Transportation Infrastructure

Transportation

Infrastructure

8-2

Overview of transportation infrastructure

• Transport functionality, principles and

participants

• Transportation regulation

• Transportation structure

• Transportation service

Transportation infrastructure supports the flow of our

nations economy

Table 8.1 The Nations’ Freight Bill ($ billions)

8-4

Transport functionality primarily consists of product movement

services

• Product movement is the movement of inventory to specified destinations

– Restrictive element—in-transit inventory is

“captive”, usually inaccessible during transportation – Flexible element—inventory can be diverted during

shipment to a new destination

• Transportation consumes time, financial, and environmental resources

– Transportation is more than 60% of the cost of logistics

– One of largest consumers of oil and gas in US

– Impacts traffic congestion, noise and air pollution

Transport also functions as storage services for products

while in a vehicle

• In-transit inventory is captive in the transport system

– Managers strive to reduce in-transit inventory to a minimum

• Product can also be stored in vehicles at origin or destination (trailers, trucks, railcars, etc)

– Usually more expensive than traditional warehousing

• Must pay rental or demurrage charges on vehicles used for storage

• Diversion occurs when a shipment destination is changed after a product is in transit

8-6

Two fundamental transport principles

• Economy of scale is the cost per unit weight decreases as the size of the shipment increases

– At least until you totally fill the carrying vehicle!

– Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment

• Economy of distance is the cost per unit weight decreases as distance increases

– Often called the tapering principle

– Longer distances allow fixed cost of the carrier to be spread over more miles, lowering the per mile charge

• Goal is to maximize the size of the load and distance shipped while still meeting service expectations

Transport participants

• Shipper

• Consignee (Receiver)

• Carrier and Agents

• Government

• Internet

• Public

8-8

Major relationships among transportation participants

Figure 8.1 Relationship Among Transportation Participants

Role and perspective of participants

• Shipper and consignee have a common interest in moving goods from origin to destination within a given time at the lowest cost

• Carriers desire to maximize their revenue for movement while minimizing associated costs

• Agents (brokers and freight forwarders) facilitate carrier and customer matching

• Government desires a stable and efficient

transportation environment to support economic growth

• Public is concerned with transportation

accessibility, expense, and standards for security, safety and the environment

8-10

Role of the Internet in transportation

• The Internet now provides the vital communications links between the

transactional participants (shipper-carrier- consignee)

– Replacing phone and fax technologies

• Web-based enterprises provide information marketplaces

– Freight matching

– Fuel, equipment, parts and supplies purchases

Transportation regulation by the government focuses on

• Economic regulation seeking to make

transportation equally accessible and economical to all without discrimination

– Government created infrastructure (roads, canals, ports) – Intended to prevent carriers from taking advantage of

suppliers while ensuring long-term financial stability for carriers

• Social regulation which takes measures to protect public safety and environment

– Department of Transportation (DOT) (1966) has active role in hazardous material safety and driver safety

– Hazardous Materials Transportation Uniform Safety Act (1990) took precedence over state and local regulations

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History of transportation regulation

• In 1800’s, rise of steamships and railroads created immense wealth and monopolies

– (e.g. Commodore Vanderbilt and the railroad “barons” )

• Interstate Commerce Commission (ICC) created in

1887 to oversee regulation of interstate transportation

– To stop the railroad monopolies

• Other regulatory acts passed from 1906 to 1973 placed motor carriers, shipping, air transport and pipeline transport under ICC oversight

• By 1970, ICC had oversight on 100% of rail and air, 80% of pipeline, 43% of trucking and 6% of water carrier operations

Transportation deregulation (1980)

• Motor Carrier Act of 1980 deregulated the motor carrier industries

– Entry restrictions for new businesses were relaxed

– Restrictions for types of freight and range of services were abolished

– Individual carriers were given the right to price their services

– Trucking industry’s collective rate-making practices were abolished

• Staggers Rail Act of 1980 deregulated the rail industry

– Provide railroad management with freedom necessary to revitalize the industry

– Rail carriers were authorized to use selective pricing to meet competition and cover operating costs

– Carriers given increased flexibility with respect to surcharges

– Contract rate agreements between individual shippers and carriers were legalized

– Rail management given liberal authority to proceed with abandonment of poorly performing rail service

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Transportation regulation in the new millennium is stimulated by

technology and global issues

• Electronic Signatures in Global & National Commerce Act of 2000

– Gave digital signatures legal status

• Patriot Act of 2001

– Increased inspections at ports, airport security, and increased security at border crossings

• Continued Dumping and Subsidy Act

– Fines for artificial underpricing and “dumping” of foreign goods in U.S. markets

• Jones Act

– Only U.S.-built ships operating under a U.S. flag with U.S. crews can ship goods directly from a U.S. port to another U.S. port

Transportation structure

• Consists of rights-of- way, vehicles, and carriers operating

within five basic modes

• A mode identifies basic transportation method or form

– Rail

– Highway – Water – Pipeline – Air

8-16

Truck share of domestic freight market exceeds all

other modes combined

Table 8.2 Domestic Shipments by Mode and Volume

Rail mode has historically handled the largest number of ton-miles within continental US

• Track mileage has declined by over half since 1970

• Traffic shifted from broad range of commodities to hauling specific freight in traffic segments

– Carload – Intermodal – Container

• New technologies include articulated cars, unit trains and double-stack cars

8-18

Truck mode has expanded rapidly since the end of World War II

• Nearly 1 million miles of highways in U.S.

• Key benefits include

– Speed of transit

– Ability to operate door-to- door

• More efficient than rail for small shipments over short distances

• Dominate freight moves under 500 miles and from manufacturing to

wholesalers to retailers

• Many companies run their own truck fleets as well (e.g. WalMart)

Water mode is the oldest form of US transport dating back to the

birth of our nation

• Percentage of ton- miles has stayed between 19 and 30% since 1960’s

• Ranks between rail and truck in fixed cost

• Right of way

(canals and rivers) maintained by

Federal government

8-20

Pipeline mode accounts for about 68 percent of all crude and

petroleum ton-mile movements in

• Have the highest fixed US

cost and lowest

variable cost of all modes

• Unique transportation mode

day, 7 days a week – No emissions

– No empty container or vehicle to return

• Not flexible, and

limited to liquids and

gases

Air mode is the newest and least utilized transport mode for freight

• Accounts for only 1%

of intercity ton-miles

• Fastest of all the modes

• Fixed cost is 2

lowest but variable costs are extremely high

• Most products air- shipped have high

value, high priority or

extreme perishability

8-22

Comparison of fixed and

variable cost structure of each transport mode

Table 8.4 Cost Structure For Each Model

Operating characteristics used to classify transport modes

• Speed is the elapsed movement time from origin to destination

• Availability is ability of a mode to service any given pair of locations

• Dependability is the potential variance from expected delivery schedule

• Capability is the ability to handle any load size or configuration

• Frequency is the quantity of scheduled

movements a mode can handle

8-24

Highway transport is

appealing partly due to its relative ranking across

characteristics

Note: Lower is better

Table 8.5 Relative Operating Characteristics by Mode

Lowest rank is best

Infrastructure in crisis – US needs a National Transportation Plan

• United States aggressively invested in highway construction after World War II

– However, this highway system is in need of widespread repair to sustain the safe movement of over 26 million trucks

• August 1, 2007 a major bridge span of interstate I- 35 over the Mississippi River collapses

– Watch video of aftermath by selecting this link (slideshow mode)

• Roughly 12 percent (or 79,000) of public road bridges on the National Bridge Inventory are classified as

structurally deficient

http://www.metacafe.com/watch/1659007/i_35_bridge_collapse/

8-26

Transportation service is

achieved by combining modes

• Traditional carriers are firms that provide service using only one of the five basic transport modes

– E.g. trucking firm or an airline

• Package service uses intermodal transportation (ground and air) to handle small shipments or parcel deliveries

– E.g. USPS, Fedex, or UPS

• Intermodal transportation combines two or more modes to take advantage of the inherent economies of each and provide an integrated service at a lower total cost

– E.g. piggyback service integrating rail and motor service

• Nonoperating intermediaries include several

business types that do not own or operate equipment

– Act to broker services by other firms

Package service provides both regular and premium service

• Package service is growing rapidly with the rise in e-Commerce and Internet consumer sales

• Ground package service offers regular

delivery within metropolitan areas and between cities

– United Parcel Service (UPS), Federal Express Ground and United States Postal Service (USPS)

• Air package service is a premium service to deliver certain packages door-to-door by next- day or second-day

– Integrates truck and air modes seamlessly

8-28

Piggyback is an intermodal

transport that integrates rail and motor service

• Most widely used systems are

– Trailer on a flatcar (TOFC) – Container on a flatcar

(COFC)

• Trailer or container is

hauled by truck at origin and destination

– Railcar hauls for portion of intercity travel

• A variety of coordinated service plans have been developed

Containerships are oldest form of intermodal transport

• Loads a truck trailer, railcar or container onto barge or ship for the line-haul movement on inland waterways

• Land bridge concept moves containers in a combination of sea and rail transport

– Common for containers

moving from Europe to Pacific Rim

• Transfer of freight between modes often requires handling containers and imposition of duties

– Function of ports is to make this seamless and fast

• Port throughput is big concern for supply chain managers

8-30

Coordinated air-truck is commonly used to provide premium package services

• Many smaller cities lack

airfreight services

• Costs can

leveraged with

delivery time by

linking the modes

Non-operating intermediaries do not own their own equipment

• Freight forwarders—

businesses that consolidate small shipments from various customers into bulk shipment for a common carrier for transport

• Shipper associations and

agents—groups of shippers who employ an agent to consolidate purchases and shipments for them

– E.g. garment industry in New York

• Brokers—intermediaries that coordinate transportation

arrangements for shipper, consignees and carriers,

operating on a commission basis