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 TonsUS 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. 1999 Upper Mississippi – Illinois Waterway Commodity Flows % of TotalTonsCommodity 100.0133,718,995Total 6.2%8,281,576Other 4.2%5,565,281Iron & Steel 2.5%3,312,471Ores 6.3%8,430,536Petroleum 6.4%8,571,485Chemicals 11.3%15,056,445Aggregates 18.9%25,288,293Coal 44.3%59,212,908Agriculture

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. 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. Air

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. 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! Pipeline

21. RelativeDeliveryProduct 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=fastest1=least1=least Size: 1 barge = 15 rail cars = 60 trucks Mode Comparison

22. 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. Intermodal Services

23. 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. Small Shipments

24. 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. International Transportation

25. US Imports & Exports Imports and Exports in Billions of $ (2000) Mexico Canada Europe Pacific Rim US Exports 100150 170 190 US Imports 135230 240 415

26. 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. International Transportation

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

28. 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. Atlantic Ocean Transportation

29. 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. Problems at Ports

30. 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. Transportation Regulation

31. 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. Features of Regulation

32. 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. Deregulation

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

34. 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. Transportation Costs

35. 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? Transportation Costs

36. 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. Transportation Rates

37. 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. Line-haul Rates

38. 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. Line-haul Rates

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

40. 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. Documentation