Logistics Systems (Cont.)- Freight Transportation Prof. Costas Panou Lecture #4 in M.Sc New Technologies in Shipping and Transportation

Freight Transport Freight transportation plays a key role in today’s economies as it allows production and consumption to take place at locations that are several hundreds or thousands of kilometres away from each other.

3 The various roles played by transportation services in freight movement include the following: – Movement of goods and services physically along the logistics chain – helps achieve the following logistics utilities such as Time (When) and Place (Where) and supporting Form Utilities – Product storage-transport vehicle can be used for storage at shipment origin or destination – Help build strong brand image through vehicle branding and marketing – Facilitates customer satisfaction through timely delivery of goods and services ROLE AND IMPORTANCE OF TRANSPORT

Method of Selection Transport mode choice Operational Factors cost and service requirements Transport mode characteristics Consignment factors

OPERATIONAL FACTORS These are usually external to the direct distribution-related factors. They are particularly relevant when contemplating the international context of modal choice because from country to country these factors can vary significantly.

Operational Factors The basic infrastructure of the country: in particular the transport infrastructure is likely to be important. Trade barriers: these might include for example, customs duty, import tariffs etc. These can have an overall impact on the cost of the product, and this may affect the decision for the most appropriate of transport for cost reasons.

External Factors Export controls and licenses: with this, there may be implications for the quantity of product that can be shipped in given periods of time. Climate: extremes of weather, temperature and humidity can have a major impact on some products. Thus. Modes of transport must be selected carefully to ensure that prevailing climatic conditions do not badly affect freight whilst it is in transit. Suitable protection must be guaranteed.

Customer Characteristics Most of the customer characteristics need to be considered for both national and international modal choice, that is, they are not specific to overseas distribution.

Customer Characteristics Service level requirements: Delivery time constraints can mean that certain relatively unreliable modes cannot be considered. This can occur when there is the need for a delivery to be made at a certain time or on a certain date, or when a specific time delivery window is stipulated. Delivery point constraints: this refers particularly to the physical aspects of delivery, including the location of the delivery point, any access constraints concerning the size of vehicle that can make the delivery and any equipment requirements for unloading.

Customer Characteristics Order size preference: the physical size of an order clearly has an impact on modal choice, as some modes are more suitable for small orders and others for large ones. There may be significant cost Implications here. Customer importance: most suppliers have ‘A’ rated customers who are deemed to be their most important and who really must be given a delivery service that does not fail. For these customers, service reliability is essential and so certain routes and transport modes will be preferred.

Physical nature of the product Volume to weight ratio - which concerns the relative amount of cubic capacity taken up a given weight of product. For example, 1 tonne of paper tissues takes up far more space than 1 tonne of bricks. Value to weight ratio – which takes into account the value of the product to be transported. The relative transport cost of a high-value, low weight product is likely to be so insignificant to the overall value of the product that the choice of mode from a cost perspective is irrelevant (eg jewelry or computer chips).

Physical nature of the product Special Characteristics (hazard, fragility, perishability, time constraints, security etc): a hazardous product may be restricted in how it is allowed to be transported (eg some chemicals), and a time-constrained product may have to be moved on a fast and expensive mode of transport to ensure it does not miss its deadline (eg newspapers and promotional products).

TRANSPORT MODE CHARACTERISTICS

14 There are different types of transport systems available for logistics organisations to choose for the movement of goods and services. The following are the key existing transport modes: – Sea transport (Maritime) – Road Transport – Rail Transport – Air Transport – Inland Water Transport – Pipeline AVAILABLE MODES AND XTICS 1

15 General Objectives for Mode Selection It ensures that the goods are delivered safely and on time to the customer. General qualities guiding choice of carrier include: ● Speed of delivery ● Certainty of timing ● Freedom from interruption ● Avoidance of damage ● Avoidance of loss through pilferage ● Quality and/or impact of ancillary services

16 Sea/Maritime Transport This refers to movement of goods and services by the sea/ocean. The following are the main characteristics of this mode: Best for dry and bulky items—steel or oil Generally less expensive in relation to some other modes Has high fixed cost but low variable cost Slow Bad for perishable or time sensitive goods Limited to water routes Most efficient hauler for fuel consumption Very few accidents There is generally flexibility in choice due to existence of many ports around the world and number of alternative ships Mostly used for cargo consolidation, high volume, heavy weight and relatively low cost freight. AVAILABLE MODES AND XTICS 2

17 Sea transport has the following advantages and weaknesses: AdvantagesDisadvantages Large volumes of cargo can be transported in one ship on one voyage Ships are relatively slow Cheapest method of transport Ports suffer from congestions Flexible particularly following containerisation Not all ports are well equipped and some have draught restrictions Similarity in infrastructure and superstructure Port practices need improving

18 Road Transport This refers to movement of goods and services by the road. It is the most dominant mode of transportation in the logistics chain. The following are the main characteristics of this mode: – Can move small to medium volume of goods due to capacity constraints – Widely available. It is very ubiquitous – Widely accessible – Has low fixed cost but high variable cost – Moderate to high speed due to fast turnaround time and actual trip time – Faster transit time – High flexibility in choice due to high availability – High throughput and modal integration with other modes Mostly used for break-bulk cargo, small to medium volume, variable weight and cost freight. AVAILABLE MODES AND XTICS 3

19 Road transport has the following advantages and weaknesses: AdvantagesDisadvantages Any dwelling or work place can be serviced by road. () Any dwelling or work place can be serviced by road. (Last mile service) Size of the load is restricted by vehicle size and legislation Less pilferage of goods Unsuitability for long distances Routes can be changed at short notice Distance travelled determined by driver’s working hours and legislation Terminals are less expensive Speed circumscribed by law Costs less than competing transport means Roads are may be congested during peak periods Greater control of over delivery locations-flexible Restrictions on heavy vehicles in certain localities Less capital cost Land severance and emissions

20 Rail Transport This refers to movement of goods and services by the rail (tracks). The following are the main characteristics of this mode: – Can move great volumes of freight – Generally less expensive in relation to some other modes such as road – Generally less faster in relation to some other modes due to slow turnaround time and actual journey time – It is dependent on other modes for completion of delivery, especially road – High fixed costs, relatively less variable costs – Allows for easy unitization of freight – Low accessibility Mostly used for cargo consolidation, high volume, heavy weight and low cost freight. AVAILABLE MODES AND XTICS 4

21 Rail transport has the following advantages and weaknesses: AdvantagesDisadvantages Large volumes of cargo can be transported on one voyage Investment in infrastructure and maintenance is expensive May be cheaper than other modes (except sea) Is limited in volumes it can transport Can carry different loads Network construction has major impact on the environment Can link with other transport modes Operating practices need improving Most efficient mechanized land transport (Up to 50-70% less energy to transport a given tonnage of freight than road transport ) Rigid routing destinations— inflexible Very safe Multiple handlings of goods— leads to delays

22 Air Transport – This refers to movement of goods and services by air. The following are the main characteristics of this mode: – Limited in volume and weight it can carry – Highly expensive carrying cost in relation to some other modes such as road – fastest mode in actual journey time – It is dependent on other modes for completion of delivery, especially road – High fixed costs, relatively high variable costs – Medium to high accessibility Mostly used for cargo consolidation, low volume, low weight, high cost freight. AVAILABLE MODES AND XTICS 5

23 Role of Transport in Logistics (4) Air transport has the following advantages and weaknesses: AdvantagesDisadvantages Speed of Speed of delivery-best for time sensitive items and defined deadlines Inflexible as aeroplanes have to land and take off in an airport which may be away from final destinations. Has a good safety record Aeroplanes are noisy Employs highly trained professionals Expensive when compared to other transport types. More effective where the goods are high value and time sensitive Terminals very expensive to construct and maintain Not for large bulky items

24 Inland Water Transport – This refers to movement of goods and services by inland water bodies. The following are the main characteristics of this mode: – Can move medium to high volume of goods – Low cost alternative to road transport – Low accessibility – No right of way – Long transit times – Allows for roll-on-roll-off (RO-RO) – Low speed Mostly used for cargo consolidation, high volume, heavy weight and relatively low cost freight. AVAILABLE MODES AND XTICS 6

25 Pipeline Transport – This refers to movement of freight by the pipeline. This mode is primarily used for liquid or gaseous ‘freight’. The following are the main characteristics of this mode: – Can move great volumes of liquid freight – Own right of way – Not suitable for general transport – Less expensive in relation to other modal options – Low fixed costs, relatively less variable costs – Security and safety problems – Low accessibility Mostly used for cargo consolidation, variable volume and variable cost freight AVAILABLE MODES AND XTICS 7

Role of Transport in Logistics (5) Advantage and disadvantages of pipeline transport 26 AdvantagesDisadvantages Energy consumption is least in pipeline transportation The most obvious disadvantage lies in the fact that this means cannot be used for transportation of all solids, heavy equipment, etc Cost of transportation is least, for large volumes and over long leads Pipeline transportation is highly environment friendly The initial costs of laying the pipeline are very high Safety is an intrinsic feature of pipeline transportation Prone to sabotage in disturbed areas Increase/decrease of transportation volume can be effected in pipelines with lower time delay, disturbance and cost

Container systems Container systems can be viewed as a specialized mode of freight transport, although the container is now a fundamental feature of all the major national and international transport modes – road, rail, sea and air.

Major Attributes of Container systems They enable a number of smaller packages to be consolidated into large single unit loads There is a reduction in the handling of goods, as they are distributed from their point of origin to destination. There is a reduction in individual packaging requirements, depending on the load within the container. There is a reduction in damage to products caused by other cargo.

Major Attributes of Container systems Insurance charges are lower due to reduced damage potential. Handling charges at docks and other modal interfaces are reduced. There is a quicker turnaround time for all types of transport used. Documentation is simpler There is a need for special facilities and handling equipment, and these are very costly. The initial cost of containers themselves is very high

Major Attributes of Container systems The return of empty containers can often be an expensive problem. Trade is seldom evenly balanced, so return loads may not be available. Containers may leak, thereby causing damage due to rain or sea water.