bar code)

c) Delivery confirmation service

d) On-call pick up service

e) Packaging and forwarding, etc.

Transportation Documents

a) Bill of lading

It is the basic document utilized in purchasing transport services. It serves as a receipt and documents

commodities and quantities shipped for this reason accurate description and count are essential. In case of

loss damage or delay, the bill of lading is the basis for damage claims. The designated individual or buyer

on a bill of lading is the only bona-fide recipient of the goods, a carrier is responsible for proper delivery

according to instructions contained in the document in effect, and title is transferred with completion of

delivery.

The bill of lading specifies terms and conditions of carrier liability and documents responsibility for all

possible causes of loss. Or damage except those defined as acts of GOD (flood, earthquake. etc.)

b) Freight bill


The freight bill represents a carrier's method of charging for transportation services performed. It is

developed using information contained in the bill of lading. The freight bill may be either pre-paid or

collect.

c) Shipping manifest

The shipping manifest lists individual stops or consignees when multiple shipments are placed. The

objective of the manifest is to provide a single documentation that defines the content of the total load

without requiring the review of individual bill of lading.

Transportation Cost Structures

(1) Fixed Cost (2) Variable Cost (3) Joint Cost (4) Common Cost

Fixed Cost: Certain costs are constant regardless of the firm's activity. Example of this would include the

capital invested in railroad, tracks, airplanes, or tractors.

A variable cost changes as output changes. If a tractor is driven more miles, certain costs increase

proportionately. Fuel costs, wages, maintenance costs and tire replacement depend on output. As miles

increases so do these costs. Fuel usage for airlines varies with the number of flights as week as the

distance traveled. To determine if a cost is variable consider what happens if operations shut down. The

costs that disappear are variable and these that continue are fixed.

All cost in the long run are variable. For instance, a locomotive is eventually no longer useable and

must be replaced. For the twenty-five year life of the locomotive the cost is fixed. When a new locomotive

is purchased to replace it, the cost changes, it is no longer fixed. However once the new engine is placed,

it too will have a useful life of many years. The cost again becomes fixed. For most decisions do not reach

beyond its useful life. The benefits of increased volume accrue more to high fixed cost carriers than to

high variable costs carriers seek volume to spread the fixed costs over more units greatly increasing

profits.

A joint cost occurs when the production of one product or service requires or offers the production of

another product or service. For example, a railroad moves goods from New York to Los Angeles. It now

has engines available in Los Angeles to provide back-haul service to New York or additional

transportation from Los Angeles. The cost of placing the train in Los Angeles is a joint cost with the New


York to LA run and whatever run follows it. Fixed and variable costs can also be joint costs. All modes

incur joint costs to some extent.

Common cost cannot be directly associated with a product or activity. Since this creates confusion we

normally assign activities percentage of these common costs. For instance a tractor traveling from Dallas

to Chicago with three shipments breaks down and requires $5000 in repairs. How much of this repair cost

should be allocated to the three different shipments? It is based on space used, weight or both? That’s the

problem with common costs. In transportation common costs are significant and are found in all modes.

Airlines: Are variable cost mode because they do not own the right of way. Governmental entities own

the large airports the federal government operates the airways and airlines pay fees for the privilege of

using them. In keeping with the definition of variable costs airlines pay take off and landing fees only

when they take off and land. Other large variable costs include fuel, wages and maintenance. Major fixed

costs are the airplanes and salaries. Due to their type of operations airlines have many common costs since

they normally move freight in a single airplane for multiple customers.

Motor carriers: like airlines; do not own the way or path of travel. They are variable cost carriers. Some

estimate that 90 percent of the motor carrier industry's cost is variable. They pay user fees (taxes etc.) to

offset the road maintenance costs. Other major variable costs are fuel, driver wages, and equipment

maintenance. The major fixed costs are the terminals and equipment. LL carriers have many common

costs because of the number of shipments in a single trailer. TL carriers have few common costs because

the trailer is filled with product from a single shipper.

Pipelines are categorized as heavy fixed cost carriers. They own their right of way and their terminals. In

fact because of computerization, this mode is also classified as very capital intensive. This leads to lower

wages and maintenance costs. Because pipelines move a variety of liquid products, they have significant

common costs.

Railroads are fixed cost carriers because they own their equipment and tracks. Economic of scale arise

from increased volume which allow per unit costs to be kept low by spreading fixed costs over more units.

A significant portion of railroad cost is common because all traffic share replacement costs.


Water carriers are variable cost carriers because they do not own the waterways. They ways are not free.

Channels must be maintained in major rivers and ports. In the United States, the U.S. Army Corps of

Engineers dredges the channels. Water carrier’s major variable costs are labor, fuel and maintenance. Like

railroads, significant portion of their costs are common because multiple shipments often share a vessel.

Factors influencing Transportation Costs and Pricing

In general factors influencing transportation costs/pricing can be grouped into two major categories:

product related factors and market related factors. Many factors related to a products characteristic

influenced the cost/pricing of transportation. They can be grouped into the following categories:

1) Density

2) Stow ability

3) Ease or difficulty of handling

4) Liability

Density refers to a product's weight to volume ratio. Items such as steel, canned Foods, building

products and bulk paper goods have high weight to volume ratios. They are relatively heavy given their

size. On the other hand products such as electronics clothing, luggage and toys have low weight to volume

ratios and thus are relatively lightweight given their size. In general, low-density products-those with low

weight to volume ratios-tend to cost more to transport on a per pound (kilo) basis than high-density

products.

Stow ability is the degree to which a product can fill the available space in a transport vehicle. For

example, grain ore, and petroleum products in bulk have excellent stow ability because they can

completely fill the container (e.g. railcar, tank, truck, pipeline) in which they are transported. Other items

such as automobiles, machinery, livestock and people do not have good stow ability or cube utilization. A

product's stow ability depends on its size, shape, fragility, and other physical characteristics.

Related to stow ability is the ease or difficulty or handling the product. Difficult to handle items are

more costly to transport. Products that are uniform in their physical characteristics (e.g. raw materials and

items in cartons, cans, or drums) or that can be manipulated with materials handling equipments requires

less handling expenses and are therefore less costly to transport.


Liability is an important concern. Products that have high value to weight ratios are easily damaged and

are subject to higher rates of theft or pilferage, cost more to transport. Where the transportation carrier

assumes greater liability (e.g. with compute, jewelry and home entertainment products) higher price will

be charged to transport the product.

Other factors, which vary in importance depending on the product category, are the products hazardous

characteristics and the need for strong and rigid protective packaging. These factors are particularly

important in the chemical and plastic industries.

Market-Related Factors

In addition to product characteristics, important market related factors affect transportation cost/pricing.

The most significant are:

1) Degree of intra-mode and inter-mode competition.

2) Location of markets, which determines the distance goods, must be transported.

3) Nature and extent of government regulation of transportation carriers

4) Balance or Imbalance of freight traffic into and out of a market

5) Seasonality of product movement

6) Whether the product domestically or internationally

Customer service is a vital component of logistics management. Which each activity of logistics

management contributes to the level of service a company provides to its customers, the import of

transportation 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 and transit

-Market coverage- the ability to provide door-to-door service

-Flexibility- handling of a variety of products and meeting the special needs of shippers

-Loss and damage performance

-Ability of the carrier to provide more than basic transportation service i.e. (to become part of shippers

over all marketing and logistics programs)


Each mode of transport- motor, rail, air, water and pipeline- has varying service capability.

Service Choices and Performance Characteristics

The user of transportation has a wide range of services as his or her disposal all revolving around the

five basic modes, the variety is almost limitless (1) The five modes maybe used in combination (2)

Agencies, associations and brokers maybe used for their indirect services (3) A single transportation mode

maybe used exclusively. From among this plethora of service choices, the user must select a service or

service combination that provide the best balance between the quality of service provided and the cost of

the service. The task of service choice is not as forbidding as it sounds because the circumstances

surrounding a particular shipping situation often reduce the choice to only a few reasonable service

possibilities. To aid in solving the problem of transportation service choice, transportation service maybe

viewed in terms of characteristics that are basic to all services. These criteria are:

(1) Cost of service (2) Average delivery time (3) Transit time variability (4) Loss and Damage.

It is presumed that the service is available and can be supplied with a frequency that makes it attractive as

a possible service choice.

Cost of service: The cost of service is simply the line-haul cost for transporting goods plus any

accessorial or terminal charges for additional service provided. In the case for- hire service, the rate

charged for the movement of goods between two points plus any additional charges, such as pick-up at

origin, delivery at destination, insurance or the cost of preparing the goods for shipment makes up the total

cost of service. When the shipper owns the service, the cost of service is an allocation of the relevant costs

to the shipment in question. Relevant costs include such items as fuel, labor maintenance, depreciation of

equipment and administrative costs.

Cost comparisons for the purpose of transportation-service selection must be made on the basis of

actual charges that reflect the specific commodity being shipped, the distance and direction of the

movement and any special handling required.

Delivery Time and Variability: There are many factors to be considered when selecting a transportation

service. Repeated surveys have shown that average delivery time and delivery time variability rank at the

top in importance. Delivery time is usually referred to as the average time it takes for a shipment to move

from its point of origin to its destination. The different modes of transportation vary as to whether they


provide direct connection between the origin and destination points, for example, shipments move on air

carriers between airports and on water carriers between harbors. But for purposes of comparing carriers

performance, it is best to measure delivery time 'door-to-door' even if more than one mode is involved.

Although the major movement of shipment may be by rail, local pickup and delivery is often by truck if

no rail sidings are available at the shipment origin and destination points.

Variability refers to the normal differences that occur between shipments by the various modes. All

shipments having the same origin and destination points and moved on the same mode are not necessarily

in transit for the same length of time due to the effects of weather, traffic congestion, number of stop offs,

and difference in time to consolidate shipments. Transit-time variability is a measure of the uncertainty in

carrier performance.

In recent years there has been renewed interest in the idea of coordinating the service of more than one

transportation mode. The major feature of coordination is the free exchange of equipment between modes.

For example, a truck trailer is carried abroad an airplane or a rail car is hauled by a water carrier. Such

equipment interchange creates transportation services that are not available to a shipper using single

transportation mode. Coordinated services are usually a compromise between the services offered by the

cooperating carriers individually. That is, cost and performance characteristics rank between those of the

participating carriers.

MIXED MODES (MULTIMODAL / INTERMODAL TRANSPORTATION)

It is not always possible to transport the goods by only one mode of transportation due to economy of

transportation, long distance of transportation. So it is essential to have mixed modes some of the most

commonly used are

Piggyback (road + rail )

Fishy back ( road + water )

Birdy back ( road + air)

There are ten possible co-ordinate services:

(1) Rail-truck (2) Rail-water (3) Rail-air (4) Rail-pipeline (5) Truck-air (6) Truck-water

(7) Truck-pipeline (8) Water-pipeline (9) Water-air (10) Air-pipeline. Not all of these combinations are

practical. Some that are feasible have gained little acceptance. Only rail truck called 'piggyback' has seen

widespread use. Truck-water combinations, refereed to as 'fishy-back’, are gaining acceptance especially


in the international movement of high-valued goods. To a much lesser extent truck-air and rail-water

combinations are feasible but they have seen limited use.

TOFC: Trailer on flatcar or piggyback refers to transporting truck trailers on rail board flatcars, usually

over long distances than trucks normally haul. TOFC is blending of the convenience and flexibility of

trucking with the long haul economy of rail. The cost is less than for trucking alone and has permitted

trucking to extend its range. Likewise, rail has been able to share in some traffic that normally would

move by truck alone. The shipper benefits from the convenience of door-to-door service over long

distances at reasonable rates. These features have made piggyback the most popular coordinated service.

Piggyback (TOFC/COFC): In piggyback service, a motor carrier trailer or a container is placed on a rail

flatcar and transported from one terminal to another. Axles can be placed under the containers so a truck

can deliver them. At the terminal facilities, motor carriers perform the pickup and delivery functions.

Piggyback service thus combines the low movement with the flexibility and convenience of truck

movement. Since 1976 shippers have increased their use of piggyback service by 200 percent. In 1994

there were 8.1million inter-modal shipments with 1995 and 1996 shipments approximating the same

levels.

Truck and rail partnerships to support inter modalism such as the one begun in 1989 between the Santa

Fe railroad and J.B.Hunt Transport Services are relatively common. The railroad carriers freight on the

long haul and the trucking company picks up and delivers between the customer and railroad.77% of inter-

modal users agree that such alliances have a positive impact on transportation options available to them. In

India Konkan Railway has started this typed service.

Roadrailers: An innovative inter-modal concept was introduced in the late 1970s.Roadrailers or trailer

trains as they are sometime called, combine motor and rail transport in a single piece of equipment. The

road railer resembles a conventional motor carrier trailer. However the trailer has both rubber truck tires

and steel rail wheels. Over highways tractor power units transport the trailers in the normal way, but

instead of placing the trailer on a flatcar for rail movement, the wheels of the trailer are retracted and the

trailer rides directly on the rail tracks.

The advantages of this inter-modal form of transport are that rail flatcars are not required and that the

switching time to change wheels on the trailer is less than loading and unloading the trailer from the


flatcar. The major disadvantages of roadrailers are the added weighted of the rail wheels, which reduces

fuel efficiency and results in higher movement costs in addition to the higher cost of the equipment. The

disadvantages have tended to out-weight the advantages resulting in very low usage of this Inter-modal

option. If technology improvements can reduce the cost of this transport option, usage is likely to increase.

Miscellaneous inter-modal issues: Any other inter-modal combinations are possible. In international

commerce for example the dominant modes of transportation are air and water. Both include Inter-modal

movements through the use of containers and truck trailers. Combinations of air-sea, air-rail, truck-sea and

rail-sea are used globally.

As an example 'By shipping cargo by ocean from Japan to Seattle, then transferring it to a direct flight

to Europe from Seattle-Tacoma Airport. Asian exporters reap substantial benefits. They can cut their

transit times from 30 days for all water service to about 14 days and slash freight costs by up to 5 %

compared with all services.

Third Party Logistics Service Providers

This sector is growing very rapidly. With the increasing emphasis on supply chain management, more

companies are exploring the third party option. For some firms dealing with one third party firm who will

handle all or most of their freight offers a number of advantages, including the management of

information by the third party, freeing the company from day-to-day interactions with carriers, and having

the third party oversee hundreds or even thousands of shipments. Third parties have administered

activities such as freight payment and dedicated contract carriage for many years. However, additional

transportation and logistics activities are being outsourced. In some instances, some companies have

outsourced large parts of their logistics operations to their [3rd] parties.

Brokers, freight forwarders, shipper, associations, Inter-modal marketing companies and third party

logistics service providers can be available shipping options for a firm in the same way that the give basic

modes and Inter-modal combinations can. The logistics executive must determine the optimal combination

of transport alternatives for his or her company.


In addition to the preceding alternatives many companies find that other transport forms can be used to

distribute their products. Small package carriers and parcel post are important transporters of many time

sensitive products. These companies use a combination of transport modes, especially air. The U.S.

domestic airfreight market consists of 60% express, 25% passenger carriers and 15% mail. The growth

rate in this sector has been robust, averaging about 10% a year.

TRANSPORTATION NETWORK DESIGN OPTIONS:Transportation Network Design Options

Classical economists neglected the importance of facility, location and overall network design Economists, when originally discussed supply – demand relationships, facility, location and transportation cost differentials were assumed to be non existent or equal among competitors.

The number, size, geographical relationship of the facilities are used to perform logistics operation directly affect customer service capabilities and cost.

Network design – primary responsibility of logistics. Typical logistics facilities are manufacturing plants, warehouses, gross dock operations and retail

stores.

The design of a transportation network affects the performance of a supply chain. This is because a supply chain establishes an infrastructure within which operational decision regarding scheduling and routing are made. A well-designed transportation network is very essential for an organization. It allows the supply chain to achieve the desired degree of responsiveness at a low.

A) DIRECT SHIPMENT NETWORK: The retail stores chain network options for the direct shipment network. As the name suggests, the retail stores chain network structures its transportation network in such a way that the shipment of goods and materials come directly from the suppliers to the retail stores.

In direct shipment network, the path or the route which each shipment has to take is specified. The duty of the supply chain manager in this case is only to decide on the quantity of goods that has to be sent to the retail stores and then, depending on the type and quantity of goods, he has to decide on the mode of transportation. Here the supply chain manager has to strike a balance. In other words, if be decides to reduce the number of trips of transportation to minimize transportation cost, then he has to decide on larger inventories at a retail stores. But maintaining large inventories have their disadvantages as well. Again to keep the inventory level minimum at the retail stores, there will be more number of trips by trucks to the retail stores. This will increase the cost of transportation. Hence, the supply chain manager has to decide in a judicious manner between inventory cost and transportation cost.

B) DIRECT SHIPPING WITH MILK RUNS: A milk run is a route in which a truck either delivers product from a single supplier to multiple retailers or goes from multiple supplier to a single retailer. Hence, in direct shipping with milk runs, a supplier delivers directly to multiple retail stores on a truck, or a truck picks up deliveries from many suppliers destined for the same retail stores. When using this opinion, a supply chain manager has to decide on the routing of each milk run. This is because if a supplier has to deliver to multiple retail stores, the supply chain manager has to decide which retail stores are to be given priority and accordingly the routes have to be decided. Similar decision about the route has


to taken by the supply chain manager when many suppliers have to be contacted by the truck to take deliver of goods meant for the same retail store. Direct shipment of goods to the destinations provides the benefits of eliminating the need of having intermediate warehouses. Further the milk runs help to lower the transportation costs by consolidating shipments to multiple stores on a single truck. For example if replenishment to each retail store is considered on a direct shipment basis, it may happen that the lot size dispatched to that retail store may be small and the truck will not be loaded to its full capacity. However, if milk runs are used instead, the deliveries to multiple stores can be profitably, consolidated on to a single truck. This will result in the better utilization of the truck and also helps to reduce cost.

For example, Toyota uses milk runs from suppliers to support its Just-in-Time (JIT) manufacturing system in both Japan and the United State. However in Japan, Toyota has many of its assembly plants located close together and thus uses milk runs from a single supplier for many plants. Again in the United State, Toyota uses milk runs from many suppliers to its assembly plant in Kentucky.

C) ALL SHIPMENTS VIA CENTRAL DISTRIBUTION CENTRE: In this transportation network, the suppliers do not send the shipment of goods directly to the retail stores. The retail chain divides the stores by geographical region. Each region bas Central Distribution Center. The supplier sends the goods to the various central distribution centers. The Central Distribution Centre, in turn sends the goods to the retail stores as per the requirement.

The Central Distribution Centre is an extra large between the suppliers and the retailers. It can play two different roles. First role is to store inventory and the second role is to serve as a transfer location. The presence of a distribution center helps to reduce supply chain cost when suppliers are located far from the retail stores and the transportation cost are high.

Cross Docking of goods and products is taken advantages of when there are large shipments on the inbound side and on the outbound side, goods and products have to be sent to retail outlets replenishment lots. A major benefit of cross docking of products is that little inventory has to be held at the central distribution center and the products flow faster in the supply chain. Cross docking also saves handling costs, because the product does not have to be moved in to and out of storage at the central distribution center.

Modal characteristics and selection:

In choosing a transportation mode, the transportation managers consider the following criteria.

Cost

Transit time

Safety

Reliability

Claim records

Responsiveness

Speed

Capability
