Transportation
Modes of Transportation
• Road Transport – Trucks/Lorries other commercial vehicles• Rail Transport – Train Wagons• Air Transport – Aeroplanes for Cargo• Water Transport – Large Ships• Pipeline Transport – Constructed pipes• Ropeways – Ropes/cables entangled to a cabin and hauled
back n forth via a pulley
Advantages and Disadvantages of modes of transportation will be self-study
Transportation In India
Less than Truck Load (LTL
Full Truck Load (FTL
Express
Different Freight Traffic
Also known as Intermodal or Multi-modal Transportation: Use of more than ONE mode of transport• Piggy Back • Fishy Back • Birdy Back• Land Bridge
Piggy back• Combination of rail and road• Transport materials or products over a long distance on land• Rail transport provides benefits of lower cost, higher load capacity• Final delivery is done via road• Two Types: Trailer Over Flat Car (TOFC) or Container Over Flat Car (COFC)
TOFC
COFC
Fishy Back• Combination of water transport with rail/road• Suitable for international or intercontinental movement of bulk quantities at low
cost• After reaching the destination port, the consignment is transported to the final
destination using road/rail transport
Birdy Back• Combination of air transport with rail/road• Advantage: Speed• Disadvantage: Most Expensive
Land Bridge
• Combination of land transport (rail/road) to connect two separate water ways
• A piece of land exists between two ports• Cargo is transported by water is first unloaded
at the port and • Re-transported to the second port by land and
loaded on another ship and transported by water to destination
Land Bridge Example – Thailand-Laos-Vietnam
Transportation Costs
Fixed Costs• Costs of infrastructure (ports, airports, railway tracks, yards, etc)• Costs recovered over a period of time (10 – 20 years)• Costs recovery can be done by Built-Operate-Transfer (BOT)
Principle
A Municipal Corporation appoints company XYZ to build roads and collect tools from the users to recover the costs. When the contract period ends, the company transfers the road to the Municipal Government. Contract period is determined mutually between Municipal Corporation and Company XZ
Transportation Costs
Variable Costs• Costs directly related with transportation activity• Costs directly proportional to volume of activity
Company ABC owns 25 trucks and bears the costs of maintaining trucks, fuel, employees on job, administration and paper work, etc.
Transportation Costs
Joint (Back-Haul) Costs• Costs associated with the return journey of a
vehicle after delivering a consignment
Company PQR delivered a consignment from Mumbai to Pune by truck. After delivering the consignment, the truck has to return to Mumbai and if it returns empty then the costs cannot be recovered. To recover the costs, this may have to be added to the actual cost of delivering the consignment
Transportation Costs
Common Costs• Costs of multiple smaller shipments to a
common destination are consolidated into a single large shipment
Company LMN delivers multiple products (5 to 10 FMCG products) via a truck to a nearby town benefiting themselves and customers through cost-sharing. When this truck breaks down, then it’s costs are proportionately distributed among the customers.
Factors Affecting Transportation Costs
• Product Related Factors
• Market Related Factors
Case Study
In US, 80% of wines come from California. The wine is transported from the (central) valley by 26 stainless tanks transporting 2.5 million gallons to the east coast. California has small regions producing large amount of wine to distribute nation-wide. Wine is shipped either in bottles or in bulk. Bulk wine is shipped by rail from west to east coast then bottled and shipped at higher rates. Bulk wine is also shipped by sea to bottling plants. Ship competes with rail operations
Factors Affecting Transportation Costs
Condition Factors Example
Geography Distance and accessibility
Long distance rates
Type of product Packaging, weight, perishable
Seafood; time sensitive goods
Economies of scale Shipment size Container vs less than container
Trade imbalance Empty travel- “back haul rates”
Wine ship
Infrastructure Quality of Surface Natural disasters
Mode Capacity, limitations, operational conditions
Air cargo; rail bulk; distance limits?
Factors Affecting Transportation Costs
Condition Factors Example
Elasticity of Demand
High value versus Low value goods
Grain vs.
Fabrication in transit
Uniform rate to capture business
Grain to cereal
Infrastrucure Quality of surface Natural disasters; IHS
Competition and regulation
Cost reductions to capture traffic
Rail vs. highway
Factors Affecting Transportation Costs
Product-Related Factor Market-Related Factors
• Product (money) value• Product density
(weight/space ratio)• Susceptibility to
Damage • Special Handling
Requirements• Product Stowability
• Competition• Inbound and
Outbound traffic• Movement Seasonality• Price Discrimination
Product Value
• Product’s value directly proportionate to transportation costs (, warehousing costs, inventory costs, packaging costs, material handling costs)
• High transportation prices reflect risk associated with the movement of goods
• High-valued goods carry more change of damage which transportation provider would have to bear
• Similar explanations for other above mentioned costs
Product Density
• High-density: More weight than space (Cars); Low density: More space than weight (Furniture)
• As density increases, transportation and warehousing costs tend to decrease and vice versa
• Transportation costs are priced in terms of weight they can transport.
Susceptibility to Damage
• Greater the risk of damage to a product, higher the costs of transportation and warehousing
• Higher prices may be charged for the measures taken to prevent damage
Special Handling Requirements
• Related to damage susceptibility• Specifically designed equipment to be handled
specially• For eg: Refrigeration, heating equipment, etc• Transportation costs are high
Product Stowability
• Stowability is the ability to occupy space as completely as possible
• For e.g. sand can occupy complete space of a truck and thus with 100% stowability
• Product with higher degree of stowability, utilizes space better and transport is economical
• Concept also applied in packaging
Factors Affecting Transportation Costs (Market Related)
• Market areas are carved out of space by interactions between supply and demand• If product is standardized each market point will buy from production center that can
supply it most inexpensively• Market areas are shaped by cheap or limited access routes which might expand market
boundary• Example: Inter-coastal trade via Panama Canal- producers located on either coast can ship
to the other coast more cost-effectively than rivals inland. This route is also subject to port jams
• Geographical Price Discrimination – – Extra costs of long distance distribution not reflected in price of commodity– Seller will profit by adjusting or taking control of delivered prices not in accord with
transfer rates– Push down price where competition is high and demand is elastic– Push price upwards where competition is low and demand is inelastic
• Freight Absorption – – Discriminate against near buyers so sellers assume transport costs to distant markets– Sellers often has more intense competition in remote market than at home– Freight absorption usually takes form of uniform price over large areas: toothpaste
• Modal competition• Seasonality
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source
https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/Logistics-in-India-Part-2.pdf
http://www.slideshare.net/YSFSHIPPING/modes-of-transport-in-logistics-12555636
http://www.transport.govt.nz/assets/Import/Documents/_versions/4052/UTCC-Transport-and-freight-logistics-final-report-Aug-11.1.pdf
http://www.tongji.edu.cn/~yangdy/quick/ch2.htm
http://books.google.co.in/books?id=TbuZnzcXGysC&pg=PA55&lpg=PA55&dq=product-related+factors+affecting+transportation+cost&source=bl&ots=HHSqDDuPcc&sig=Fs524DMjscF8ONbgoKKYRpzjCzM&hl=en&sa=X&ei=bP_ZU5uKOtPJuASX2YK4Bw&ved=0CBsQ6AEwAA#v=onepage&q=product-related%20factors%20affecting%20transportation%20cost&f=false