Travel Time Variability and the Impact on Supply Chains

1. Travel Time Variability and the Impact on Supply Chains Transportation Logistics Spring 2009

2. Lack of reliability • Caused by congestion • Expected variability • Caused by rare events • Unexpected variability (disruption) • Generally longer than average travel times are the concern • Penalties for longer than average trip times much greater than penalties for shorter than average trip times

3. How do we manage variability • Demand side • influence when people travel to create a more constant demand • Supply side • Provide more infrastructure • Protect infrastructure from disruptions • Notify travelers

5. $43 Million in trade each day About 500,000 northbound and southbound trucks in 2005 Many agencies operating (FDA, CBP) 4th busiest N. border commercial crossing, busiest crossing W. of Detroit Transit times can be long & unpredictable Congested during peak periods Lower Mainland/Whatcom County Border Crossings

6. Dataset Comparison (Southbound) • FAST vehicle distributions match in the two datasets, therefore we assume the nonFAST data for June 2006 is reasonably representative of average nonFAST crossing times. • The average wait time for nonFAST vehicles is distinctly longer than for FAST vehicles, but the standard deviation is not. • Over the three day period the average arrival rate per lane for the WCOG data is the same for FAST and non-FAST (21.5 vehicles per hour) but FAST service rates are shorter (86 seconds compared to 119, 121 for the two non-FAST lanes), so differences in wait time are due to differences in service rates rather than differences in arrival rates.

7. Border Crossing Times 20minutes 4 hours

8. Seasonal Variation

9. Disruptions off-hours

10. SB more variable

11. ORIGIN ORIGIN ORIGIN BORDER Handling Facility DESTINATION DESTINATION DESTINATION

12. ORIGIN ORIGIN ORIGIN Handling Facility BORDER DESTINATION DESTINATION DESTINATION

13. Example 1: Jet Fuel Vancouver International Airport Border • Charges supplier for wait times more than 30 minutes • Is forced to hire more drivers and adds this cost to freight rates • Specialized provider Cherry Point Refinery

14. Example 2: LTL Seafood BC Processing Plants BC Fish Farms • Responsible for spoiled goods • Increases freight rate to account for additional buffer time and spoilage • Harassed when shipments delayed by congestion and variability • Specialized provider BC Distributors Handling Facility Border California Wholesaler California Wholesaler California Produce

15. Example 3: Small TL Firm Origin Destination • Increases freight rate to account for additional buffer time • Harassed when shipments delayed by congestion and variability Border Destination Origin

16. Example 4: Lumber Re-load Facility Wood processing plant • Increases freight rate to account for additional buffer time/safety stock • Charged by railroad when cars not filled in time Border Reload Facility Destination

17. Example 5: Air Cargo Vancouver International Airport • A significant amount of the time critical cargo at the border is crossing northbound to meet cargo flights at Vancouver international airport. • YYZ is better served by widebodies for direct flights to Asia than SEA • Variability can cause missed flights Border US Locations

18. Reported Strategies

19. Cost of No Response • Late deliveries can lead to a loss of business or various late charges and penalties. • Port of Vancouver • Reload facility • Hours of service constraints • Performance contracts • Increased buffer times means typically arriving ahead of schedule, and wasting driver and truck time.

21. Southbound Travel Patterns

22. Cost of variability is currently small • Companies ability to forecast travel times is poor • Delivery time windows are wide • Low equipment utilization • Hours of service regulations and working patterns make it difficult to exploit time savings • Single drivers • Home base • Typical origins and destinations • Commodity types not generally time critical • Wasted blocks of time are small relative to useable blocks of time • Cost is born directly by driver not by trucking firm

23. Conclusions • Border delays perceived as fixable and border process of little value. • Although other sources of variability often contribute more to delay they are perceived as unfixable. • Some logistics structures compound delay from one to many vehicles. • Moderate delay (2 standard deviations) is primarily accommodated by increasing buffer times. • Companies do not currently accommodate very long delays in their logistics planning.

24. How much does reliability matter? • It depends! • Trying to meet a schedule • Trying to utilize resources effectively • Commodity profile • Operating environment • Competition • Expectations

25. Nature of scheduling • This describes what level of variability makes the delivery late. If deliveries are not scheduled, they cannot be late, and incur a late penalty of any sort. If deliveries are loosely scheduled, a greater magnitude of variability will need to be present to cause a late penalty. Specific levels considered are suggested as: • Truck arrival is scheduled tightly (less than one hour window); • Truck arrival is scheduled loosely (1-4 hour window); and • Truck arrival is not scheduled.

26. Level of contracting • This helps to describe who bears the cost of inventory. If transportation is managed in-house, then the shipper is responsible in transit inventory. If it is outsourced, the organization moving the goods is not the one bearing the inventory cost. Specific levels considered are suggested as: • Transportation contracted (inventory cost not incurred by carrier); and • Transportation in-house (inventory cost incurred by carrier).

27. Relative cost of inventory • The higher to value of the goods, the more sensitive the operations will be to travel time variability due to larger inventory costs. Specific levels considered are suggested as: • Non-perishable or low value goods; and • Perishable or high value goods.

28. Travel time risk • If a carrier makes many deliveries in one day and they operate in a scheduled environment, the carrier will need to predict the travel time of each individual leg in a delivery route. Thus, the number of deliveries per day comes into play when considering the impact of variable travel times on a carrier. Specific levels considered are suggested as: • Short range (many deliveries in one day); • Medium range (2-3 deliveries per day); and • Long haul (one delivery per day).

29. Driver pay • If drivers are paid by the hour, then the driver himself does not bear the cost of longer than average travel times and the cost is borne by the carrier. If the driver is paid by the trip (often the case with owner-operators), the cost of longer than average travel times is borne by the driver himself. Specific levels considered are suggested as: • Driver paid by the hour (employee); and • Driver paid by the trip (subcontractor).

30. Level of variability • Carriers that drive primarily on highways will likely anticipate less travel time variability, whereas carriers that drive primarily on arterials may anticipate more travel time variability. This should affect both the current design of their operations, and the impact of longer than average travel times on their operations. Specific levels considered are suggested as: • Primarily highway driving; and • Primarily arterial driving.

31. Fleet size • A larger fleet size presents a carrier with flexibility and the ability to spread risk of larger than average travel times across drivers or vehicles. Specific levels considered are suggested as: • Small vehicle fleet (single driver); • Medium vehicle fleet (less than 25 vehicles); and • Large vehicle fleet (more than 25 vehicles).

32. Connectivity • The consequences of larger than average travel times are more severe if the delivery is meeting an outgoing vehicle at an intermodal facility, cross-dock or terminal. Specific levels considered are suggested as: • Meeting connection (intermodal or cross-dock/terminal); and • Not meeting connection (intermodal or cross-dock/terminal).

33. Schedule flexibility • The ability to mitigate the impact of larger than average travel times due to congestion is limited by the carrier’s schedule flexibility and the current timing of trips. Specific levels considered are suggested as: • Trip occurs during peak periods but ability to shift off peak; • Trip occurs during peak period and limited ability to shift; and • Trip occurs off peak.

34. Metrics • For Freight Movers, reliability is related to the frequency that the experienced travel time is within +/- 15 minutes of the expected travel time. • None of the respondents currently have delivery windows of less than 30 minutes in length, and therefore it is fair to say that travel times do not need to be predicted with any more certainty than +/- 15 minutes. • More narrow time windows are not required in part because they are currently unattainable. • For carriers that make many deliveries in one day, a series of longer than average travel times compound, making it difficult to identify how reliable an individual trip needs to be.