Transcript TRANSPORTATION - Kansas State University

TRANSPORTATION
Largest cost component of logistics
SEPTEMBER 12, 2002
Six Modes of Transportation
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Water
Rail
Truck--motor carrier
Air
Pipeline
Intermodal
Intermodal
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Combined rail and truck
takes advantage of
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low cost of rail (long haul) and
on-time delivery by truck
Components of Transport Cost
• Loading/Unloading—unrelated to mileage
Cost per unit
•Travel—rate per mile
Transport cost fn
Distance, miles
Benefits to Consumers of
Improved Transport
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Direct--lower transport cost
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for inputs
for final products
Indirect--larger geographic markets
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greater competition
goods available from markets once not feasible
Producers can exploit economies of scale more
fully
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decouple markets from production sites
more intense use of facilities
more labor specialization
Cost-service Trade-off
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Determines shipping mode
Cost per mile (in increasing order):
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Service (starting with highest)
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water, rail, truck, air
air, truck, rail, water
Rail—cheap long hauls
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coal unit trains and grain to export terminals
Intermodal merchandise on destination trains.
Truck vs. Rail
Cost per unit
Transport cost functions
Truck
Rail
400
Distance, miles
Backhaul
A Critical Consideration
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Goal: minimize time equipment is not
generating revenue
Avoid running equipment empty
Important source of savings
Shipping Documents
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Freight bill
Freight claims form
Bill of lading
Bill of Lading
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Legal contract between shipper and
carrier for movement to a specific
destination, free of damage
Purpose
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receipt for goods
contract of carriage
documentary evidence of title
Two Forms of the Bill of
Lading
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Straight bill of lading--nonnegotiable
Order bill of lading--may be sold or
traded by endorsing to another
Developments That Have
Impacted Number and
Location of Plants
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Unit trains
Intermodal and containers
Deregulation
Intra-firm competition on part of shippers
Backhaul
Trunk lines vs. branch lines
Value-added logistics
Regulation/Deregulation
History
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Impetus for regulation
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monopoly power of railroads in 19th century
concern for destructive competition--over capacity
Regulation was based on providing adequate,
reasonably priced services to all on a nondiscriminatory basis.
Common carriage was the key principle
Key Legislation
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Interstate Commerce Commission Act of
1887-- established ICC to regulate
railroads
1935 public truck transportation placed
under ICC
1938 Civil Aeronautics Board (CAB)
formed
Characteristics of Regulation
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Service to all
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Control
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required cross subsidization from profitable
routes to unprofitable ones.
carrier entry and exit, carrier prices,
service offerings and mergers
Published rates
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no privately negotiated rates
Costs of Regulation
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Operating and pricing inefficiencies
NO intramodal competition
Financial decline of railroads
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prevented restructuring
protected unions
failed to recognize that the major cost of
railroads was fixed--rail beds
Deregulation
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1977, air freight
1978, air passenger
1980, trucking
1980, rail--Staggers Rail Act.
DEREGUATION
Freedoms Granted Carriers
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Pricing latitude
Ability to enter long-term contracts with
shippers
more freedom to enter and exit a
market
easier to merge or consolidate
Impacts of Deregulation
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Demise of “Common Carrier” concept
Closer relationship between rate and
cost to provide the service
Slowed transport rate increases
Increased, initially, number of motor
carriers
Increased merger activity
Staggers Rail Act led to
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Shedding of branch lines
Reduced rate regulation
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Zone of freedom-- rate/variable costs less than or
equal to 180%
More private contracts
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Coal 62% under contract--coal accounts for 44%
tonnage and 22% of rail revenue
Grain 63% under contract, carriage related to
exports
Motor Carrier Deregulation
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Transportation marketing important because
of route competition
Closer shipper/carrier relations
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deregulation allows it
needed for JIT
quality emphasis means process orientation
more long-term contracts, less transactional
Increase in ICC-regulated carriers
Motor Carrier Dereg.,
continued
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Increased concentration in LTL industry
Less commodity and regional
restrictions for carriers
Multitude of rate/service offering means
increased transaction cost for shippers
seeking best deal
Value-added carrier services
Greater role for transport brokers
Transport Broker
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Source of shipping information
can audit shippers freight bills for
correctness
verify that carrier is certified, licensed &
insured
track shipments
handle damage claims
provide storage &/or local pickup
Market-based Railcar
Allocation
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COTS & PERX
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shorter term, auction-based rate and car
guarantees
SWAPs & GEEPs
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pool programs that provide longer term
contractual car guarantees
COTS (& PERX)
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COTS is the BNS program
Guarantee of freight and lock in rate
Purchase service by corridor, unit size,
by time period--first or second half of
month--and grain
Purchase certificate up to 6 months in
advance
Certificates may be resold
Guarantees
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When shipper fails to use equipment,
shipper loses payment for certificate.
When carrier fails to place car, shipper
penalized $50 per car per day up to
max of $400 per car
COT orders may be swapped among
stations along the same corridor at a
cost of $30 per car
Pool Programs:
SWAPS (BNS) and GEEPS (UP)
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Shipper leases rail cars to carrier for a
negotiated fee and a guaranteed number of
trips per month for the shipper (Annual
contract)
Penalties for cancellation or nonperformance
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Applies to carrier and shipper
Pool provides shipper options for strategically
integrating logistics and merchandising
decisions
Summary
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Note the changes in the transport
industry and in the regulation of the
industry
New institutions are being developed to
improve market efficiency and enhance
logistics operations