Module 9, LB 1: Transportation Fundamentals

ARTICLE: Mckinsey Transportation Value Creation

-Improving ROIC is the key to overcoming investor skepticism about the sector and increasing valuations -7 megatrends are shaping the transportation and logistics sector (new megacities, disruptive tech, digital revolution, technological progess, changes in geopolitical environments, incr. in demand, etc.)

VIDEO: What is transport economics??

-founded by John R. Meyer -watch video later

ARTICLE: The Critical Role of Transportation in Business and the Economy

-links a co. to suppliers and customers place utility: customers have a product available where they demand it -time utility: customers have access to product when they demand it When a co. delivers on time, it can be a source of customer satisfaction. When a co. delivers late or damaged goods, it causes them to lose customer trust can be costly

pipeline

-special case that lends itself only to particular goods -limited to only certain products and industries like chemicals and petroleum -installing pipelines and buying the land over which they run is extremely costly, but once installed, the variable cost of operations is very low

Rail

-transport features extremely high fixed costs for trackage rights for the land on which the roads run, tracks, rail yards, and the operating equipment itself -low variable cost per unit -This cost structure is particularly well suited for moving high volumes of product over long distances, particularly if those products do not need special protection or care in transport - well suited for heavy items that do not lend themselves to transport via motor carriage, such as heavy construction equipment.

Two key rules of transportation economics

1) transportation costs per unit of freigh incr. at a decr. rate with increasing volume and/or weight density -Due to economies of scale, it is cheaper per unit to ship large volume than small volume -Similarly, it is cheaper per unit to ship dense products vs. light products because denser products use space better 2) The "tapering principle" holds that transportation costs per unit of freight or weight increase at a decreasing rate with increasing distance traveled

ARTICLE: Transportation Modes, Modal Competition, and Modal Shift

1. Modes: designed to carry passengers or freight, or combo of both (ex. car, plane) 2)modal competition: demand is influenced by integrated transportation systems that require flexibility in each mode (ex. cost, speed, accesibility, frequency, safety, comfort, etc) -different geographical markets -different transport markets -different levels of service 3. Modal shift: when a transport mode becomes more advantageous than another over the same route or market, the shift is a likely to take place (ex. public transit to bikes)

less than volume carrier

A less-than-volume carrier moves low volumes of freight from multiple shippers bound for multiple consignees from an origin hub to a destination hub, not necessarily directly from the exact point of origin to the exact point of destination. Any one shipper does not have enough volume of freight to make it cost effective to "charter" one transport vehicle for a direct movement. Rather, the carrier will accumulate small volumes from multiple shippers located in one geographic area bound for destinations in another general geographic are

transportation documentation

A number of documents are required to ship products domestically as well as internationally. -Any omissions or errors in documentation can result in delays in moving product.

domestic documents required for transportation

A)Bill of Lading B)Packing List C)Carrier Freight Bill D)Delivery Receipt E) Declaration of Dangerous Goods (if applicable)

Service characteristics

Characteristics that allow customers to measure the level of time and place value received: Speed Availability Dependability Load Capability Flexibility

class rates

Class rates cover multiple factors that could impact cost structure. LTL trucking companies and airlines tend to use this type of pricing structure. Primary factors considered in developing class rates include space capacity consumed and weight of shipment. Stowability, handling, value, hazardous nature and liability are other factors considered.

What is the most highly used mode of transportation???

Maritime transpo (water)

If intermodal shipping is used, at what point are the actual parts handled?

Only at the origin point at the vendor factory and at the ultimate destination at the assembly facility are the actual parts handled; for each transportation handoff, only the entire container must be handled -Such a move takes advantage of both the service benefits of motor transport, including availability and flexibility, and the cost and capability advantages to move product over long distances of ocean and rail transport

Based on similar cost and service characteristics, which mode of transportation is the biggest competition for an inland water transport?

Rail

Figure 12.4 Table Cost Characteristics of the Basic Modes of Transpo

Rail : high FC, low VC (used for bulk good, mining, heavy manufacturing, containerized good) Motor: low FC, medium VC (used for consumer goods, medium/light manufacturing Water: High FC, low VC, (bulk food, mining, chemicals, containerized goods) Air: low FC, high VC (high value goods, rush shipments) Pipe: high FC, low VC (petroleum, chemicals, mineral slurry)

international documents required for shipment in addition to domestic ones

Shippers Export Declaration Export and Import License (if applicable) Commercial Invoice (IMPORTANT: describes the entire export transaction from beg to end including shipping terms) Certificate of Origin (used to identify the country of the manufacturer where the goods were made) Consular Invoice (certifies the shipment of goods)

commodity rate

The commodity rate is the simplest rate structure and represents a flat rate charged between two points. The rate is a preferred pricing method for railroads, water carriers and pipelines. In most cases the volume of freight being shipped does not impact the rate.

additional services and fee

The cost structures discussed above cover the basic cost of transporting product from one point to another.

per-mile rate

Trucking companies that have a greater variation in routes usually develop their rates based on distance between delivery points

minimum charge

addition to the rate structures above, most carriers have a minimum charge to move freight. Carriers establish a minimum charge to ensure they cover their basic costs incurred on small shipments.

Which mode of transportation is best used to transport high value goods

air

Water

aka maritime transport -fixed costs for facilities and equipment are exceptionally high - variable costs per unit are extremely low since massive volumes of product can be moved for long distances All manner of goods are moved via water transport, from bulk commodities to extremely high-value products. Maritime transportation is by far the most highly used mode of transportation, with over 90 percent of global trade moving via the waterways of the world.

fixed costs

capital expenditures for transportation equipment, infrastructure such as ports and rail yards, trucking terminals, and airports

non vessel operating common carriers (NVOCC)

cargo consolidator that does not own vessels but acts as a carrier legally by accepting required responsibilities of a carrier

volume carriers

carry high volumes of freight for one firm or entity originating the shipment (called a "shipper" in the legal terms used in freight contracting) from one originating location to one entity or firm (called a "consignee") at one destination location

non-operating intermediaries

companies that do not operate their own transportation assets but provide services to match shippers that need transportation service with companies that have transportation capacity ex. freight forwards and brokers non-vessel operating common carriers

contract carriers

company that is paid to transport goods or passengers for other companies or organizations and does not provide services to the general public

VIDEO: Container shipping the world in a box

containers have allowed for globalization largest transport can ship 18,000 container the only constraint is the size of the port

variable costs

costs are those costs that are incurred when transportation equipment is operated, including items such as fuel, labor, highway taxes or port fees, and maintenance

freight forwarders and brokers

firms specializing in arranging storage and shipping of goods on behalf of their shipper customers

two categories of transportation costs

fixed and variable costs

air

fixed costs of air transport equipment and facilities are higher than for motor transport but are relatively low when compared to rail and water -Variable costs per unit of product moved, however, is extremely high given the high costs of labor, fuel, and use fees for airport facilities -air is best suited for high-value products or products that have time sensitivity and must arrive in short timeframes

primary advantage of motor transport

flexbility

VIDEO: How are the containers loaded? Cargo Operations on Container Ship

honestly this is kind of crazy

transportation value contribution

if the movement of goods to support the plan to create value does not happen according to customer's requirements, the strategy will fail

intermodal

involves the use of more than one mode of transport for any particular freight movement -made possible by the development of the shipping container in 1956 by an American named Malcolm McLean -use of containers enables unitization of freight, with handling equipment moving the entire container from one mode, say a truck, to another, say a flatbed rail car or an ocean-going container ship

common carriers

legal distinction referring to an entity that advertises to the public that it is available for hire to transport all people or property in exchange for a fee

Motor

low fixed costs because travel on roads and highways is largely subsidized by taxes, tariffs, and fees paid by the general public as well as by motor carriers -Variable costs incurred for each movement, however, are higher per unit of freight moved due to the costs of drivers, fuel, and highway use taxes (the weigh stations as carriers enter and leave every state assess taxes based on weight) -well suited for goods that need to move a relatively short distance (500 miles or less); have a high value per unit such as consumer finished goods and light to medium weight manufactured goods; and originate or are destined for locations that do not have rail access

Why are delivery failures a frequent reason for customer dissatisfaction?

many firms focus their time and efforts on developing core capabilities in their supply bases, manufacturing centers, and customer sales relationships but neglect the links that connect those elements to fulfill customers' required value for time and place after orders are made ex. spending 50k on a new BMW and then hiring a farmer with a wagon to get it to the U.S. from Germany

advantages of water transport

mode of choice for most international freight movements, can carry all types and volumes of products

Which mode of transportation is best used to transport short distance consumer finished goods

motor

What mode of transport provides the best performance on service?? Why??

motor transport; bc fast delivery speed, availability at any site with a dirt path, good dependability, and average load capability

Which mode of transportation is best used to transport petroleum or mineral slurry

pipeline

transportation rates

pricing structure driven by diff in FC and VC, distance traveled, characteristics of products being delivered (additional services they may require)

Which mode of transportation is best used to transport heavy construction equipment

rail

Basic Modes of Transportation

rail, motor, water (ocean & inland), air, and pipeline (passenger transportation is not covered)

Benefits of containerization

reduced shipping costs, improved speed of loading transportation assets, reducing shipping times, and improved delivery time reliability

ARTICLE: 29th Annual State of Logisitics Report: Carriers take the wheel

report stated there would be incr. logistics challenges with rising prices in transportation costs - came from growing demand, strong job market, rising wages, and truck driver shortage of over 50,000

What invention by Malcolm McLean revolutionized how products are shipped at reduced cost, considered a key facilitator of global trade?

shipping containers

shipping container

ssentially a rectangular box of 20 or 40 feet in length (the 40-foot version is most commonly used today) that can be easily carried by a variety of platforms and moved by motor, rail, ocean, or even air (if loaded in special air freight containers

dependability

the ability to deliver to the required time and place when and where products and services are expected and promised

transportation

the activity that physically connects the various functions and organizations across the end-to-end supply chain -driver of cost as well as of customer service and satisfaction -estimated that transportation costs comprise more than half of total logistics expenditures in industrial economies

availability

the different places products or services can be made available for customers to access;

speed

the total time it takes for goods or services to be delivered where customers want them

load capability

the variety of different types and categories of products that can be moved, considering elements such as overall weight, density, state (solid, liquid, or gas) damageability, ease of handling and stowage

flexibility

the variety of origin and destination locations that the mode can service as well as the variety of pickup and delivery times that assets can be scheduled or redirected in the event of changing circumstances

private carriers

transportation assets owned by a private company for the exclusive use of shipping freight for that company

Transportation Carrier Categories

volume & less than volume carriers

Which mode of transportation is best used to transport long distance containerized goods

water