Global Trade, Transportation, and Logistics Management CEE587/GTTL501/OPMGT535 Professor Goodchild 3/28/11

What is Transportation Logistics?

Supply Chain Management the management of the entire value-added chain, from the supplier to manufacturer right through to the retailer and the final customer. SCM has three primary goals: Reduce inventory, increase the transaction speed by exchanging data in real-time, and increase sales by implementing customer requirements more efficiently.

Supply chains Complex logistics system in which raw materials are converted into finished products and then distributed to end users. In a pull chain finished products are manufactured when requested. In a push chain production and distribution are based on forecasts.

Logistics “that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements.”

Logistics Get the right materials to the right place at the right time (minimize cost, meet constraints) Estimated logistics costs, 11% GDP Logistics system: a set of facilities (materials processed) linked by transportation services (move materials)

Freight Transportation (Goods Movement) The transit of goods. This occurs through many modes of transportation including: maritime, air, rail, and truck. Freight transportation includes the handling of goods in distribution centers and terminals (such as marine ports or airports). Cargo can be held in a variety of different containers. Intermodal transportation includes more than one mode.

Transportation Logistics Supply chain management, typically the business school perspective, serves individual companies Industrial engineering focusses on methodologies for improving logistics in all contexts Transportation logistics from the CEE perspective looks at transportation from a societal perspective, the net flow and impact on the infrastructure. To understand this we must know something about SCM and IE.

Alameda Corridor

The Problem Cities originally developed around ports, so our major port cities are also significant urban areas Ports are on the water Railroads head inland Historically rail lines terminated at the historic center of the urban region, leaving a gap between the rail lines and the port. The connection between rail infrastructure and port infrastructure is often very poor.

Solutions On-dock rail: some ports have extended the rail infrastructure and built rail lines to the port terminals Intermodal yards: some rail companies have built intermodal yards near port facilities Drayage: driving containers from the port to the railhead

BNSF and UP Railheads Ports of LA/LB

34,000 truck trips per day

One Solution in LA/LB

What is it? 20-mile-long rail line linking the ports of Long Beach and Los Angeles to the transcontinental rail terminals near downtown Los Angeles built to provide a better rail access to the San Pedro port cluster The San Pedro port cluster handle about 70% of the American West Coast containerized traffic

Alameda Corridor a series of bridges, underpasses, overpasses and street improvements that separate rail freight circulation from local road circulation $2.4 billion dollars Eliminate 200 at-grade roadway crossings Railroads pay $15 for each loaded 20 ft equivalent unit (TEU) container, $4 for each empty container, and $8 for other types of loaded railcars, such as tankers and coal carriers. Hope to encourage a modal shift from truck to rail – reduce congestion

Copyright © , Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University. For personal or classroom use ONLY. This material (including graphics) is not public domain and cannot be published, in whole or in part, in ANY form (printed or electronic) and on any media without consent. This includes conference presentations. Permission MUST be requested prior to use. Number of Trains Running Through the Alameda Corridor per Year and Containers Handled by the San Pedro Port Cluster,

Demand was lower than anticipated The corridor has succeeded in meeting revenue projections not because they caused a modal shift but because port traffic has grown faster than anticipated No modal shift occurred although the corridor did improve rail service – reliability (2-6 hours to 45 minutes) – travel time

Why was demand lower than anticipated? Locally bound freight flows – They could have anticipated this Relative transport costs – Trucking industry rationalization Relocation of the bottleneck High intermodal costs – They could have anticipated this Freight distribution centers

Lack of understanding of goods movement dynamics Many importers use distribution and handling facilities in the LA/LB region to rehandle goods before putting them on trains The assumption was that all goods that left the region on rail could simply be transferred without being handled If they understood the underlying economic choices they could have better predicted the use of the facility

Why are these goods handled? Inventory management strategies Transfer from marine containers to domestic containers Delay destination decisions Tagging, handling, packaging, etc. Factory based loading to store based loading

Copyright © , Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University. For personal or classroom use ONLY. This material (including graphics) is not public domain and cannot be published, in whole or in part, in ANY form (printed or electronic) and on any media without consent. This includes conference presentations. Permission MUST be requested prior to use. San Pedro Bay Port Container Distribution

Supply Chain of an Individual Firm Vendors Plants ports warehouse Factory Destination Customers Transportation (rail, marine, road) Transportation (e.g. long haul truck) Transportation (e.g. local delivery truck) warehouse Transportation (e.g. LTL truck) Information flow (security, internal management, and control) Supply Distribution Conflict between consumer oriented and inventory management Operators, owners, managers Spatial distribution

Supply chains In a pull chain finished products are manufactured when requested. In a push chain production and distribution are based on forecasts. This has integrated inventory management into business planning

Logistics Decisions Improve/change your existing system Create a new system Comparison with other systems Evaluate choices in your own system

Transportation Goals Reduce cost (5-10% of sales) Meet reliability goals Meet service quality goals Simplify operations Increase sustainability

Integration of Logistics into Business Operations Operational, or daily decisions are made by comparing transportation and inventory costs Strategic, or long term decisions are made by comparing logistics costs (transportation and inventory) to manufacturing and production costs Lengthening of supply chains as transportation cost decreased and new opportunities to reduce manufacturing cost were found

Strategic Decisions – System design, acquisition of resources, based on aggregated data Tactical Decisions – Monthly or quarterly decisions, production and distribution planning, based on disaggregated data Operational Decisions – Daily decisions, based on very detailed data

Methods Benchmarking Simulation Optimization Continuous approximation

Considerations How accurate is your input data? How do errors propagate in your analysis? What have you learned from the analysis? What kind of decision will you be making? How does your analysis handle variability? How well can your results be communicated? Can your method be solved, or is your answer an approximation? What level of complexity can be managed?

Logistics Decisions Should I open a new facility? Where? How many trucks should I buy? What size? How much should be manufactured? Where? How often should I send out delivery trucks? What mode of transportation should I use? How many drivers do I need today?

Logistics Costs Initial gains from deregulation (restructuring of networks) dropping off $1000 reduction to each household annually

In-transit inventory or pipeline inventory: inventory that is in the process of movement from point of receipt or production and between points of storage and distribution. Inventory-at-rest: inventory that is NOT in the process of movement from point of receipt or production and between points of storage and distribution, rather it is stationary, typically at a production facility, warehouse, distribution center, or consumption facility.

How does REI get goods to market? Asian Factories West Coast Port Distribution Center Destination Store Container on marine vessel Drayage truck Short or Long-haul truck In transit inventory

Cycle Inventory: the average amount of inventory used to satisfy demand between receipt of supplier shipments. The size of the cycle inventory is a result of the production or purchase of material in large lots. Companies produce or purchase in large lots to exploit economies of scale in the production, transportation, or purchasing process. With the increase in lot size, however, also comes an increase in carrying costs. The basic trade- off supply managers face is the cost of holding larger lots of inventory (when cycle inventory is high) versus the cost of ordering product frequently (when cycle inventory is low). Some of this inventory may be in-transit, while some may be inventory-at-rest. Safety inventory: inventory held in case demand exceeds expectation; it is held to counter uncertainty. If they have too much safety inventory, goods go unsold and may have to be discounted. If the company has ordered too little safety inventory, however, the company will lose sales and the margin those sales would have brought. Therefore, choosing safety inventory involves making a trade-off between the costs of having too much inventory and the costs of losing sales due to not having enough inventory. Generally this inventory is inventory-at-rest, so that it is immediately available.

Infrastructure Consequences Global Flows North American Flows Regional Flows Local Flows

Growth in international trade Caused greater reliance on intermodal connections, ports, and air terminals

Growth not from neighbors

Major Gateways Importance of east-west corridors