Transportation & Fleet Management

Muhammad Aleem Habib

(BS, MS, MBA, PMP)

Transportation

Transportation refers to the movement of product from one location to another as it makes its way from the beginning of supply chain to the customer.

Transportation is an important supply chain driver because products are rarely produced and consumed in the same location.

The Role of Transportation in Logistics

In 2009, as a percentage of sales, transportation was 3.24%, warehousing 1.84%, customer service 0.48%,

administration 0.38%, and carrying cost 1.52%.

Outbound transportation was clearly the largest

component of total physical distribution costs.

Cost trade-offs abound in transportation and are typified

by trading lower inventory costs for higher transportation

costs.

Role of transportation in supply chain

management

The Transport Selection Decision

Firms need to recognize that the lowest cost carrier does not necessarily guarantee that this carrier will result in the lowest landed cost.

Therefore, firms need to keep the big picture in mind when attempting to select a carrier.

Carrier Selection Determinants

Transit time

Reliability

Capability

Accessibility

Security

Carrier Selection Determinants

Service Determinant Implication

Transit Time Inventory, Stockout Costs

Reliability Inventory, Stockout Costs

Accessibility Transit Time, Transportation Cost

CapabilityMeets Products’ Unique Physical

and Marketing Requirements

Security Inventory, Stockout Costs

Importance Ranking of Carrier Selection

Determinants

Modes of Transportation

Railroads

Capable of carrying a wide variety of products, much more so that other modes.

Very small number of carriers; likely only one will be able to serve any one customer location.

Trend is to merge smaller companies into larger ones with ultimate goal of having perhaps two

transcontinental rail carriers.

Railroads

Rail is a long haul, large volume system (high fixed costs; own rights-of-way).

Accessibility can be a problem.

Transit times are spotty, but are generally long.

Reliability and safety are improving and are

generally good.

Motor Carriers

The motor carrier industry is characterized by a large number of small firms.

Low cost of entry causes these large numbers.

Used by almost all logistics systems and account

for 82 percent of U.S. freight expenditures.

Consists of for-hire and private carriers.

Motor Carriers

Characterized by low fixed costs and high variable costs.

Do not own their rights-of-way.

Limited operating authority regarding service

areas, routes, rates and products carried.

Motor Carriers

High accessibility

Transit times faster than rail or water.

Reliability can be affected greatly by weather.

Small vehicle size coincides with lower inventory strategies and quick replenishment (QR).

Relatively high cost compared to rail and water; trade-off is faster service.

Water Carriers

Relatively low cost mode; do not own the rights-of-way.

Typically a long distance mover of low value, bulk-type mineral, agricultural and forest

products

Low rates but long transit times

Low accessibility but high capability

Water Carriers

General cargo ships

Large high capacity cargo holds

Engaged on a contract basis

Many have self-contained cranes for loading/unloading

Tankers

Specially designed for liquid cargoes

Largest vessels afloat, some VLCCs at 500k+ tons

Water Carriers

Container ships

High speeds for ships; increasingly more common

and important

Larger vessels can handle up to 5,000 containers.

RO-RO (Roll on-Roll off)

Basically a large ferry that facilitates the loading and unloading process by using drive on/off ramps

May also have the capacity to haul containers

Air Carriers

Limited number of large carriers earn about 90% of the revenue.

Any of the air carriers can carry air freight although some haul nothing but freight.

Cost structure is highly variable; do not own rights-of-way.

Transit times are fastest of the modes, but rates are highest.

Air Carriers

Average revenue per ton mile 18 times higher than rail; twice that of motor carriers.

Seek goods with a high value to weight ratio.

Accessibility is low as is capability.

Reliability subject to weather more than other

modes.

Pipelines

Unique mode of transportation as the equipment is fixed in place and the product moves through it in high volume.

They can move large quantities of certain types of commodities, mainly fluids, over long distances at relatively

low cost.

The operations are dependable and continuous.

Not suitable for general transportation.

Pipelines Advantages

They are insensitive to surface conditions such as storms, inclement weather, etc.

High fixed versus low variable. Operating costs are low.

They are environmentally friendly.

Own rights-of-way much like the railroads.

Accessibility is very low.

Pipelines Projects

Iran-Pakistan-India gas pipeline project of 27755Km. proposed to deliver the natural gas from Iran to Pakistan &

India.

Cost of the project – US $7 billion.

Performance Rating of Modes

Selection

Determinants Railroad Motor

Modes

Water Air Pipeline

Cost

Transit time

Reliability

Capability

Accessibility

Security

Performance Rating of Modes

Selection

Determinants Railroad Motor

Modes

Water Air Pipeline

Cost 3 4 2 5 1

Transit time 3 2 4 1 ---

Reliability 2 1 4 3 ---

Capability 1 2 4 3 ---

Accessibility 2 1 4 3 ---

Security 3 2 4 1 ---

Legal Classifications of Carriers

Common CarrierFor-hire carrier that serves the general public at

reasonable rates and without discrimination.

Carrier is liable for damages to products carried.

Exceptions to liability include acts of God, acts of

the public enemy, acts of the shipper and defects inherent in the goods.

Backbone of the transportation industry.

Regulated Carrier

Regulated carriers are found in motor and water carriage.

Regulations including entry controls, reasonable rates, and nondiscrimination provisions.

Must provide safe and adequate service.

Contract Carriers

For-hire carrier that does not have to serve the general

public.

May serve one or a few shippers exclusively.

May offer specialized equipment.

Other aspects of the carrier/shipper relationship are

made a part of the contract between the two parties.

Rates usually lower than common or regulated carriers.

Private Carriers

Private carriage is the firm’s own transportation.

Not for-hire and not subject to Federal regulations.

May not be the firm’s primary business but can charge

a intracompany fee for transportation services.

Almost exclusively motor, but some rail, air and water

also exist.

Private Carriers

Firms gain ultimate control over shipments and achieve maximum flexibility in moving goods.

Backhauls are usually empty or return materials to the firm’s plants and/or warehouses.

Requires a large capital investment.

Requires management time and expertise.

Inter Modal Transportation

Intermodal Transportation

Refers to use of two or more modes of transportation cooperating on the movement of shipment by publishing a through rate.

Logistics managers are looking for the best way to move shipments and these often attempt to take advantage of multiple modes of transportation, each of which has certain useful characteristics.

Certain types have been fairly well developed, such as rail/water, motor/water, rail/motor, and motor/air.

Types of Intermodal Services

Intermodal Transportation:

Containerization Referred to as Container-on-Flat-Car (COFC)

Goods are placed in a large box, where they are untouched until they arrive at the consignee's unloading dock.

Reduces theft, damage, multiple handling costs and intermodal transfer time.

Changes materials handling from labor intensive to capital intensive and may reduce costs from 10 to 20%.

Containerization

Land bridge” concept may apply for international shipments where oceans are separated by a large land

mass.

For example, containers moving from Japan to Europe

may dock at Long Beach, CA, transfer the containers to a

railroad, and reload the containers onboard another ship

in Norfolk, VA., continuing on to a European port.

Intermodal Transportation: Piggyback

Trailer-on-Flat-Car (TOFC)

Over the road trailers ride in special rail cars.

Takes advantage of motor flexibility and rail’s

long haul economic advantage.

Trailers loaded by driving, crane hoisting, or fork-

lift hoisting.

RoadRailers

Newest concept referred to as a “RoadRailer”

Essentially a trailer that has been reinforced to ride on a rail bogey and be

coupled together directly without first

being placed on a rail flat car

Saves weight and locomotive power and

thus fuel for the railroad

Indirect and Special Carriers

Small-Package Carriers

Evolved to carry small, irregular shipments

Fast service, premium rates

examples are UPS, FedEx, RPS, etc.

Consolidators and Freight Forwarders

Consolidates many small shipments