Chapter 6: Transport Fundamentals

1. Chapter 6: Transport Fundamentals Skip Transit Privileges (pp. 172-175) • Five Modes. • Intermodal and International. • Regulation/Deregulation. • Costs & Rates. • Documentation.

2. Transportation • Most important component of logistics cost. • Usually 1/3 - 2/3 of total cost. • Shapes economy and society. • Links production and consumption. • Increases competition, availability and variety. • Permits economies of scale in production.

3. Five Modes of Transport % of Total % of Total % of Total Mode US Intercity US Tons US Transport. Ton-miles Cost Water 15 15 5 Railroad 38 25 8 Truck 28 43 80 Air 0.4 0.1 4 Pipeline 18 16 3

4. Trends for Intercity Ton-Miles • Water use will increase. • Rail use will decrease. • Truck use will stay about the same. • Air use will increase. • Fastest growth, but small %. • High growth between US & Asia. • Pipeline use will stay about the same.

5. Water • Products: Nonperishable bulk cargo. • Liquids, minerals, grain, petroleum, lumber, etc. • System: • Mississippi system: 55% of traffic; 11,000 miles; 7500 miles over 6 ft. deep. • Coastal & other: 35% of traffic; 17,000 miles. • Great Lakes: 10% of traffic; 95,000 square miles. • Average trip: • Internal: 400-500 miles. • Coastal: 2000 miles.

6. Water • Public ownership of waterways. • Slow speed: 5-10 mph • Very large size: • 1 barge = 35 ft. x 195 ft. • 1 barge = 1500 tons (3,000,000 lbs). • Up to 40 barges per tow (60,000 tons). • Can haul very large objects. • Disruptions of service: drought, flood, ice.

7. Water Transport & St. Louis • St. Louis is major inland port. • Most northern ice-free port. • Loads/unloads 50-100 barges each day. • Above St. Louis: 15 barges per tow. • Below St. Louis: 30-45 barges per tow. • St. Louis - New Orleans travel time? • 1053 miles.

8. Inland Waterways Information • Inland water transportation is about a $3.5 billion annual industry. • Over 11,000 federally maintained linear miles of navigable waterways. • Corps of Engineers manages the infrastructure, Coast Guard manages the navigation.

9. 37 Lock Sites • 1,200 Miles of River

10. Lock and Dam No. 21

11. Commodity Tons % of Total Agriculture 59,212,908 44.3% Coal 25,288,293 18.9% Aggregates 15,056,445 11.3% Chemicals 8,571,485 6.4% Petroleum 8,430,536 6.3% Ores 3,312,471 2.5% Iron & Steel 5,565,281 4.2% Other 8,281,576 6.2% Total 133,718,995 100.0 1999 Upper Mississippi – Illinois Waterway Commodity Flows

13. Rail • Products: Heavy industry, minerals, chemicals, agricultural products, autos, etc. • 60% of coal; 67% of vehicles; 68% of paper and pulp • System: 120,000 miles of line. • 1.2 million rail cars. • Most are boxcars or hoppers. • Average trip: 700 - 800 miles.

14. Rail • Private ownership of right-of-ways. • Few very large US railroads. • Mergers lead to fewer, larger railroads. • Average speed: 20-25 mph. • 80% of time spent loading, unloading & waiting. • Large size: • 1 car = 80-100 tons. • Average 60-80 cars per train. • 2-5 locomotives per train. • Most shipments are CL (carload).

15. Trucks (Motor Carriers) • Products: Medium and light manufacturing, food, clothing, all retail goods. • System: 3,800,000 highway miles. • 42,500 miles of Interstates. • Average trip: • Truckload (TL): 200-300 miles. • Less-than-truckload (LTL): 600-700 miles.

16. Trucks (Motor Carriers) • Public ownership of roadways. • Many, many trucking companies (>300,000). • Most are very small. • Truckload (TL): > 10,000 lbs. • Less-than-truckload (LTL): < 10,000 lbs. • Door-to-door service. • Small size: • 1 trailer = 40,000 lbs. • 40-53 feet long (small trailers are 28.5 ft.) • Can have 2 or 3 trailers per tractor in some places.

17. Air • Products: Perishable and time sensitive goods. • Flowers, produce, electronics, mail, emergency shipments, documents, etc. • System: 160,000 miles. • Average trip: 1300 miles.

18. Air • Public ownership of airways. • Terminal & ground facilities may be privately owned. • Very fast: 500-600 mph. • Door-to-door service requires trucks. • Size: • Large aircraft can carry 100 tons. • Can carry 8x8x40 ft containers. • Aircraft are very expensive to buy and operate.

19. Pipeline • Products: Petroleum, oil, natural gas. • 3/4 of all crude petroleum. • System: 170,000 miles. • Texas has 1/4 of total. • Very dependable. • Can store large amount in transit.

20. Pipeline • Private ownership of pipelines. • Very slow, but large capacity. • Can move 24 hr/day, 7 days per week. • Size: • 4-26 inch diameter. • Alaska pipeline: 48” diameter; moves 2 million barrels per day. • No vehicles!

21. Mode Comparison Relative Delivery Product Mode Price Time Value Damage Water 1 4 1 1 Railroad 3.5 3 2 4 Truck 35 2 3 3 Air 80 1 4 2 1=fastest 1=least 1=least Size: 1 barge = 15 rail cars = 60 trucks

22. Intermodal Services • Combine two or more modes. • Rail+Truck or TOFC: trailer on flat car. • Used by 70% of shippers. • Containers: • 8’ x 8’ x 20’ (TEU) or 8’ x 8’ x 40’ (2 TEU’s) • Pack at origin; do not open until destination. • Used extensively in ocean transportation. • Large ships may carry >4000 20’ containers.

23. Small Shipments • Many options: • LTL motor carriers, US Postal Service, UPS. • Freight Forwarders: • Do not own long haul equipment. • Handle transportation for shippers. • Can consolidate small shipments and arrange TL service. • Express shipments: • Federal Express, US Postal Service, UPS.

24. International Transportation • Water is most important mode. • 99% of world trade volume by weight. • 50% of world trade volume by value. • Top US ports: • By tons: Houston, New Orleans, New York, Norfolk. • By value: LA/Long Beach, New York, Seattle/Tacoma, Houston. • Air handles 21% of world trade volume by value.

25. Imports and Exports in Billions of $ (2000) Mexico Canada Europe Pacific Rim US Exports 100 150 170 190 US Imports 135 230 240 415 US Imports & Exports

26. International Transportation • Legal issues, regulation and documentation can be extensive and detailed. • Political issues important. • Foreign trade zones encourage international transportation. • Regional free trade agreements: • NAFTA, European Community.

27. Pacific Ocean Transportation • U.S. - Asia travel: 13-15 days • Major ports: Hong Kong Seattle/Tacoma Kaohsiung (Taiwan) Long Beach/LA Pusan (Korea) San Francisco Mumbai (Bombay, India) Sydney (Australia)

28. Atlantic Ocean Transportation • Travel between U.S. and: • Europe: 10-12 days • South America: 20-30 days • South Africa: 35-40 days • Major ports: • Europe: Liverpool (England), Antwerp (Belgium), Rotterdam (Netherlands), Bremerhaven & Bremen (Germany), Genoa (Italy), Oporto (Portugal), Istanbul (Turkey). • South America: Buenos Aires (Argentina), Santos & Porto Alegre (Brazil). • South Africa: Durban, Capetown, Port Elizabeth. • U.S.: Houston, New Orleans, New York, Norfolk.

29. Problems at Ports • Container imbalances. • More into U.S. than out of U.S. • Congestion - in water and on land. • Labor issues: • Lockout on U.S. west coast ports: 2002 • Inspections into U.S. • Security. • Animal (insect) pests and diseases.

30. Transportation Regulation • 1800’s: Railroad boom: • Near monopoly on inland transportation. • Led to abuses of shippers. • 1887: Railroads regulated: • Rates must be reasonable, fair and published. • ICC established for enforcement. • Other modes: • 1906: Pipelines regulated. • 1935 - 1940: Motor carriers, airlines and water carriers regulated.

31. Features of Regulation • Government control over: • Rate adjustments. • Entry, expansion, acquisition & merger. • Safety. • Principle: Service change must benefit customers. • Burden of proof on carriers. • Little incentive for improved service.

32. Deregulation • Transportation Deregulated: 1977-1985: • Rate can be changed as long as reasonable. • Entry, expansion, acquisition & merger rules relaxed. • Safety still addressed at federal and state level. • Burden of proof shifted to shippers. • Major changes for carriers and shippers.

33. Deregulation Outcomes • Many new carriers, especially trucking firms. • Larger carriers created. • Existing carriers expand. • Many mergers & acquisitions. • Lower rates (?) • Good or Bad?

34. Transportation Costs • Fixed Costs: • Vehicles. • Infrastructure (road, rail, pipeline, navigation, etc.). • Terminal facilities. • Administration. • Variable: Proportional to distance or volume. • Fuel, labor, handling, pickup & delivery, taxes. • Cost structure varies by mode. • Railroads: High fixed cost; Low variable cost. • Trucks: Low fixed cost; High variable cost.

35. Transportation Costs • Allocating costs to shipments can be very complicated. • Many shipments move on same vehicle. • Marginal cost for additional shipment may be very low or very high. • Traffic imbalances (backhauls). • How to incorporate backhauls (return trips)? • Allocate all costs to forward haul? • Allocate some costs to backhaul?

36. Transportation Rates • Rate is price carrier charges for service. • Should reflect costs and value of service. • Linehaul rate + additional charges for special services. • Line-haul rate from origin terminal to destination terminal. • Additional charges for terminal services, extra protection, stop-offs, etc.

37. Line-haul Rates • Depend on product, distance and volume (weight). • Strong economies of scale: • Cost per cwt decreases with weight. • Cost per mile decreases with distance. • Under regulation, pricing was very complicated. • Rating or classification system for EVERY product. • Simpler now, and negotiation is important.

38. Line-haul Rates • Carriers offer discounts from published rates. • Published rates may be based on rating system. • FAK (Freight-all-kinds) rate applies to any product. • Rates may be negotiated based on: • Products. • Lane. • Volumes on a given lane. • Volume of business overall.

39. Additional Charges • Pickup and delivery. • Changing destination. • Use of multiple carriers. • Switching in rail yards. • Demurrage and detention: retaining vehicles longer than agreed.

40. Documentation • Bill of Lading: Legal contract between shipper and carrier. • Freight Bill: Charge for service • Freight Claim: • For loss, damage or delay. • For overcharges. • Much more documentation is usually required for international transportation.