Domestic Transportation Systems

Dr. John Vande Vate

Supply Chain Models: Logistics

Outline

The big picture

Carriers: TL & LTL

Inland Waterways and Intercoastal Waterways

Railroads

Air cargo

Shippers: Send goods

Consignee Receives the goods

Mode Comparison

Mode % of Value % of Weight % of Ton Miles Length Revenue/Ton-mile

Air 3 0 0.2 1260 0.84$ Truck 70 58 28 400 0.26$ Rail 5 11 27 842 0.02$ Water 3 11 20 1000 0.74$ Pipeline 4 14 18 500 1.40$

SuppliersWarehouses Cross-docks Manufacturers

DCs Cross-docks Customers

RetailStores

Transport in the Supply Chain

Intra-facility Transportation

Transportation, Distribution

Integrated Transportation andInter-modal Services

Multi-modal transportation Ocean transportation typically involves rail

and trucking Rail transportation typically involves

trucking Air cargo typically involves trucking

Project Inter-modal ExampleChina to New York

Chinese Factory Port in China

Port of Long BeachNY DC

Cross Dock

Store

Trucking Outline

Background information DOT driving regulations TL transportation LTL transportation

Background Information

Common terms: TL and LTL For hire and private fleets Common carriage and contract carriage Irregular and dedicated carriage

Single and team operations

Key statistics: Gross freight revenue: $485 billion Freight weight: 7.7 billion tons Intercity freight ton-miles: 1,000 billion

Background Information

Number of trucks: 2.3 million tractors 4.4 million trailers 20 million trucks of all weight classes

DOT Driving Regulations

Duty hours: Driving or waiting for dispatch Inspecting, servicing, or conditioning vehicle Loading or unloading

Maximum driving hours: Not to exceed10 hours driving following 8 consecutive off duty

hours Not to exceed 15 hours of duty following 8 consecutive off

duty hours Not to exceed 70 duty hours in any consecutive 8 day period

A Feasible Driving Schedule

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

8 16 8 16 8 16 8 16 8 1617

offoff

off

offoff

off

onon

onon

onon

• Single driver• Atlanta, GA to San Francisco, CA• Mileage: 2,440• Average speed: 50 miles/hour• Driving hours: 49

8

0

Driving Hours8 16 24 32 40 49

Most Aggressive Feasible Driving Schedule

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

• Single driver• Atlanta, GA to San Francisco, CA• Mileage: 2,440• Average speed: 50 miles/hour• Driving hours: 49

0 8 18 2 12 20 6 14 0 8 17

Driving Hours10 20 30 40 49

TL Background Information

No barrier to entry 500,000 interstate carriers 80% operate 20 or fewer trucks 72% operate 6 or fewer trucks

Industry issues Fragmentation Severe competition Very low margins High fuel cost, fuel surcharge Driver shortage and high turnover

TL Background Information

Types of carriage Irregular, dedicated, continuous Head-haul, backhaul Multi-stops

Top carriers Schneider National J.B.Hunt M.S.Carriers Werner Enterprises Swift Transportation

Truckload Topics

Freight acceptance and solicitation Drop and swap TL economics 101 Pricing of services

Compositescore

Load profitability

Truckload Booking Process Load Acceptance

Reject load

Accept load

Composite Score Factors

Contract compliance Customer importance Equipment and driver availability at origin Equipment and driver needs at destination Execution difficulty:

Windows for pickup and delivery Equipment requirements Dock doors compatibility Special handling requirements Team operation

Drop and Swap

Why drop and swap

Duty hour problems Missing service Emergency driver requests

Calculations for drop and swap opportunities

TL Economics 101

Cost breakdown Fixed Variable

Fixed cost is allocated on a time basis

Variable cost is allocated on a mileage basis

TrailerTractor

Tractor/Trailer OperationFixed Costs

Tractor and trailer depreciation and interest Tractor: $80,000, 7 years, 20% salvage, 8% interest Trailer: $20,000, 12 years, 25% salvage, 8% interest

Driver compensation Base compensation: $45,000 (first) Base compensation: $35,000 (second) Fringes: 25% Nights out: $35 per night out

Tags, taxes, licenses $3,000 per year

Tractor/Trailer OperationFixed Cost Summary

Annual costs 50 WEEKS PER YEAR

Single operationAnnual cost: $75,213Weekly cost: $1,504Plus $35 per night

Double operationAnnual cost; $118,963Weekly cost:$2,379Plus $70 per night

Tractor 13,573.00Trailer 2,390.00Driver/Single operation 56,250.00Driver/Double operation 100,000.00Tags, taxes, licenses 3,000.00 Total (single operation) 75,213.00 Total (double operation) 118,963.00

Tractor/Trailer OperationVariable Cost Summary

Fuel and oil cost Fuel and oil cost per gallon $ 1.68 Fuel efficiency in miles per gallon 6 Fuel and oil cost/mile $ .28

Tractor and trailer maintenance Maintenance cost per mile $ .06 Tires cost per mile $ .04

Total variable cost per mile $ .38

Over the Road Tractor/Trailer Cost Example

San Jose, CA

Nashville, TN

Atlanta, GA

8,000

10,000

Over the Road Tractor/TrailerScheduled Arrivals and Departures

Schedule for a Single Driver

City Arrival Departure MilesCumulative

Miles LoadSan Jose, CA S, 10am 18,000Nashville, TN T, 8pm W, 10am 2,266 2,266 10,000Atlanta, GA W, 4pm 248 2,514

Trip represents a full week (5 days) Fixed cost = $1,504 Nights out cost = 5 X $35 = $175 Variable operating cost = $ .38 X 2,514 = $ 955 Total trip cost = $ 2,634 Cost per mile = $ 1.05 Consider an incremental positioning cost

Over the Road Tractor/Trailer Estimated Cost

Pricing of TL Transportation Services

Gross margin

Charge per trip

Charge per mile

Per mile & stop-off charge

20% 25% 30%

3,293

1.31

1.27100

3,512

1.40

1.36100

1.46100

1.50

3,763

LTL Transportation

LTL Transportation Background

LTL trucking requires a large investment in facilities Few major national and regional carriers

For national carriers, tendency for smaller number of facilities Interlining traffic to gain geographical coverage at the required service frequency

Relatively stable driver workforce Major players:

Roadway Express Yellow CNF American Freightways (FedEx) Arkansas Best U.S. Freightways

LTL Transportation Background

Typical shipments vary in size from 100 to 10,000 pounds

Going directly from shipper to consignee is not economical

Shipments are typically transported via a hub and spoke system: Shipper to origin spoke (satellite terminal) Origin spoke to origin hub (breakbulk terminal) Origin hub to destination hub Destination hub to destination spoke Destination spoke to consignee

LTL Hub and Spoke NetworkShipper to Consignee

ShipperConsignee

Hub Operations

Receiving spoke and hub loads Freight breakdown and sorting Relays Outbound load buildup Sending satellite and hub loads Local pickups and deliveries

Illustration of Relays

Atlanta hub

Nashville hub

St. Louis hub

# 2 # 1

# 2 # 3

Pup #1: Atlanta-Nashville

Pup #2: Atlanta-St. Louis

Pup #3: Nashville- St.Louis Driver A

Driver B

Freight Flow at Hubs

Pure pupsfrom hubs & spokes

Pure pupsto hubs & spokes

Relays

Strip pups

Load pups

Mixed pupsLocals and from spokes

Pure pupsLocals, to spokes, and to hubs

Rail Transportation

Impact of Rail

Carries more than 40% of nations intercity freight70% of automobiles from domestic mfgs64% of nations coal40% of nations grain

Class 1 rail freight volume in 1998 was 1.38 trillion ton-miles

Intermodal volume (trailers & Containers) has nearly tripled in the past 20 years

Major Railroads

Norfolk Southern CSX Burlington Northern Sante Fe (BNSF) Union Pacific Canadian Northern (CN) Canadian Pacific (CP)

General Freight Trains

Averages69 cars2660 tons21 miles per hour

Sorted at Hump Yard or Switch Yard Local railroad picks up and delivers

Switch Yard

Unit Trains

Sufficient volume for dedicated power Coal and Grain Long, slow, heavy No switching

Intermodal Trains

TypesTrailer on Flatcar (TOFC)Double StackRoadrailerTriple Crown

Scheduled Estimated 9 trillion containers and trailers

loaded on intermodal trains in 2000

Air Cargo Transportation

Air Cargo Background

International air freight is 16 million tons 2% of total tonnage but 33% of value traded Annual traffic growth rate is 7.5% Robust growth due to:

Just-in-time manufacturing and retailing Strong China growth Improvement in Asian crisis markets

Air cargo key commodities are electronics, perishables, fashion apparel, and live animals

Top Air Cargo Carriers

Top 10 air cargo carriers are: Federal Express Lufthansa UPS Korean Airlines Singapore Airlines

Air France Japan Airlines British Airways KLM United Airlines

Top Cargo Airports

Top 10 air cargo airports are: Memphis Los Angeles Hong Kong Miami Tokyo

New York (JFK) Seoul Frankfurt Chicago Singapore

Key Players

Carriers Combination carriers Integrators

Freight forwarders Third party logistics service providers Ground handlers Customs brokers

Air Cargo Supply Chain

Shipper

PickupPickup

Consignee

LinehaulLinehaul DeliveryDelivery

Forwarder

Integrated carrier

Combination carrier

Integrated carrier

Forwarder

Integrated carrier

Forwarders: MSAS, AEI, Circle

Combination carriers: American Airlines, Lufthansa

Integrated carriers: UPS, Federal Express

Cargo Shipment Activities

Three main sets of activitiesThree main sets of activities

Pre-shippingPre-shipping ShippingShipping Post-shippingPost-shipping

Pre-Shipping Activities

Markets, frequency, fleet

Schedule

Pricing

Reservations Rating Routing Booking Revenue management

Pre-Shipping Activities

Pricing contracts (Pricing)

Revise allotments (Revenue mgmt)

Determine allotments (Revenue mgmt)

Ad-hoc space (Revenue mgmt)

Booking requests (Rating, routing, revenue mgmt)

6-9 monthsbefore departure

20 daysbefore departure

Shipment arrival

Flight departure

Air Cargo Routing Process

SalesRequests

Check capacity availabilityDecrease capacity

Shipments

• Origin-destination• Connections• Transit• Aircraft type• Containers• Door size• Commodity• Terminal hours• Temperature

Compatibility Routes

LAX-NRTA2A

2,000 pds4 LD3s

Electronics

Shipping ActivitiesAir Cargo Ground Handling

Land side

Receiving

Air side

Consolidation Breakdown

Air cargo terminal

Pickup

Air Cargo Ramp Activities at DFW Airport

Cargo Terminal

1,000+ Flights Arriving/Departing

1,500+ Containers per day

20+ Drivers Per Shift

Zone 1 Zone 2 Zone 3

Zone 4

Zone 5

Terminal A Terminal C

Driver routes are often long