1. Transportation Infrastructure
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Overview of transportation infrastructure
Transport functionality, principles and participants
Transportation regulation
Transportation structure
Transportation service

3. Transportation infrastructure supports the flow of our nation’s economy
Table 8.1 The Nations’ Freight Bill ($ billions)

4. Transport functionality primarily consists of product movement services
Restrictive element—in-transit inventory is “captive”, usually inaccessible during transportation
Flexible element—inventory can be diverted during shipment to a new destination
Product movement is the movement of inventory to specified destinations
Transportation is more than 60% of the cost of logistics
One of largest consumers of oil and gas in US
Impacts traffic congestion, noise and air pollution
Transportation consumes time, financial, and environmental resources

5. Transport also functions as storage services for products while in a vehicle
Managers strive to reduce in-transit inventory to a minimum
In-transit inventory is captive in the transport system
Usually more expensive than traditional warehousing
Must pay rental or demurrage charges on vehicles used for storage
Product can also be stored in vehicles at origin or destination (trailers, trucks, railcars, etc)
Diversion occurs when a shipment destination is changed after a product is in transit

6. Two fundamental transport principles
At least until you totally fill the carrying vehicle!
Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment
Economy of scale: the cost per unit weight decreases as the size of the shipment increases
Often called the tapering principle
Longer distances allow fixed cost of the carrier to be spread over more miles, lowering the per mile charge
Economy of distance: the cost per unit weight decreases as distance increases
Goal is to maximize the size of the load and distance shipped while still meeting service expectations

7. Transport participants
Shipper
Consignee (Receiver)
Carrier and Agents
Government
Internet
Public

8. Major relationships among transportation participants
Figure 8.1 Relationship Among Transportation Participants

9. Role and perspective of participants
Shipper and consignee have a common interest in moving goods from origin to destination within a given time at the lowest cost
Carriers desire to maximize their revenue for movement while minimizing associated costs
Agents (brokers and freight forwarders) facilitate carrier and customer matching
Government desires a stable and efficient transportation environment to support economic growth
Public is concerned with transportation accessibility, expense, and standards for security, safety and the environment

10. Role of the Internet in transportation
Replacing phone and fax technologies
The Internet now provides the vital communications links between the transactional participants (shipper-carrier-consignee)
Freight matching
Fuel, equipment, parts and supplies purchases
Web-based enterprises provide information marketplaces

11. Transportation regulation by the government focuses on
Government created infrastructure (roads, canals, ports)
Intended to prevent carriers from taking advantage of suppliers while ensuring long-term financial stability for carriers
Economic regulation seeking to make transportation equally accessible and economical to all without discrimination
Department of Transportation (DOT) (1966) has active role in hazardous material safety and driver safety
Hazardous Materials Transportation Uniform Safety Act (1990) took precedence over state and local regulations
Social regulation which takes measures to protect public safety and environment

12. History of transportation regulation
In 1800’s, rise of steamships and railroads created immense wealth and monopolies
(e.g. Commodore Vanderbilt and the railroad “barons” )
Interstate Commerce Commission (ICC) created in 1887 to oversee regulation of interstate transportation
To stop the railroad monopolies
Other regulatory acts passed from 1906 to 1973 placed motor carriers, shipping, air transport and pipeline transport under ICC oversight
By 1970, ICC had oversight on 100% of rail and air, 80% of pipeline, 43% of trucking and 6% of water carrier operations

13. Transportation deregulation (1980)
Entry restrictions for new businesses were relaxed
Restrictions for types of freight and range of services were abolished
Individual carriers were given the right to price their services
Trucking industry’s collective rate-making practices were abolished
Motor Carrier Act of 1980 deregulated the motor carrier industries
Provided railroad management with freedom necessary to revitalize the industry
Rail carriers were authorized to use selective pricing to meet competition and cover operating costs
Carriers given increased flexibility with respect to surcharges
Contract rate agreements between individual shippers and carriers were legalized
Rail management given liberal authority to proceed with abandonment of poorly performing rail service
Staggers Rail Act of 1980 deregulated the rail industry

14. Transportation regulation in the new millennium is stimulated by technology and global issues
Gave digital signatures legal status
Electronic Signatures in Global & National Commerce Act of 2000
Increased inspections at ports, airport security, and increased security at border crossings
Patriot Act of 2001
Imposed fines for artificial underpricing and “dumping” of foreign goods in U.S. markets
Continued Dumping and Subsidy Act
Only U.S.-built ships operating under a U.S. flag with U.S. crews can ship goods directly from a U.S. port to another U.S. port
Jones Act

15. Transportation structure
Consists of rights-of-way, vehicles, and carriers operating within five basic modes
A mode identifies basic transportation method or form
Rail
Highway
Water
Pipeline
Air

16. Truck share of domestic freight market exceeds all other modes combined
Table 8.2 Domestic Shipments by Mode and Volume

17. Rail mode has historically handled the largest number of ton-miles within continental US
Track mileage has declined by over half since 1970
Traffic shifted from broad range of commodities to hauling specific freight in traffic segments
Carload
Intermodal
Container
New technologies include articulated cars, unit trains and double-stack cars

18. Truck mode has expanded rapidly since the end of World War II
Nearly 1 million miles of highways in U.S.
Key benefits include
Speed of transit
Ability to operate door-to-door
More efficient than rail for small shipments over short distances
Dominate freight moves under 500 miles and from manufacturing to wholesalers to retailers
Many companies run their own truck fleets as well (e.g. WalMart)

19. Water mode is the oldest form of US transport dating back to the birth of our nation
Percentage of ton-miles has stayed between 19 and 30% since 1960’s
Ranks between rail and truck in fixed cost
Right of way (canals and rivers) maintained by Federal government

20. Pipeline mode accounts for about 68 percent of all crude and petroleum ton-mile movements in US
Have the highest fixed cost and lowest variable cost of all modes
Unique transportation mode
Can operate 24 hours a day, 7 days a week
No emissions
No empty container or vehicle to return
Not flexible, and limited to liquids and gases

21. Air mode is the newest and least utilized transport mode for freight
Accounts for only 1% of intercity ton-miles
Fastest of all the modes
Fixed cost is 2nd lowest but variable costs are extremely high
Most products air-shipped have high value, high priority or extreme perishability

22. Comparison of fixed and variable cost structure of each transport mode
Table 8.4 Cost Structure For Each Model

23. Operating characteristics used to classify transport modes
Speed is the elapsed movement time from origin to destination
Availability is ability of a mode to service any given pair of locations
Dependability is the potential variance from expected delivery schedule
Capability is the ability to handle any load size or configuration
Frequency is the quantity of scheduled movements a mode can handle

24. Highway transport is appealing partly due to its relative ranking across characteristics
Table 8.5 Relative Operating Characteristics by Mode
Lowest rank is best
Note: Lower is better

25. Infrastructure in crisis – US needs a National Transportation Plan
United States aggressively invested in highway construction after World War II
However, this highway system is in need of widespread repair to sustain the safe movement of over 26 million trucks
August 1, 2007 a major bridge span of interstate I-35 over the Mississippi River collapses
Watch video of aftermath by selecting this link (slideshow mode)
Roughly 12 percent (or 79,000) of public road bridges on the National Bridge Inventory are classified as structurally deficient

26. Transportation service is achieved by combining modes
E.g. trucking firm or an airline
Traditional carriers are firms that provide service using only one of the five basic transport modes
E.g. USPS, Fedex, or UPS
Package service uses intermodal transportation (ground and air) to handle small shipments or parcel deliveries
E.g. piggyback service integrating rail and motor service
Intermodal transportation combines two or more modes to take advantage of the inherent economies of each and provide an integrated service at a lower total cost
Act to broker services by other firms
Nonoperating intermediaries include several business types that do not own or operate equipment

27. Package service provides both regular and premium service
Package service is growing rapidly with the rise in e-Commerce and Internet consumer sales
United Parcel Service (UPS), Federal Express Ground and United States Postal Service (USPS)
Ground package service offers regular delivery within metropolitan areas and between cities
Integrates truck and air modes seamlessly
Air package service is a premium service to deliver certain packages door-to-door by next-day or second-day

28. Piggyback is an intermodal transport that integrates rail and motor service
Most widely used systems are
Trailer on a flatcar (TOFC)
Container on a flatcar (COFC)
Trailer or container is hauled by truck at origin and destination
Railcar hauls for portion of intercity travel
A variety of coordinated service plans have been developed

29. Containerships are oldest form of intermodal transport
Loads a truck trailer, railcar or container onto barge or ship for the line-haul movement on inland waterways
Land bridge concept moves containers in a combination of sea and rail transport
Common for containers moving from Europe to Pacific Rim
Transfer of freight between modes often requires handling containers and imposition of duties
Function of ports is to make this seamless and fast
Port throughput is big concern for supply chain managers

30. Coordinated air-truck is commonly used to provide premium package services
Many smaller cities lack airfreight services
Costs can be leveraged with delivery time by linking the modes

31. Non-operating intermediaries do not own their own equipment
Freight forwarders—businesses that consolidate small shipments from various customers into bulk shipment for a common carrier for transport
Shipper associations and agents—groups of shippers who employ an agent to consolidate purchases and shipments for them
E.g. garment industry in New York
Brokers—intermediaries that coordinate transportation arrangements for shipper, consignees and carriers, operating on a commission basis
Sampling of Non-operating Intermediaries