Logistics and Transportation Part 12.pptx
- 1. Important Dates ▶ Assignment 2/13/2024 ▶ Midterm 2/15/2024 ▶ Assignment 2/22/2024 ▶ Final 2/27/2024 This Photo by Unknown Author is licensed under CC BY-SA-NC
- 3. Logistics Economic Impact ▶ An effective logistics system is one that meets the desired objectives and goals of the organization. On the other hand, an efficient logistics system is one that achieves these objectives and goals with minimal waste of resources such as time, money, and effort. Therefore, a logistics system can be effective but not efficient if it meets the desired objectives and goals but does so with a significant waste of resources. For example, a company may use premium and expedited methods of transportation to meet customer delivery requirements, which increases transportation costs. Logistics is the process of planning, implementing, and controlling the movement of goods and services from the point of origin to the point of consumption. Logistics contributes to time utility by recognizing that different products have different sensitivities to time. For example, a three-day- late delivery of bananas likely has more serious consequences than a three-day late delivery of a box of pencils. As for place utility, logistics contributes by making products or services available in locations that allow consumers to easily access them. Transportation adds value to the goods by providing time and place utility.
- 4. Possession, Form, Time, and Place Utility. • Possession utility: This refers to the value or usefulness that comes from a customer being able to take possession of a product and can be influenced by the relevant payment terms. • Form utility: This refers to a product’s being in a form that (1) can be used by the customer and (2) is of value to the customer. • Time utility: This refers to having products available when they are needed by customers. • Place utility: This refers to having products available where they are needed by customers.
- 5. The Purpose of Logistics Is To Meet Customer Requirements. ▶ Logistics management is the process of managing the activities that are required to transport goods from its source to the final customer. The purpose of logistics management is to find more efficient and effective ways to move resources and products from conception to completion and, finally, to the customer. The driving force of these actions is to meet customer demand and provide the best service possible to retain customers and maintain their satisfaction by meeting their requirements. Therefore, meeting customer requirements is a crucial aspect of logistics management as it ensures that the right product is delivered at the right time, in the right quantity, and at the right place. By meeting customer requirements, logistics management can help businesses gain a competitive advantage by providing better customer service, reducing costs, and improving efficiency.
- 6. Logistics Management – Charitable Organizations ▶ Logistics management is the process of planning, implementing, and controlling the movement of goods and services from the point of origin to the point of consumption. It is a critical component of supply chain management that ensures that products are delivered to customers in a timely, efficient, and cost-effective manner. For charitable organizations, logistics management can be relevant in several ways. For instance, it can help them to manage their inventory more effectively, reduce waste, and ensure that donations are distributed to those who need them most. Additionally, logistics management can help charitable organizations to optimize their transportation networks, reduce shipping costs, and improve delivery times.
- 7. Logistics Management – Charitable Organizations ▶ One example of how logistics management can be relevant to charitable organizations is through product philanthropy. This is a process of donating unwanted items to nonprofits that can also result in significant tax deductions for companies with a lot of excess inventory. Companies such as Walmart are known for delivering truckloads of overstocked goods to nonprofits with which they work. Another way logistics management can be relevant to charitable organizations is through charitable supply logistics. Logistics companies can do charity work in a more direct way by pairing up with organizations who need their support. American Logistics Aid Network (ALAN) is a supply chain network that connects disaster relief organizations with providers of the services they needed
- 8. Economic Regulations ▶ First, it provided companies with the ability to implement the tailored logistics approach in the sense that companies could specify different logistics service levels and prices could be adjusted accordingly. Second, the increased pricing flexibility allowed large buyers of transportation services to reduce their transportation costs by leveraging large amounts of freight with a limited number of carriers.
- 9. Logistical Implications ▶ The increased emphasis on convenience in a family’s shopping experience has several logistical implications. For instance, retailers need to ensure that they have adequate inventory to meet the demand for products. This requires efficient supply chain management, which involves coordinating with suppliers, distributors, and other stakeholders to ensure that products are delivered on time and in the right quantities. Moreover, retailers need to ensure that they have the necessary infrastructure to support the convenience of their customers. This includes having extended store hours, home delivery of purchased items, and ready-to-eat or ready-to-cook food product. However, these conveniences can also create logistical complexities. for example, retailers need to deal with issues such as the optimal delivery period for replenishment vehicles and when to replenish products.
- 10. Logistical Implications ▶ In addition, retailers need to ensure that they have the necessary technology to support their logistics operations. This includes using logistics software to manage inventory levels, track shipments, and optimize delivery routes. Overall, the increased emphasis on convenience in a family’s shopping experience requires retailers to adopt a more customer-centric approach to their logistics operations. This involves investing in technology and infrastructure that can support the convenience of their customers while also ensuring that their logistics operations are efficient and cost effective.
- 11. Logistical Management Technology • Shipment tracking system Customers can now access shipping and tracking systems 24/7, which enhances the user experience and saves time and money for the company. • Internet of Things (IoT) and Radio Frequency Identification (RFID): IoT is opening many opportunities for the supply chain, such as reducing costs and delays by avoiding risks. Sensors are built into cabs, cargo ships, trains, etc., and connect to an alarm system or dispatcher that is monitoring and tracking. These sensors process and transmit the information to the crew who then gain insight into hidden risks and knowledge. RFID technology is a popular labor-saving way companies can track their inventory.
- 12. Logistical Management Technology • Artificial intelligence: AI can help optimize logistics operations by predicting demand, optimizing routes, and reducing delivery times. • Blockchain: Blockchain technology can help improve transparency in the supply chain by providing a secure and tamper-proof record of transactions. • Automation: Automation can help reduce errors, increase efficiency, and lower cost in logistics management.
- 13. Logistical Trendsetters ▶ Big-box retailers are considered as logistical trendsetters because they explicitly recognize superior logistics as a critical component of their corporate strategy. Brands that sell inside big-box retailers must adhere to strict logistical practices, which often necessitate the use of electronic data interchange (EDI) for invoices and documents. Big- box retailers are also turning into warehouses, which has led to the development of new logistics strategies. Small companies must elevate their logistics to provide a sufficient supply of their products to their big-box retailer partner.
- 14. Systems Approach ▶ The system's approach to problem solving is an approach that considers a situation or problem holistically and as part of an overall system which is more than the sum of its parts. It seeks to understand the underlying structure of the system, the interrelationships between its components, and how it functions as a whole. This approach is used in various fields such as environmental science, organizational change management, and geopolitics. In logistics management, the systems approach can be applied to identify and address problems in the supply chain. It recognizes that logistics is a complex system with many interdependent parts, including transportation, warehousing, inventory management, and information technology. By taking a system thinking perspective, logistics managers can identify the root causes of problems and develop long-term solutions that address the entire system rather than just individual components.
- 15. Materials Management and Physical Distribution • Materials management refers to the movement and storage of materials into a firm. • Physical distribution refers to the storage of finished product and movement to the customer. • Physical distribution focuses on the outbound side of logistics (plant to market). • Materials management focuses on inbound logistics. • Movement and storage of raw materials is different from the movement and storage of finished goods.
- 16. Total Cost Approach ▶ The total cost approach is a logistics management strategy that aims to minimize the overall cost of the supply chain while maintaining the desired level of customer service. It involves analyzing all the costs associated with the logistics process, including transportation, inventory, warehousing, and packaging. By taking a holistic view of the supply chain, companies can identify areas where they can reduce costs without compromising on quality or service. For example, a company may choose to use a more expensive mode of transportation that reduces inventory holding costs and improves delivery times. Alternatively, they may decide to invest in better packaging materials that reduce damage rates during transportation and storage. By considering all the costs associated with logistics, companies can make informed decisions that optimize their supply chain and improve their bottom line.
- 17. Cost Trade-Off ▶ Cost trade-off is defined as changes to one logistics activity, causing some costs to increase and others to decrease. This concept is workable because the correlation of two activities could bring more success to a company. Sometimes you have to lose one to gain a few more. This concept is commonly used in business, engineering, and project management, where it is necessary to consider the impact of a decision on all relevant variables. The interrelationship among system variables in a cost trade-off is crucial. In most systems, there are multiple variables that can be adjusted to achieve a desired outcome. For instance, in manufacturing, the production output can be increased by either adding more labor or investing in more advanced equipment. However, each of these options has different costs associated with it. Adding more labor may be cheaper initially, but it may increase costs in the long run due to training and management costs. On the other hand, investing in more advanced equipment may be expensive initially, but it may reduce costs in the long run by increasing efficiency and reducing the need for manual labor. The decision to choose between the two options above involves a cost trade-off
- 18. Cost Trade-Off ▶ Whether this concept is workable or not depends on various factors such as the nature of the problem, available resources, and the goals of the decision-maker. In general, cost trade-offs are workable when they are based on accurate data and analysis of all relevant variables. However, if the data used for analysis is inaccurate or incomplete, or if some variables are ignored, then the cost trade-off may not be workable. Additionally, if there are external factors that affect the outcome of a decision, such as changes in market conditions or regulations, then a cost trade-off may not be workable. Therefore, it is important to consider all relevant factors before making a decision based on a cost trade-off analysis.
- 19. Finance and Logistics ▶ The finance department is often in charge of capital budgeting decisions that would affect logistics, such as materials handling and packaging equipment. Another potential area of finance and logistics interface is with respect to inventory.
- 20. Finance and Logistics ▶ Finance tends to view. • Capital budgeting decisions: The finance department is often responsible for making capital budgeting decisions that would affect logistics, such as materials handling and packaging equipment. • Inventory management: Finance tends to view inventory as a liability, while logistics views it as an asset. Therefore, finance and logistics departments can work together to optimize inventory levels. • Transportation costs: Finance can help logistics departments reduce transportation costs by identifying opportunities for cutting costs through discounts or less expensive vendors. • Freight payment processes: Freight payment processes, services, and technology can be used to streamline the supply chain and reduce costs.
- 21. Postponement Concept ▶ The postponement concept is a supply chain strategy that involves delaying the final stages of production until the product is purchased by the customer. This strategy is used to reduce uncertainty and operational risk by delaying the differentiation of products until customer commitments have been obtained. There are five types of postponement: labelling, packaging, assembly, manufacturing, and time. Each type donates the point in the process at which postponement occurs. Example, manufacturing postponement for a car manufacturer would mean that a basic model of the car would be produced. The car was left in that state until it was ready to be customized at another point in the supply chain. The car would be shipped out in its state to its market and customized according to customer requirement.
- 22. Postponement Concept ▶ Postponement can be used to reduce inventory levels by only producing and stocking the components and raw materials needed to meet current demand. It is an alternative logistics strategy to the more traditional strategy of forecasting demand. Firms manufacture identical standardized products, like blank picture frames, which are shipped out. Once an order is made, the product is customized according to the specifications of the customer and shipped to the customer. Postponement can also be used to reduce costs by allowing firms to take advantage of economies of scale while still meeting customer demand for customized products.
- 23. Landed Cost ▶ A landed cost is the total cost incurred while transporting a product from the supplier to its intended destination. This cost includes the product’s price and any other expenses incurred directly in obtaining the product, including the shipping and freight charges. If you are importing goods, the landed cost will also include expenses such as costs involved in customs clearance, duties, insurance, taxes, storage requirements, and others. In this case, the landed cost is the total of all these additional expenses and fees. The land cost is calculated per unit and reflects the total cost of each unit instead of the entire shipment. The unit can be defined as per the individual products, volume, and weight of the items.
- 24. Landed Cost ▶ The landed cost is important for pricing decisions because it helps entrepreneurs have a clear idea about the landed cost of their products in advance. This can help them make the right business decisions. If entrepreneurs plan to import products and sell them in the local market, they must have clarity on the landed cost of the products to affix their selling price and make a decent profit. Understanding the landed cost of imported products will also allow entrepreneurs to take a call on the capital that has to be invested in purchasing and delivering the goods to the desired location. When entrepreneurs have an exact figure that include all expenses and other components, they can calculate the total cost price and then decide on applying the right selling price to avail maximum profits.
- 25. Marketing and Logistics ▶ The interface between marketing and logistics is critical for any business. The two departments need to work together to ensure that products are designed, packaged, distributed, and sold efficiently and effectively. Logistics plays a unique role as a boundary spinning interfaces between marketing, production, and new product development, which can be a potential source of competitive advantage. One possible interface between marketing and logistics in terms of product decisions is the marked increase in product offerings. Marketers like this increase because it allows for more customers choice, but these additional choices create logistical challenges in terms of identification, storage, and tracking. Another possible interface is the use of logistics to support marketing efforts. For example, logistics can be used to ensure that products are delivered on time and and in good condition to customer.
- 26. Marketing and Logistics ▶ In addition, logistics can help marketing by providing information about customer preferences and behavior. this information can be used to develop new product or improve existing ones. Logistics can be also help marketing by providing information about the availability of products and the status of orders Overall, the relationship between marketing and logistics is complex and multifaceted. It requires close collaboration between the two departments to ensure that products are designed, produced, and delivered in a way that meets customer needs while maximizing profitability.
- 27. Ownership, Negotiations, Financing, Promotions, and Logistics Channels • Ownership: Ownership refers to the legal rights and responsibilities of owning a business or property. It can be owned by an individual, a group of individuals, or a corporation. The owner has the right to make decisions about the business or property and is responsible for its success or failure. • Negotiations: Negotiations are discussions between two or more parties to reach an agreement. It can be used in various contexts such as business, politics, and personal relationships. Negotiations involve give-and- take, compromise, and finding common ground. • Financing: Financing refers to the process of obtaining funds for a business or project. It can be done through various means such as loans, investments, and crowdfunding. Financing is essential for businesses to start, grow, and expand
- 28. Company Logistic Department Activities 1. Order processing: This involves receiving and processing orders from customers, ensuring that payment and delivery terms are met, and placing orders with the warehouse. The commercial team is usually responsible for this activity. 2. Material Handling: This involves the movement of goods within the warehouse can process order efficiently 3. Warehousing: This involves managing inventory in the warehousing, ensuring that goods are stored safely and securely, and tracking inventory levels.
- 29. Company Logistic Department Activities 4. Inventory control: This involves managing inventory levels, ensuring that there is enough inventory to meet demand, and minimizing excess inventory. 5. Transportation: This involves the movement of goods from the warehouse to the customer or distributor, ensuring that goods are delivered on time and in good condition.
- 30. Transportation
- 31. Terminal Learning Objectives ▶ To compare and contrast transportation infrastructures in several countries ▶ To identify the five modes of transportation and learn about their respective characteristics ▶ To discuss intermodal transportation ▶ To describe several types of transportation specialists ▶ To explain how different types of regulation impact transportation ▶ To identify the legal classification of transportation carriers
- 32. Transportation ▶ Transportation, which can be defined as the actual, physical movement of goods and people between two points, is pivotal to the successful operation of any supply chain because it carries the goods, literally, as they move along the chain. Transportation influences, or is influenced by, the logistics activities discussed in previous chapters.
- 33. Transportation ▶ These include: 1. Transportation costs are directly affected by the location of the firm’s plants, warehouses, vendors, retail locations, and customers. 2. Inventory requirements are influenced by the mode of transport used. High-speed, high- priced transportation systems require smaller amounts of inventories in a logistics system, whereas slower, less-expensive transportation requires larger amounts of systemwide inventory. 3. The transport mode selected influences the packaging required, and carrier classification rules dictate package choice. 4. The type of carrier used dictates a manufacturing plant’s materials handling equipment, such as loading and unloading equipment and the design of the receiving and shipping docks. 5. An order-management philosophy that encourages maximum consolidation of shipments between common points enables a company to give larger shipments to its carriers and take advantage of volume discounts. 6. Customer service goals influence the type and quality of carrier and carrier service selected by the seller.
- 34. Introduction Transportation involves the physical movement of goods between origin and destination points. The transportation system links geographically separated partners and facilities in a company’s supply. Transportation facilitates the creation of time and place utility in the supply chain. Transportation also has a major economic impact on the financial performance of businesses.
- 35. Role of Transportation in Supply Chain Management Transportation provides the critical links between these organizations, permitting goods to flow between their facilities. Transportation service availability is critical to demand fulfillment in the supply chain. Transportation efficiency promotes the competitiveness of a supply chain
- 36. Challenges to Carrying out This Role supply chain complexity competing goals among supply chain partners changing customer requirements limited information availability synchronizing transportation with other supply chain activities
- 37. Challenges to Carrying out This Role Transportation capacity constraints pose a challenge. Rising transportation rates present another major concern for organizations. The transportation industry is impacted by governmental requirements that affect cost structures and service capabilities. Regulation is growing in areas where the transportation industry has the potential to impact the quality of life, the safety of citizens, and the growth of commerce.
- 38. Comparing and Contrasting Transportation Infrastructure ▶ Because many readers of this text reside outside the United States, it would be helpful to present a brief comparison of the transportation infrastructure that exists in five highly populated countries located on various continents. These infrastructure data, shown in Table 12.1, indicate wide disparities in the various infrastructures; at a minimum, a lack of infrastructure makes it difficult to use that mode in domestic (within-country) transportation.
- 39. Comparing and Contrasting Transportation Infrastructure ▶ The relevant infrastructure statistic for air transportation in Table 12.1 is the number of paved runways over 3,047 meters (approximately 10,000 feet). This length is significant because a 10,000-foot runway has generally been viewed as adequate for accommodating the largest existing wide-body aircraft; wide-body aircraft are essential to long- haul international movements of both freight and passengers. According to Table 12.1, the United States by far has the most airports with paved runways of at least 10,000 feet, an indication that the United States is well positioned to participate in long-haul international movements. Although China currently reports over 70 airports with 10,000 foot runways, this number is expected to increase because the country plans to construct nearly 40 new commercial airports by 2020.
- 40. Comparing and Contrasting Transportation Infrastructure ▶ The infrastructure statistics for highway, pipeline, and water, presented in kilometers (1 kilometer is equivalent to approximately .62 miles), provide some interesting findings. For example, although Brazil and China are approximately the same geographic size, China currently has about 16 times more paved highway kilometers than Brazil. (It’s worth noting that China has added over 1,800,000 kilometers of paved highways since 2010.) The data also indicate that oil pipelines are much more prevalent in the United States, and that China has much more extensive inland waterways, relative to the four other countries listed in Table 12.1 This Photo by Unknown Author is licensed under CC BY-SA
- 41. Comparing and Contrasting Transportation Infrastructure ▶ The Table 12.1 information on rail gauge (the distance between the inner sides of two parallel rail tracks) is also enlightening. The United States uses only one size— standard—rail gauge (1.435 meters) in its rail infrastructure. Brazil and China, by contrast, use broad gauge (1.676 meters), standard gauge, and narrow gauge (1.000 meter) in their rail infrastructure, whereas Nigeria primarily uses narrow gauge rail— with Nigeria’s narrow gauge measured at 1.067 meters rather than 1.000 meter. The data on rail gauge are important because nonuniform rail gauge within a country, or between neighboring countries, means that shipments moving by rail will need to be transferred from one vehicle to another, which adds to both delivery time and costs. For example, China and India share a common border; while China primarily uses standard rail gauge, India, by contrast, primarily uses broad rail gauge
- 42. Transportation Modes ▶ Each of the five modes of transportation exists because of certain attributes that provide one or more advantages over the other modes of transportation. The attractiveness of a particular mode depends on the following attributes: • Cost (price that a carrier charges to transport a shipment) • Speed (elapsed transit time from pickup to delivery) • Reliability (consistency of delivery) • Capability (amount of different types of product that can be transported) • Capacity (volume that can be carried at one time) • Flexibility (ability to deliver the product to the customer)
- 43. Modes of Transportation primary modes of transportation • truck • rail • air • water • pipeline • intermodal transportation
- 44. Modes of Transportation moves approximately 19.5 billion tons valued at nearly $13 trillion Modal breakdown: Trucking 80.0 % Rail 06.7% Air 04.7% Water 04.6% Pipeline 01.2%
- 46. Modes of Transportation Motor Carriers widely used mode of transportation in the domestic supply chain 573,469 private, for hire, and other U.S. interstate motor carriers economic structure of the motor carrier industry contributes to the vast number of carriers in the industry comprised of for-hire and private fleet operations Truckload carriers. Less-than-truckload (LTL) Small package carriers Low fixed cost, high variable
- 48. Modes of Transportation Railroads 7 Class I railroads revenues in excess of $290 million Activity levels have been achieved despite a lack of direct accessibility to all parts of the supply chain Railroads are “natural monopolies” Two carrier types: Linehaul Shortline carriers High fixed, low variable
- 49. Modes of Transportation Water Major facilitator of international trade 81% international freight movement 19% coastal, inland, and Great Lakes traffic High variable and low fixed cost Two primary carrier types Liner Charter Options include Container ships Bulk carriers Tankers General cargo ships Roll-on, roll-off (RO–RO) vessels
- 50. Modes of Transportation Air Carriers 491 air cargo carriers Combination carriers Air cargo carriers Integrated carriers Nonintegrated carriers Domestic market is dominated by 14 major carriers High variable and low fixed cost
- 51. Modes of Transportation Pipeline Unique mode of transportation as the equipment is fixed in place and the product moves through it in high volume 174 operators of hazardous liquid pipelines that primarily carry crude oil and petroleum products Three primary types Gathering lines Trunk lines Refined product pipelines High fixed versus low variable
- 52. Modes of Transportation Intermodal Transportation Use of two or more different modes in movement Greater accessibility Overall cost efficiency Facilitates global trade Development of standardized containers that are compatible with multiple modes. Product-handling characteristics Containerized freight Transload freight
- 56. Decision to Outsource Transportation Firms choose between “make” or “buy” Commercial carriers “buy” Private fleets “make” External experts move the freight and/or manage the transportation process “buy” Third-party logistics (3PL) “buy”
- 58. Modal Selection Accessibility Accessibility advantage: Motor carriage Accessibility disadvantage: Air, rail, and water Transit Time Transit time advantage: Air and motor carriage Transit time disadvantage: Rail, water, and pipeline Reliability Reliability advantage: Motor carriers and air carriers Reliability disadvantage: Water carriers and rail carriers
- 59. Modal Selection Product Safety Safety advantage: Air transportation and motor carriage Safety disadvantage: Rail and water Cost Cost advantage: The cost of transportation service varies greatly between and within the modes Cost disadvantage: Motor carriage and air transportation
- 61. Modal Selection The nature of a product—size, durability, and value Durability Product value Shipment characteristics—size, route, and required speed
- 62. Modal Selection Modal selection refers to the process of choosing the most appropriate transportation mode or combination of modes to move goods or people from one location to another. This decision involves considering various factors such as cost, transit time, distance, cargo characteristics, infrastructure availability, environmental impact, and specific logistical requirements.
- 63. Modal Selection Here's a breakdown of the steps involved in modal selection: 1. Define Transportation Needs: Clearly outline the requirements of the transportation task, including the type of goods or passengers, volume, weight, dimensions, origin, destination, and any special handling or delivery considerations. 2. Identify Available Modes: Determine the transportation modes that are suitable for the given task. Common modes include road, rail, water (maritime or inland), air, pipeline, and intermodal combinations. 3. Evaluate Mode Characteristics: Assess the characteristics and capabilities of each transportation mode based on the following criteria: • Cost: Consider transportation costs, including freight rates, fuel expenses, tolls, and other associated fees. • Transit Time: Evaluate the speed of each mode and its ability to meet delivery deadlines. • Reliability: Assess the mode's reliability in terms of scheduling, frequency, and on-time performance. • Capacity: Determine the mode's capacity to handle the volume and size of the shipment or passenger demand. • Accessibility: Consider the accessibility of transportation infrastructure at both origin and destination points. • Flexibility: Evaluate the mode's flexibility to accommodate changes in demand, routing, or scheduling. • Environmental Impact: Assess the environmental footprint of each mode, including emissions, energy consumption, and sustainability considerations. 4. Analyze Trade-offs: Compare the advantages and disadvantages of each transportation mode, considering factors such as cost-effectiveness, speed, reliability, and environmental impact.
- 64. Modal Selection Here's a breakdown of the steps involved in modal selection: 5. Consider Intermodal Options: Explore the possibility of using multiple transportation modes in combination (intermodal or multimodal transport) to leverage the strengths of each mode while minimizing weaknesses. This could involve a combination of road, rail, water, or air transport depending on the specific requirements of the shipment or passenger movement. 6. Evaluate Risk Factors: Assess potential risks associated with each transportation mode, such as weather-related disruptions, infrastructure constraints, security concerns, and regulatory compliance issues. 7. Select Optimal Mode: Based on the evaluation criteria and trade-offs, determine the most suitable transportation mode or combination of modes that best aligns with the transportation needs, budgetary constraints, and logistical requirements. 8. Plan and Coordinate: Develop a transportation plan that outlines the chosen mode(s), route(s), scheduling, and other logistics. Coordinate with transportation providers, suppliers, and other stakeholders to ensure smooth execution of the transportation task. 9. Monitor and Adjust: Continuously monitor the performance of the chosen transportation mode(s) and make adjustments as necessary to optimize efficiency, address any issues, and adapt to changing conditions or requirements.
- 65. Carrier Selection selecting the individual transportation service providers within the mode major difference between modal and carrier selection is the number of options difference is the frequency of the decision type of service provided within a mode impacts carrier selection most carriers have the capabilities to provide a similar level of service Core carrier limited number of carriers leverage its purchasing dollars
- 66. Carrier Selection Carrier selection refers to the process of choosing the most suitable transportation or shipping company to transport goods from one location to another. This process involves evaluating various carriers based on factors such as cost, reliability, transit time, service quality, coverage area, and specific transportation requirements.
- 67. Carrier Selection Here are some key steps involved in carrier selection: 1. Identify Transportation Needs: Determine the specific requirements of the shipment, including the type of goods being transported, dimensions, weight, and any special handling or delivery instructions. 2. Research Carriers: Research and compile a list of potential carriers that operate in the relevant geographic area and offer the services needed. This research can be conducted through online searches, industry directories, referrals, and trade associations. 3. Evaluate Carrier Options: Assess each carrier based on factors such as: • Cost: Compare rates, fees, and surcharges to ensure competitiveness. • Reliability: Consider the carrier's track record for on-time deliveries, transit time consistency, and handling of cargo. • Service Quality: Evaluate customer reviews, testimonials, and reputation for customer service. • Coverage Area: Verify that the carrier serves the desired origin and destination locations. • Specialized Services: Determine if the carrier offers any specialized services required for the shipment, such as temperature-controlled transport or hazardous materials handling. 4. Request Quotes: Contact selected carriers to request quotes for the transportation services needed. Provide detailed information about the shipment to ensure accurate pricing. 5. Negotiate Terms: Negotiate pricing, service levels, payment terms, and any other relevant terms and conditions with the carriers to secure the best possible arrangement.
- 68. Carrier Selection Here are some key steps involved in carrier selection: 6. Review Contracts: Carefully review the terms of the contract or service agreement provided by the selected carrier to ensure alignment with expectations and requirements. Pay attention to liability limits, insurance coverage, and dispute resolution procedures. 7. Perform Due Diligence: Verify the carrier's credentials, licenses, insurance coverage, and compliance with relevant regulations and industry standards. 8. Select Carrier: Based on the evaluation criteria and negotiations, choose the carrier that best meets the transportation needs while providing the optimal balance of cost, reliability, and service quality. 9. Establish Communication: Maintain open communication with the selected carrier throughout the shipping process to address any issues, provide instructions, and ensure smooth coordination. 10.Monitor Performance: Continuously monitor the carrier's performance to assess adherence to service levels, identify any areas for improvement, and make adjustments as needed.
- 69. Rate Negotiations centralized freight rate negotiations developing contracts with carriers for a tailored set of transportation services at a specific price leveraging volume with a small set of carriers
- 70. Rate Negotiations Rate negotiations refer to the process of discussing and agreeing upon the price or rates for goods or services between two parties. This process commonly occurs between buyers and sellers, service providers and clients, or employers and employees. Successful rate negotiations require preparation, effective communication, flexibility, and a focus on creating value for both parties. By approaching negotiations with a collaborative mindset and a willingness to explore creative solutions, you can increase the likelihood of achieving a favorable outcome.
- 71. Rate Negotiations Effective rate negotiations involve several key steps: 1. Preparation: Before entering negotiations, it's essential to thoroughly research market rates, understand the value of the goods or services being provided, and clarify your own objectives and constraints. 2. Setting Goals: Determine your ideal outcome and your bottom line. Define what you are willing to accept and what you consider a fair price or rate based on your research and analysis. 3. Understanding the Other Party's Perspective: Consider the needs, priorities, and constraints of the other party. Understanding their perspective allows you to tailor your negotiation strategy and find mutually beneficial solutions. 4. Effective Communication: Clearly articulate your position, including the value you provide and any relevant factors that support your desired rate. Listen actively to the other party's concerns and interests and address them thoughtfully. 5. Creative Problem-Solving: Explore alternative solutions or concessions that could satisfy both parties' interests. This might include adjusting
- 72. Rate Negotiations Effective rate negotiations involve several key steps: 6. Building Rapport: Establishing a positive and respectful relationship with the other party can facilitate negotiations and increase the likelihood of reaching a mutually satisfactory agreement. 7. Flexibility: Be open to compromise and flexible in your approach. While it's important to advocate for your interests, rigid positions can impede progress and lead to a breakdown in negotiations. 8. Negotiating Tactics: Employ negotiation tactics such as anchoring (setting the initial offer), making concessions strategically, and using time pressure judiciously to influence the negotiation process. 9. Documenting Agreements: Once an agreement is reached, ensure that the terms are clearly documented in a written contract or agreement to avoid misunderstandings or disputes in the future. 10. Follow-Up: After reaching an agreement, maintain open communication and fulfill your commitments promptly. Building trust through reliable performance can lay the foundation for future negotiations.
- 73. Shipment Preparation corporate transportation routing guide last-minute, cost-saving decisions consolidate freight coordinate shipment deliveries take full advantage of container capacity an accurate freight count should be taken
- 74. Freight Documentation bill of lading originates the shipment provides all the information the carrier needs stipulates the contract terms, including carrier’s liability for loss and damage acts as a receipt for the goods the shipper tenders to the carrier in some cases, shows certificate of title to the goods
- 76. Freight bill carrier’s invoice for carrier charges lists: shipment origin and destination consignee items total weight total charges
- 78. Freight claims form Filed with the carrier to recoup monetary losses resulting if carrier fails to protect the shipment. Carriers are not liable for freight claims if the damage is attributable to: Natural disaster or some other “act of God” Military attack or similar “act of public enemy” Government seizure of freight or “act of public authority” Failure to adequately package the freight or other negligent “act of the shipper” Extreme fragility, perishability, or similarly problematic “inherent nature of the goods”
- 79. Maintain In-Transit Visibility manage key events as product moves across the supply chain technology facilitates the ability to monitor product visibility tools must be linked to other capabilities and processes to have an impact on supply chain event management
- 80. Monitor Service Quality analyze the outcome of all their transportation strategy, planning, and decision-making key requirement for service quality monitoring is information
- 82. Transportation Metrics key performance indicators (KPIs) can be used to evaluate current performance versus historical results internal goals carrier commitments challenge lies in narrowing down metrics available to monitor performance to a manageable number of KPIs primary categories of transportation KPIs include service quality and efficiency
- 83. Transportation Management Systems (TMS) Critical applications include the following: Routing and scheduling proper planning of delivery routes has a major impact on customer satisfaction, supply chain performance, and organizational success Load planning effective preparation of safe, efficient deliveries Load tendering Status tracking Appointment scheduling
- 84. Without question, transportation is a very dynamic activity and a critical supply chain process. Not only is it the largest logistics cost component in most supply chains, but it also directly impacts fulfillment speed and service quality. By providing the physical links between key participants across domestic and global supply chains, transportation facilitates the creation of time and place utilities. Organizations with highly efficient and effective transportation processes can differentiate their product in the marketplace through lower landed costs and greater inventory availability. Managing the transportation process for maximum supply chain impact requires considerable knowledge of transportation options, planning, decision making, analytical skills, and information sharing capabilities. Transportation is a key supply chain process and must be included in supply chain strategy development, network design, and total cost management. Numerous obstacles—global expansion of supply chains, rising costs, limited capacity, and government regulation—must be overcome to synchronize transportation with other supply chain processes. Fulfillment of supply chain demand can be accomplished through five modal options or the intermodal use of truck, rail, air, water, and pipeline transportation.
- 85. Multiple planning activities occur prior to carrier and mode selection: who will be responsible for managing the transportation function within the organization, what terms of sale and payment will be used, and how goods will be transported must all be determined with a strategic supply chain focus. Mode selection is based on the relative strengths of each modal/intermodal option in terms of accessibility, transit time, reliability, safety and security, transportation cost, and the nature of the product being transported. Carrier selection focuses on the type of service required (direct or indirect), geographic coverage, service levels, and carrier willingness to negotiate reasonable rates. Most commercial freight moves under contractual rates that are negotiated directly between freight buyers and transportation companies for specific volumes of tailored services at mutually agreed-upon prices.
- 86. Shipment routing guides help organizations ensure internal compliance with service contracts and maintain centralized control over freight tendering decisions. Freight documentation provides the details of each shipment, sharing critical information that promotes uninterrupted flows of goods through the supply chain. Domestic transportation documents include the bill of lading, freight bill, and freight claims, while international freight requires additional paperwork such as a commercial invoice, shipper’s letter of instructions, certificate of origin, and insurance certificates. Organizations must continue to manage freight after it has been tendered to carriers by maintaining in-transit visibility of shipments and monitoring carrier performance. Numerous metrics are available to evaluate transportation service quality in terms of carrier timeliness, freight protection, accuracy, and perfect deliveries. Service efficiency measures focus on spending proficiency, asset utilization, and labor productivity.
- 87. Transportation management systems are widely used information technologies that support the effective planning, execution, and analysis of transportation processes. Emerging tools such as event management and RFID have the potential to improve supply chain visibility and dynamic response to potential challenges.
- 88. Transportation Modes ▶ It is important to recognize that public policy can affect a mode’s performance on these attributes. Railroads, for example, were the dominant mode, as measured by ton miles (the number of tons multiplied by the number of miles transported) and revenues, in the United States from the nineteenth century through the middle part of the twentieth century. From a public policy perspective, construction costs of the Interstate Highway System were primarily paid for by the U.S. government (90 percent), with the remaining construction costs paid for by state governments. This funding by both the federal and state governments is significant because U.S. railroads have been responsible for the construction costs of their track systems, whereas rail construction costs in other nations are often covered by the national government. As such, the U.S. railroads have a substantial cost disadvantage relative to motor carriers, and this cost disadvantage must be captured in railroad pricing practices.
- 89. Airfreight ▶ When one thinks of air transportation, one immediately thinks of speed, particularly on the line-haul (terminal-to-terminal movement of freight or passengers); modern jet aircraft can travel between 500 and 600 miles per hour, a speed that far exceeds any other form of transportation. Indeed, air is generally the fastest mode of transportation for shipments exceeding 600 miles although some motor carriers now offer overnight service of between 600 and 700 miles. However, air transportation is a quite expensive form of transportation, and the line-haul cost of airfreight service is regarded as its primary disadvantage; many companies simply cannot afford to have their shipments travel by air. Moreover, because most shippers and consignees (receivers of freight) are not located at an airport, this requires transportation from the shipper to the origin airport as well as from the destination airport to the consignee. This accessorial service (transportation service that is supplemental to the line-haul) adds to both transportation costs and transit time and also increases the number of times a shipment is handled (thus increasing handling costs and the opportunities for loss and damage). This Photo by Unknown Author is licensed under CC BY-SA
- 90. Airfreight ▶ Examples of products that move by air include: • Auto parts and accessories • Cut flowers and nursery stock • Electronic or electrical equipment, such as cell phones and iPods • Fruits and vegetables • Machinery and parts • Metal products • Photographic equipment, parts, and film • Printed matter • Wearing apparel The reliability of airfreight is somewhat problematic. On the one hand, air’s tremendous speed relative to the other modes offers the potential to “make up lost time” that isn’t possible with the other modes. Alternatively, because so much airfreight is belly freight, the increasing congestion and resultant delays associated with air passenger transportation mean congestion and delays for airfreight. This Photo by Unknown Author is licensed under CC BY-SA
- 91. Motor Carriers ▶ The backbone of the U.S. highway system is the Interstate Highway System (its formal name is the Dwight D. Eisenhower System of Interstate and Defense Highways), which was approved by federal legislation in 1956. This nearly 47,000-mile, high-speed, limited- access highway system has had a profound impact on economic development in the United States. From a logistics perspective, many companies began to locate manufacturing, assembly, and distribution facilities in close proximity to interstate highways. Indeed, accessibility to highways consistently ranks as the most important factor in annual surveys of corporate location decisions. This Photo by Unknown Author is licensed under CC BY-ND
- 92. Motor Carriers ▶ The most important business user of the highway system is the motor carrier (trucking) industry. One way of classifying motor carriers is according to whether they carry less-than-truckload (LTL) or truckload (TL) traffic. Less-than-truckload (LTL) shipments range from about 150 to 10,000 pounds; they are often too big to be handled manually, yet they do not fill an entire truck. Trucks that carry LTL freight have space for and plan to carry shipments of many other customers simultaneously. Unlike TL carriers, LTL carriers operate through a system of terminals (a facility where freight is shifted between vehicles), and from each terminal small trucks go out to customers, delivering and picking up shipments. These shipments are then taken to a terminal, where they are loaded aboard line-haul trucks, which are driven to a terminal near the freight’s destination. The goods are unloaded from the line-haul carrier, move through the terminal, and are loaded aboard a small truck for local delivery. Prominent LTL carriers include ABF Freight, FedEx Freight, UPS Freight, and YRC Freight.
- 93. Motor Carriers ▶ Truckload (TL) carriers focus on shipments of greater than 10,000 pounds, and although the exact weight depends on the product, it is close to the amount that would physically fill a truck trailer. For glassware, this might be 18,000 pounds; for canned goods, it might be 40,000 pounds. Although LTL companies tend to be limited in the type of freight that they haul—primarily dry freight such as apparel, books, and greeting cards, among others—TL companies can carry a plethora of freight types. Although U.S. motor carriers can travel wherever there are roads, their length of haul is mitigated by several factors, such as speed limits and hours-of-service (HOS) rules. Both HOS and highway speed limits have long been justified on the basis of safety concerns, and several states (e.g., California, Oregon, Washington) mandate a two-tier speed limit policy in which the maximum speed for motor carriers is lower than for automotive vehicles. This Photo by Unknown Author is licensed under CC BY
- 94. Motor Carriers ▶ Without question, the primary advantage for motor carriers is flexibility, or the ability to deliver the product to the customer (or where the customer has relatively easy access to it). For example, if you bought this textbook at your university’s bookstore, this book was delivered there by some type of motor carrier, perhaps an LTL carrier. As was the case with airfreight, weather considerations also affect the reliability of motor carrier delivery, and relevant weather considerations include ice, fog, snow, flooding, and high winds (which can affect bridge crossings). Although the cost of motor carrier service is lower than for airfreight, motor carriers tend to be more costly than the remaining modes of transportation. These cost variations highlight the importance of understanding the trade-offs between logistical activities that have been discussed throughout the text. For example, suppose an organization manufactures 8,000 pounds of cat litter per day. This Photo by Unknown Author is licensed under CC BY-SA
- 95. Pipelines ▶ Pipelines are a unique mode of transportation because it is the only one without vehicles, and this is significant for several reasons. First, there is no need for vehicle operators, an important consideration given that some vehicle operators, such as airplane pilots and ship captains, can achieve annual compensation in excess of $200,000. In addition, vehicle operators sometimes engage in work stoppages (e.g., strikes) and can be the cause of accidents. The lack of vehicles also means that pipeline transportation is one way; other modes have two-way transportation, a fronthaul and a backhaul. The backhaul is often a significant source of excess capacity, or unused available space. Pipelines’ lack of vehicles means that it is the most reliable form of transportation in part because there aren’t vehicle-related disruptions (such as accidents), and pipelines are virtually unaffected by adverse weather conditions.
- 96. Pipelines ▶ From a capability perspective, pipelines are quite limited in the sense that products must be liquid, liquefiable, or gaseous in nature. Indeed, pipelines are probably best known for transporting petroleum products, and petroleum pipelines are characterized as either crude oil or product pipelines. Gathering lines, which are 6 inches or smaller in diameter, start at each well and carry crude oil to concentration points. Trunk lines carry crude oil from gathering-line concentration points to the oil refineries. Their diameter varies from 3 to 48 inches; 8- to 10-inch pipe is the most common size. Product pipelines carry products such as gasoline or aviation fuel from the refineries to tank farms (storage tanks) located nearer to customers. These products are stored at the tank farms and then delivered to customers by truck or by rail, an indication that pipelines have limited delivery flexibility. This Photo by Unknown Author is licensed under CC BY-SA-NC
- 97. Pipelines ▶ Slurry systems allow bulk commodities to become liquefiable by grinding the solid material to a certain particle size, mixing it with a liquid to form a fluid muddy substance, pumping that substance through a pipeline, and then decanting the liquid and removing it, leaving the solid material. Although water is the most common liquid used in slurry systems, other liquids, such as methanol, can be used. The Black Mesa pipeline, which transports pulverized coal from northern Arizona to an electric- generating station, is probably the best- known slurry pipeline currently in operation; other slurry pipelines in current operation transport phosphate, limestone, copper concentrate, and iron concentrate. Although pipelines tend to have limited capabilities with respect to the products that can be transported, pipelines are capable of transporting very large product volumes. For example, the 48-inch Trans-Alaska pipeline, which is 789 miles long, has a discharge capacity of two million barrels of oil per day. Moreover, pipelines are quite costly to construct and thus have high fixed costs; however, because these fixed costs can be spread over rather large capacities, pipelines offer their users a relatively low cost per unit. This Photo by Unknown Author is licensed under CC BY-SA
- 98. Railroads ▶ Although more than 550 freight railroads operate in the United States, over 90 percent of the rail industry’s revenues and ton-miles are accounted for by the seven Class I (2015 revenues of approximately $450 million) freight railroads. This level of market concentration and domination is not found in the other modes, and from a practical perspective it can create limited service and pricing options for potential customers. U.S. freight railroads present an intriguing paradox in the sense that they are not either the “best” or “worst” on any of the six attributes (capability, capacity, cost, flexibility, reliability, speed) that we’re using as a basis of comparison for the five transport modes. Similarly, rails possess less flexibility (ability to deliver the product to the customer) than motor carriers, unless the customer is located on a rail line or has a rail siding (a track that runs from a main line to a particular facility). Freight railroads are also right in the middle of the five modes when it comes to cost (price that a carrier charges to transport a shipment) and speed (elapsed transit time from pickup to delivery) considerations. Although railroads are less expensive than air and motor, they are more expensive than pipeline and water. Alternatively, railroads are faster than both pipeline and water, but slower than air and truck. This Photo by Unknown Author is licensed under CC BY
- 99. Water ▶ Freight moves by water on the Great Lakes, using vessels called lake freighters (lakers), as well as on inland waterways, using barges. Drought creates problems because when water levels drop below acceptable levels, barges are forced to reduce their loads, or barge traffic might be halted altogether, situations that require alternate means of transportation. However, not all of the unreliability associated with U.S. inland water transportation is weather related. More specifically, the waterways’ lock system (a lock raises or lowers barges so they can meet the river’s level as they move upstream or downstream) also contributes to transport unreliability. Many locks on the U.S. inland waterway system are quite old, with some locks dating to the 1930s, and their maintenance needs tend to increase as a function of age. With preventive maintenance of locks currently the exception rather than the rule, when a lock malfunctions the related repairs can take months to complete—a situation with potentially adverse consequences for shippers and barge operators. Inland water transportation in the United States is also characterized by slow average speeds of approximately six miles per hour. In terms of positive attributes, inland water transportation is relatively inexpensive to users. Although inland water carriers tend to focus on lower-value bulk commodities that can be handled by mechanical means such as pumps, scoops, and conveyors, many different kinds of products can be carried.
- 100. Intermodal Transportation ▶ We have discussed each mode as if each acts in isolation from the others, but in an increasingly global economy, multiple modes are used to transport a shipment from its origin to its destination. For our purposes, intermodal transportation refers to transportation when using a container or other equipment that can be transferred from the vehicle of one mode to the vehicle of another mode without the contents being reloaded or disturbed.10 With intermodal transportation, two or more modes work closely together in an attempt to utilize the advantages of each mode while at the same time minimizing their disadvantages. For example, a company might use piggyback transportation, that is, either truck trailer-on-flatcar or container-on- flatcar, to take advantage of rail’s low transportation costs on the line-haul along with truck’s ability to provide door-to-door service. As evident in our definition, the container is an important type of equipment in intermodal transportation. Containers are generally 8 feet wide, 8 feet high, and between 10 and 53 feet long. Most containers are dry-cargo boxes, although some are insulated and come with temperature-controlling devices.
- 101. Various Types of Intermodal Surface Containers ▶ Specialized intermodal containers are also available that carry tanks for holding liquids or gases as well as containers that hold insulated or refrigerated cargo. Figure 12.1 shows several different types of containers. Figure 12.1 Various Types of Intermodal Surface Containers Air freight containers, often referred to as unit load devices (ULDs), are constructed of lightweight metals and come in different sizes. Unlike the containers in Figure 12.1, air freight ULDs have somewhat irregular shapes, dictated by the contours of the fuselage into which they must fit.
- 102. Intermodal Transportation ▶ Although intermodal containers can range between 10 and 53 feet in length, a commonly used metric is twenty-foot equivalent unit (TEU), which stands for 20-foot equivalent unit. Volumes of intermodal traffic are commonly expressed as so many TEUs, meaning they would fill that many 20-foot containers. Not only did the container revolutionize freight handling, it also spurred cooperation between various modes to develop more effective and efficient transport offerings, such as land bridge services. Rather than all water service between two ports, land bridge services involve the use of surface transportation—usually rail transportation—between the origin and destination port. Consider, for example, a shipment of pineapples from Hawaii to Europe. Rather than the shipment going by water from Hawaii through the Panama Canal and then on to Europe, under land bridge service, the pineapples would move by containership from Hawaii to a U.S. West Coast water port. From this port, the containers of pineapple would be placed on railcars and shipped across the United States to an East Coast port, where the containers would be loaded onto a vessel for continuation of the shipment to Europe. Although the land bridge adds to total transportation costs, the primary advantage to land bridge service is the reduction in total transit time from the origin to destination port. This Photo by Unknown Author is licensed under CC BY-SA
- 103. Transportation Specialists ▶ In addition to the five basic modes and intermodal transportation, a number of different transportation specialists can provide value- added services to prospective customers. We will discuss several transportation specialists in the paragraphs that follow. Freight forwarders are not modes, but from the shipper’s viewpoint, they are analogous to other carriers. There are two types of domestic freight forwarders— surface and air—and they can best be thought of as consolidators of freight. Surface carriers give volume discounts to customers shipping large quantities of freight at one time. For example, the LTL rate from city A to city B might be $5 per 100 pounds for shipments less than 20,000 pounds, whereas the TL rate might be $2 per 100 pounds when shipments of 20,000 pounds or more are tendered. Truckload rates are lower than LTL rates for three reasons: (1) the shipper loads the goods, and the consignee unloads the trailer; (2) the load goes directly from shipper to consignee without passing through terminals; and (3) paperwork, billing, and other administrative costs are little more for a 25,000-pound shipment than they would be for a 250-pound shipment.
- 104. Transportation Specialists ▶ The freight forwarder exists by offering a service to shippers that use LTL rates because they do not generate enough volume to use TL rates. Without the freight forwarder, the shipper has to use the $5 LTL rate. The freight forwarder, however, offers the same transportation service for a rate between the LTL and TL rate—say, $4 per 100 pounds. The air forwarding industry works with the air carriers and air forwarders to consolidate shipments and tender them in containers that are ready for aircraft loading. This results in significant ground-handling savings for the airlines. Some forwarders specialize in certain cargoes. A common example is in the garment industry, in which many small garment firms send large numbers of a few garments each to retail shops in most large cities. Shippers’ associations perform basically the same function as surface and air freight forwarders, except that they do not operate as profit-making organizations. Brokers are another type of transportation specialist; they are companies that look to match a shipper’s freight with a carrier to transport it. In some cases, third-party logistics (3PL) companies are involved in arranging transportation services. Parcel carriers, companies that specialize in transporting parcels, which are often referred to as packages that weigh up to 150 pounds.
- 105. Transportation Specialists ▶ Another option for parcel shippers is United Parcel Service (UPS), which financially dwarfs any other transportation company in the United States (2015 revenues of approximately $49 billion from package operations). Whereas UPS started as a package delivery company that emphasized line-haul movement by truck and in the 1980s expanded into air transportation, Federal Express (now FedEx Express) started as a package delivery company that emphasized service by air transportation and later expanded into line-haul movement by truck. Both UPS and FedEx now offer package shippers service options that include same-day service involving air transportation, next-day service involving air or truck, and second-day service involving air or truck, among others. Package services are also available from Greyhound Lines (called Greyhound Package Express), which is the primary intercity bus company in the United States. This Photo by Unknown Author is licensed under CC BY-NC-ND
- 106. Transportation Regulation ▶ The five modes of transportation have been influenced, and continue to be influenced, by various types of regulation by federal, state, and local governments. Our discussion in this section will focus on federal regulation of transportation in the United States. We will look at environmental, safety, and economic regulation. However, before proceeding with this discussion, readers should recognize that the level and degree of transportation regulation varies from country to country. For example, many of the world’s more industrialized economies have instituted fairly stringent regulations with respect to vehicle emissions (air pollution) from transportation equipment. In lesser economically developed countries, emissions regulations are much less stringent—if they exist at all. We are not here to judge the appropriateness or inappropriateness of transportation regulation in individual countries; rather, logisticians need to understand the relevant transportation regulations of the countries in which they conduct business as well as the cost and service implications of these regulations.
- 107. Environmental Regulation ▶ The Environmental Protection Agency (EPA), a U.S. federal regulatory agency that was established to protect human health and the environment, influences transportation in a number of different ways. A major transportation-related concern of the EPA involves various types of pollution such as noise and air pollution. With respect to noise, the EPA is responsible for enforcing noise emissions from transportation equipment such as rail locomotives and truck tractors. In terms of air pollution, the EPA has mandated that rail locomotives and truck tractors must meet stringent emissions standards. With respect to locomotives, for example, EPA Tier 4 emission standards, which went into effect in 2015, required new locomotive engines to lower nitrous oxides emissions by approximately 75% compared to locomotive engines that went into service in 2005. The EPA is also quite concerned with resource conservation, and this is particularly germane in that transportation accounts for approximately two- thirds of the petroleum consumption in the United States. As such, improved fuel efficiency and reduced consumption of petroleum have become important issues for many transportation companies. For example, United Airlines has improved its aircraft fuel efficiency by over 33% since 1994 and in 2016 began a three-year trial of sustainable aviation biofuel at Los Angeles International Airport.
- 108. Safety Regulation ▶ The Department of Transportation (DOT) is the U.S. federal government body with primary responsibility for transportation safety regulation. Although the DOT’s safety responsibilities encompass all five modes of transportation, safety regulation of inland water carriers is primarily the responsibility of the U.S. Coast Guard, which is now part of the U.S. Department of Homeland Security. The Federal Aviation Administration (FAA) has primary responsibility for air transportation safety and strives to improve the safety and efficiency of aviation. One of the FAA’s primary roles involves airspace and air traffic management and to this end the FAA operates airport towers and air traffic control centers. The Office of Pipeline Safety (OPS), which is part of the Pipeline and Hazardous Materials Safety Administration, is responsible for safety considerations for natural gas and liquid pipelines.
- 109. Economic Regulation ▶ Economic regulation in transportation refers to control over business practices and activities such as entry and exit, pricing, service, accounting and financial issues, and mergers and acquisitions. Although a comprehensive discussion of the economic regulation of transportation is beyond the scope of this book, one of the authors worked for an LTL company while the LTL industry was economically regulated, and his experiences offer insight into the challenges presented by economic regulation. Beginning in the late 1970s, various sectors of the transportation industry experienced a reduction in economic regulation (also referred to as deregulation), and in 1985 the CAB went out of existence. From a logistics perspective, the economic deregulation of transportation is important because it has allowed transportation companies much greater freedom with respect to pricing and service options— two attributes that are at the heart of the tailored logistics.
- 110. Economic Regulation ▶ Transportation economic regulation refers to government policies and regulations that govern the operations, pricing, and competition within the transportation industry. These regulations are designed to ensure the efficient and fair provision of transportation services, protect consumers, promote safety, and address other public interest concerns. Transportation economic regulation can apply to various modes of transportation, including air, rail, road, water, and pipelines. Overall, transportation economic regulation aims to balance the interests of industry stakeholders, consumers, and the broader public by promoting efficiency, safety, fairness, and sustainability within the transportation sector.
- 111. Economic Regulation ▶ Here are some key aspects of transportation economic regulation: 1. Market Entry and Licensing: Government agencies may require transportation companies to obtain licenses, permits, or operating authorities before entering the market. These requirements help ensure that companies meet certain standards of safety, financial responsibility, and operational competence. 2. Tariff Regulation: In industries such as rail and maritime shipping, carriers may be required to file tariffs with regulatory agencies detailing their rates, charges, and terms of service. Regulatory oversight of tariffs helps prevent discrimination, price gouging, and unfair practices. 3. Rate Regulation: Some transportation sectors, such as trucking and airlines, have historically been subject to rate regulation to prevent monopolistic pricing or price discrimination. While rate regulation has become less common in recent years, regulatory agencies may still review and approve certain rate changes or monitor pricing practices for anticompetitive behavior. 4. Service Standards and Quality Control: Regulatory agencies may establish standards for service quality, safety, and performance within the transportation industry. These standards may cover aspects such as on-time performance, vehicle maintenance, customer service, and accessibility for passengers with disabilities.
- 112. Economic Regulation ▶ Here are some key aspects of transportation economic regulation: 5. Competition Policy: Antitrust laws and competition policy play a role in regulating competition within the transportation industry. Regulatory agencies may review mergers, acquisitions, and anticompetitive practices to ensure that they do not harm consumers or inhibit competition. 6. Safety Regulation: Ensuring the safety of transportation operations is a critical aspect of regulatory oversight. Regulatory agencies establish and enforce safety standards for vehicles, infrastructure, operations, and personnel to minimize the risk of accidents, injuries, and fatalities. 7. Environmental Regulation: Environmental regulations may apply to transportation activities to mitigate the industry's impact on air and water quality, noise pollution, habitat destruction, and greenhouse gas emissions. These regulations may include emissions standards, fuel efficiency requirements, and environmental impact assessments for infrastructure projects.
- 113. Economic Regulation ▶ Here are some key aspects of transportation economic regulation: 8. Consumer Protection: Regulatory agencies may enforce consumer protection laws and regulations to safeguard the rights and interests of transportation users. This may include requirements for transparent pricing, accurate advertising, dispute resolution mechanisms, and compensation for service disruptions or losses. 9. International Regulation: Transportation economic regulation may also involve international agreements, treaties, and organizations that govern cross- border transportation activities, such as customs procedures, safety standards, and competition policy.
- 114. Legal Classification of Carriers ▶ Although there has been a dramatic reduction in U.S. economic regulation since the late 1970s, the legal classification of carriers continues to be relevant. The key factor that separates a common carrier from other forms of transportation is that the common carrier has agreed to serve the general public. The obligation to deliver requires that a carrier provide timely pickup and delivery as well as ensuring that the delivered shipment is in the same condition as the picked-up shipment (i.e., the avoidance of lost or damaged freight). A contract carrier offers a specialized service to customers on a contractual basis. Exempt carriers are for-hire carriers that have been exempted from economic regulation through provisions in various pieces of legislation; the appropriate rates and services must be negotiated directly between the carrier and user. Private carriers, which are exempt from any economic regulation, are companies whose primary business is other than transportation.
- 115. Conclusion ▶ Transportation, the actual, physical movement of goods and people between two points, is pivotal to the success of any logistics or supply chain operation. The chapter began by comparing transportation infrastructures in several different countries and found distinct infrastructural differences across the countries. The chapter then discussed the five modes of transportation in terms of each mode’s capability, capacity, cost, flexibility, reliability, and speed. This mode-by-mode discussion was followed by a look at intermodal transportation, with a particular focus on containerization. The roles that can be played by transportation specialists such as freight forwarders and brokers were also examined. The chapter discussed environmental regulation, safety regulation, and economic regulation as they apply to transportation. We learned that a number of U.S. federal agencies are responsible for transportation and also that the levels and types of regulation may not be consistent across modes. The chapter concluded with a look at the four legal classifications of carriers—common, contract, exempt, and private.
- 116. Important Dates ▶ Assignment 2/13/2024 ▶ Midterm 2/15/2024 ▶ Assignment 2/22/2024 ▶ Final 2/27/2024 This Photo by Unknown Author is licensed under CC BY-SA-NC
- 118. 118 International Logistics International logistics is the design and management of a system that controls the forward and reverse flow of materials, services, and information into, through, and out of the international corporation.
- 119. 119 International Logistics (cont.) Through the implementation of international logistics, the firm can implement cost-saving programs such as just-in-time (JIT), electronic data interchange (EDI), and early supplier involvement (ESI). The two phases of the movement of materials include: materials management, or the timely movement of materials, parts, and supplies. physical distribution, or the movement of the firm’s physical product to its customers.
- 120. 120 Three Concepts of Business Logistics Total Cost Concept Trade-off Concept Systems Concept
- 121. 121 Supply-Chain Management Supply-chain management is the integration of business processes from end user through original suppliers, that provide products, services, and information that add value for customers. Supply-chain management connects a company’s supply side with its demand side. It opens up supplier relationships for companies outside of the buyer’s domestic market.
- 122. 122 The International Supply Chain Physical Distribution Management Transportatio n Corporation Suppliers Customers Domestic/Impo rt Sourcing Domestic/Export Distribution Throughflow Inbound Materials Outbound Materials Forward and Reverse Flow of Information, Products, and Funds Physical Distribution Management Transportation Transportation Transportation Order Processing Order Processing Order Processing Order Placement Inventory Management Materials Management Customer Service Storage Storage Storage Inventory Management Inventory Management Costumer-Firm Interface Supplier-Firm Interface
- 123. 123 Transportation Infrastructure A firm’s logistics platform is determined by a location’s ease and convenience of market reach under favorable cost circumstances. The public sector’s investment priorities, safety regulations, tax incentives, and transport policies can have major effects on the logistics decisions of firms. The logistics manager must learn about existing and planned infrastructures abroad and at home and factor them into the firm’s strategy.
- 124. 124 Vessels Used in Ocean Shipping Liner Service Bulk Service Tramp Service
- 125. 125 Airfreight Airfreight is available to and from most countries, including the developing world. International airfreight is expected to grow to 190 billion tons in 2005, compared to only 70 billion tons in 1995. Forty percent of the world’s manufactured travel by air. Items that are high-value or high in density tend to travel by air.
- 126. 126 Considerations for Selecting a Mode of Transport Predictability Transit Time Cost Non-economic Factors
- 127. 127 Export Documentation A bill of lading is a contract between the exporter and the carrier indicating that the carrier has accepted responsibility for the goods and will provide transportation in return for payment. A commercial invoice is a bill for the goods stating basic information about the transaction, including a description of the merchandise, total cost of the goods sold, addresses of the shipper and seller, and delivery and payment terms. A freight forwarder specializes in handling export documentation.
- 128. 128 International Inventory Issues Inventories tie up a major portion of corporate funds, therefore proper inventory policies should be a major concern to the international logistician. Just-in-time inventory policies minimize the volume of inventory by making it available only when needed. The purpose of establishing inventory systems are: to maintain product movement in the delivery pipeline to have a cushion to absorb demand fluctuations
- 129. 129 Three Factors that Decide the Level of Inventory Order Cycle Time Desired Customer Service Levels Use of Inventories as a Strategic Tool
- 130. 130 International Packaging Issues Packaging is instrumental in getting the merchandise to the destination in a safe, presentable condition. Because of the added stress of international shipping, packaging that is adequate for domestic shipping may be inadequate for international shipping. Packaging considerations that should be taken into account are environmental conditions and weight. One solution to the packaging problem has been the development of inter-modal containers. Cost attention must be paid to international packaging.
- 131. 131 Storage Facilities A stationary period is involved when merchandise becomes inventory stored in warehouses. The location decision addresses how many distribution centers to have and where to locate them. Storage facilities abroad can differ in availability and quality. The logistician should analyze international product sales and then rank order products according to warehousing needs.
- 132. 132 Special Trade Zones Foreign trade zones are areas where foreign goods may be held or processed and then re-exported without incurring duties. Trade zones can be useful as transshipment points to reduce logistics cost and redesign marketing approaches. Governments and firms benefit from foreign trade zones.
- 133. 133 Export Processing Zones and Economic Zones In export processing zones, special rules apply that are different in other regions of the country. These zones usually provide tax-free and duty-free treatment for production facilities whose output is destined abroad. The maquiladoras of Mexico are one example of a program that permits firms to take advantage of sharp differentials in labor costs. Through the creation of special economic zones, the Chinese government has attracted many foreign investors bringing in millions of dollars.
- 134. 134 Centralized Logistics Management In international logistics, the existence of a headquarters staff that retains decision-making power over logistics is important. To avoid internal problems, both headquarters staff and local management should report to one person. This individual can contribute an objective view when inevitable conflicts arise in international logistics coordination.
- 135. 135 Decentralized Logistics Management When a firm serves many diverse international markets, total centralization might leave the firm unresponsive to local adaptation needs. If each subsidiary is made a profit center in itself, each one carries the full responsibility for its performance. Once products are within a specific market, increased input from local logistics operations should be expected and encouraged.
- 136. 136 Outsourcing Logistics Services The systematic outsourcing of logistics capabilities is a third option. By collaborating with transportation firms, private warehouses, or other specialists, corporate resources can be concentrated on the firm’s core product. One-stop logistics allows shippers to buy all the transportation modes and functional services from a single carrier.
- 137. 137 The Supply Chain and the Internet Because of the internet, firms are able to conduct many more global comparisons among suppliers and select from a wider variety of choices. When customers have the ability to access a company through the internet, the company must be prepared for 24-hour order-taking and customer service. For all countries, but particularly in developing nations, the issue of universal access to the internet is crucial.
- 138. 138 Logistics and Security After the terrorist attacks of 2001, companies have to deal with the fact that the pace of international transactions has slowed down and that formerly routine steps will now take longer. Logistics systems and modern transportation systems are often the targets of attacks. The need to institute new safeguards for international shipments will affect the ability of firms to efficiently plan their international shipments.
- 139. 139 Logistics and the Environment Since environmental laws and regulations differ across the globe, the firm’s efforts need to be responsive to a wide variety of requirements. Reverse distribution systems are instrumental in ensuring that the firm not only delivers the product to the market, but also can retrieve it from the market for subsequent use, recycling, or disposal. Companies need to learn how to simultaneously achieve environmental and economic goals.
- 140. 3- 140 Productivity Congestion Input cost factors Trends in Trucking
- 141. 3- 141 Trends in Trucking - and More 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 $ per gallon Pump Price for Diesel (U.S.)
- 142. 3- 142 Trends in Rail Freight Intermodal growth Capacity constraint Capacity allocation
- 143. 3- 143 Trends in Waterborne Freight • Mega-ships • All-water routes • Transloading • Short-sea prospects
- 144. 3- 144 Trends in Pipelines • Weather risks • Ethanol conversion
- 145. 3- 145 Trends in Air Cargo Ground substitution Global carriers
- 146. 3- 146 Trends in Logistics • Visibility • Globalization • Fast Cycle Logistics Radio Frequency Identification Tag Applications
- 147. 3- 147 Globalization: Trade Percent of US GDP 3% 6% 9% 12% 15% 18% 21% 1975 1980 1985 1990 1995 2000 2005 2010 2015 Imports Exports
- 148. 3- 148 Traditional Logistics METHOD OF CONTROL SUPPLY CHAIN MATERIAL OWNERSHIP TRANSPORT SYSTEM INFO SYSTEM MATERIAL FLOW WHOLESALE RETAIL INTEGRATED MANUFACTURER PUSH TO CUSTOMER
- 149. 3- 149 Fast Cycle Logistics KEY: MATERIAL FLOW INFORMATION FLOW MATERIAL OWNERSHIP TRANSPORT SYSTEM INFO SYSTEM METHOD OF CONTROL SUPPLY CHAIN GLOBAL LOCATION KNOWLEDGE SPECIALISTS INTEGRATOR INTEGRATOR PULL FROM CUSTOMER STAGING POINT
- 150. 3- 150 Supply Chain Management Transforms non-valued added activities into strategic management functions “Just-in-time” transit replaces inventory Reliability surpasses cost as most important transportation consideration
- 151. 3- 151 Advanced Manufacturing Reliable and timely Higher value shipments Just-in-time manufacturing Multi-modal, truck dominant
- 152. 3- 152 Natural Resource Manufacturing Bulky goods Low damage, low cost Less emphasis on speed Rail and barge dependent
- 153. 3- 153 Non-Durable Manufacturing Heavy or high cube Moderate to high value Moderate to high speed Local ends of long supply chains Truck dominant
- 154. 3- 154 Service Industries Accessibility Reliability Smaller, more frequent trips Truck and express package dependent
- 155. 3- 155 Global Supply Chain: High Tech SPECIAL PRODUCT & DC ASSEMBLY & DC PARTS DC URGENT DC URGENT DC BUSINESS CONSUMER CONSUMER BUSINESS IMPORT AIR HUB IMPORT SEAPORT Modal Key Truckload Intermodal Less Than Load (LTL) Air Package COMPANY CONTROL COMPANY OWNERSHIP
- 156. 3- 156 Global Supply Chain: Retail Office RETAIL OUTLETS LOCAL MARKET DIRECT WAREHOUSE RETAIL OUTLETS WAREHOUSE RETAIL OUTLETS REVERSE LOGISTICS ( Multi-stop Loop ) PORT EXTRA- REGIONAL VENDOR REGIONAL VENDOR Truck – Dray Truck – LTL/Pkg. Modal Key STAGING WHOLESALE REGIONAL DC EXTRA- REGIONAL DC Truckload Intermodal rail
- 157. 3- 157 Regional Chain: Consumer Beverages CLUB MULTIPLE TRIPS BULK ORDER DELIVERY 1 – 3 Stops per Trip To Clubs & Grocery Stores SMALL ORDER DELIVERY 10 – 30 Stops per Trip To Convenience Stores, Hotels Restaurants, Bars, Offices GROCERY GROCERY MULTIPLE STOPS MULTISTOP POCKET (3 Mile Radius) STEM ( 5 – 15 Miles) EXTERNAL MARKETS LOCAL PLANT & DC EXTERNAL PLANT & DC Production Flow Local Receivers Modal Key Production & Wholesale Flow
- 159. 3- 159 Planning Considerations The Supply Chain = the Business Enterprise Business competitiveness depends on transportation performance Chains are sensitive to time and disruption Chains cross jurisdictions Needs vary by chain
- 160. 3- 160 Fuse information with technology Demand high performance transportation system Impacts supply chains and business models Businesses Compete on Logistics Costs