Supply Chain Logistics

part 1
Mcenroe ng
 Moving Freight on the Road
• When we consider motor freight, it has several advantages.
• Speed, it's very fast.
• Reliability, trucks rarely break down, and if they do, it's only for a very short
amount of time.
• Three, items do not get damaged very often.
• And fourth, trucks can pretty much get anywhere.
 Moving Freight on the Road
• Motor freight is also very efficient in a financial sense. Because the roadways
are paid for by the government and ultimately the taxpayers, it's a subsidized
industry.
• Most of the cost is in fuel, wages, maintenance, equipment, and user charges.
Not all trucks are the same.
Moving Freight on the Road- Types of Vehicles
• We need city trucks, usually smaller vehicles that can make it inside of a congested
city without a trailer. We load stuff in the back. Then we have line haul-vehicles, and
they come in different sizes.
• The most common ones are 40 foot containers that are used often for international
shipments and intermodal.
• The other one is 53 foot containers which are very popular in the United States and
Canada.
• In addition, we have specialty vehicles, such as refrigerator, our strawberries have to
come on those, livestock containers, automobile carriers, and tankers. When we use
different trucks, we connect them with terminals.
 Moving Freight on the Road
• When we use different trucks, we connect them with terminals.
• Terminals are taking products from one truck, sorting them, and then moving them
out on a different truck.
• We're not storing the items in these terminals, even though often they look like
warehouses. There are three types of terminals.
• We have pickup and delivery terminals where we go from a city truck to a line-hall
vehicle. Then we have cross docks where we connect networks of transportation
together. And finally, we have relay terminals, where we just switch out the cab and
put a trailer on a new cab, so we have a fresh driver and we move away.
 Moving Freight on the Road
• We have pickup and delivery terminals where we go from a city truck to a
line-hall vehicle.
• We have cross docks where we connect networks of transportation together.
• We have relay terminals, where we just switch out the cab and put a trailer on
a new cab, so we have a fresh driver and we move away.
 Summary
- Cost Structure
- Motor Freight - Types of Vehicles
Terminals • fuel 39% • City trucks
• driver salary 26% • Line-Haul (40 foot and
• Pickup and delivery
• cab and trailer 17% 53 foot trailers)
• Cross-dock terminals
• maintenance 12% • Special vehicles
• Break-bulk terminals
• insurance and fees 5%
• Relay terminals
 Review
• https://www.fhwa.dot.gov/interstate/history.cfm
• http://www.dat.com/industry-trends/trendlines
 Motor Carriers
• In the US, about two-thirds of the freight is moved by truck, and there are over two million trucks on the
road and over five million trailers. The majority of these companies are small businesses, sometimes owning
just one truck. There are three basic forms of operation.
• The first one is truckload, or TL. And what that means is as a shipper, you rent out the whole truck whether
you use it or not, and the truck goes from your origin to your destination directly.
• Another form is less than truckload, or LTL. In which you own a share of the truck for that shipment and
you pay by weight. Now that truck will not necessarily go from origin to destination, it will go through a
network of terminals.
• And lastly, there's parcel freight, which is smaller shipments even than LTL, and it is much faster usually but
also much more expensive. Unfortunately, trucking is not a very profitable business because the major form
of competition is over price, everybody can get into the business fairly easily. Prices have come down in
recent years and there's just not that much money in it for people.
 Motor Carriers
• The first one is truckload, or TL. And what that means is as a shipper, you rent out
the whole truck whether you use it or not, and the truck goes from your origin to
your destination directly.
• Another form is less than truckload, or LTL. In which you own a share of the
truck for that shipment and you pay by weight. Now that truck will not necessarily
go from origin to destination, it will go through a network of terminals.
• And lastly, there's parcel freight, which is smaller shipments even than LTL, and it is
much faster usually but also much more expensive.
 Motor Carriers
• Motor Carrier Industry Structure
• According to the American Trucking
Association (ATA):
• Trucks moved roughly 67% of the
nation's freight by weight
• About 3 million class 8 trucks used
for business purposes
• About 6 million commercial trailers
registered
• According to US Department of
Transportation (in 2010):
• 1.3 million total trucking companies
• 408,782 for-hire carriers
• 662,544 private carriers
• 168,680 other interstate motor carriers
• Most trucking companies are small
businesses:
• 90.2% operate 6 or fewer trucks
• 97.2% operate fewer than 20 trucks
• Trucking is a vital industry for the
economy:
• About 7 million people employed
throughout the economy in jobs that
relate to trucking activity
• About 3 million truck drivers
employed
 Basic Operations
• Truckload (TL) • Parcel
• Moved directly from shipper to
consignee • Home/business pickup,
• Average 242 miles consolidated, moved to
• Many small carriers sortation facility,
• Weight 20,000 to 50,000 lbs. trucked/flown/railed to
• Less-than-Truckload (LTL) distribution center and
• Picked up, moved to a terminal, reloaded home/business delivered
for line-haul, delivered to terminal,
locally delivered • Weight 1 to 150 lbs.
• Average distance about 550 miles
• Requires national or regional network
• Fast (good for time-
• Weight 50 to 10,000 lbs.
sensitive goods)
• About 150 carriers • Very expensive
 Competition

• There are few ways in which firms can differentiate themselves, the main area of
competition is price.
• Cost structure: high variable costs (70-90%), low fixed costs (10-30%)
• Government support of highway structure
• Terminals not too capital intensive
• Operating cost in the United States are currently between$1.20 - $1.80 per mile
• Carriers use fuel surcharges to recover some of cost
 Flying freight
• Once the flowers leave the flower auction in Amsterdam, they get here on a plane in
less than 24 hours. So when I buy them at my local store, they're still fresh.
I. The first and most important is speed. You can get it there as fast as possible.
II. Number two is capacity. You are able to ship a wide variety of products by plane.
And then, a third one is accessibility. You can get to pretty much any destination,
even by air. It's expensive, but when speed outweighs cost, air transportation is
the way to go.
• It is hard to turn a profit because the biggest expense is fuel and prices are tied to
fuel costs. Therefore no matter how high fuel is you rarely turn a profit.
 Flying freight
• Not all planes are the same and we need different planes for different purposes.
• We have large all cargo planes that are just used for freight.
• We have smaller, narrow body planes, and a lot of cargo actually gets moved on
commercial airlines as belly cargo.
• Airports work similarly to motor freight terminals. Goods come in, usually on truck
then get loaded onto the planes and fly out.
• When they arrive at their destination, they land at the airport, planes get unloaded,
you typically use drayage carriers which are small motor freight carriers for short
distances and then, they probably go on a truck, towards their final destination.
 Air Freight Service Characteristics
When importance of speed outweighs cost, then air is attractive for freight!
• Emergency shipments
• Typical commodities include mail, communications products, racehorses, etc.
Speed of service considerations
• Speed, travel time advantage can be off-set by flight frequency and timing
• Smaller communities have experienced reduced frequencies
• In-direct routing due to hub and spoke networks
 Cost Structure
• The industry operates at: high variable costs (70-90%), low fixed (10-30%)
• Government support of highway structure
• Terminals not too capital intensive

High variable costs (about 60% of total, but can be as high as 80%)
• About 30% attributable to flight operations
• About 12% for maintenance
• About 17% for aircraft and traffic servicing
How to deal with fuel costs:
• Increases have major impact on operating costs
• More fuel efficient aircraft and smaller planes on low-density routes
 Types of Equipment

We need different planes for different purposes.

All cargo
• Extra-large planes
• Wide body
• Narrow body
• Belly cargo

Existing airliners
• Smaller loads – maybe a few containers
 Air carriers

• In the complex network between shippers, airports, air carriers, and

customers, there are three basic types of operation.
• There are all-cargo carriers where you get the whole plane and it flies from
the origin to your destination.
• Then you can move cargo in the belly of commercial planes and use their
network, or you can move cargo through commercial parcel carriers, which
have their own planes and sometimes even their own airports.
 Air carriers- Weights in air transportation

• weight must also correspond to a certain density. So, for example, a 1 kilogram package must be
no larger than 6000 cubic centimeters.
• If it is heavier, you pay for the higher weight, but it's a smaller package.
• If it is bigger, you pay for the volume corresponding to a certain weight. So it's weight, but only
if that weight is also a certain volume.
• Air carriers compete amongst two major lines.
1. One is amongst fuel, which is their largest expense. And the better companies can use hedging
to protect themselves against future price increases, the higher of a profit they can turn.
2. The other one is delays added on by security. Delays, and the better companies can use
technology to streamline that process, the better they will compete.
 Containers on a train
• intermodal.
• There we combine train and truck to use both modes most efficiently. We gain an advantage by
using truck for pickup and delivery. And we get to use rail for the long haul, where it is much
cheaper because rail is very fuel efficient and cost effective.
• The speed advantage a truck has over short distances does not apply to long distances. Rail is not
that much slower but it is much cheaper.
• And we can then, at the destination, move onto another truck for final delivery. This form of
intermodal transportation maximizes the advantages of one mode, and minimizes the
disadvantages of the other mode.
• So, we use trucking where it is more efficient. We use rail, where it's more efficient. And, the
whole transportation overall becomes cheaper and just as convenient as before.
 Containers on a train
• As a basic rule, whenever we use containerized freight, we can actually
seamlessly transfer from one mode to another.
• Not only do you have railyards where we have trucks driving in. We take the
container, put them on the rail car directly, but we also have the trains
themselves.
• The other advantage that rail has is that we can use double-stack containers
to double the capacity of the train. So there's a lot of innovation even in rail
which is a very old form of transportation.
 What is intermodal?

• Most products have the ability to trade time versus cost. As a basic rule - if the
cargo comes in full containers then it is a good candidate for intermodal.
• The key to intermodal is the use of containers and its seamless transfer from one
mode to another.
• Think about it this way – if we can easily move freight from one truck to another
then we can simply substitute another mode of transportation that is more efficient
on that part of the lane - the cargo in the container stays untouched.
 Advantages

• On long distances rail transportation has a significant advantage over truck in

terms of fuel efficiency – which translates into a large cost advantage.
• On long distances (over 500 miles) rail is not much slower than truck
• Accessibility: by combining the advantages of rail and truck, the freight can
reach any spot a regular truck could reach
 Express delivery
• There are three global giants that dominate the global transportation landscape:
DHL, FedEx, and UPS
• The way they make it work is they have local networks of terminals spread
throughout the world
• What happens at those local terminals is goods come in from all over the world?
• They get consolidated and then sent to individual customers.
• They also receive items from local customers, sort them, and then ship them out all
over the world.
 Express delivery
• We use air most often in these cases because a lot of the goods they ship are time sensitive.
• They also use motor freight because it's a ubiquitous mode, and we use it all over the world.
• And finally, they started using intermodal rail because it is very cheap and not that much
slower.
• To connect a whole network, we need different pieces of equipment. We need our local
pickup and delivery vehicles, which most of you have seen on your streets.
• We need the local terminals. We need a global network of airplanes and airports that
connect the different local terminals. And we need the ability to use other transportation
provider when we do not have that capacity. And that is how these global giants make
logistics happen all over the world.
 Lecture Summary
Express delivery firms use several modes to the best of their advantage:
• Rail is the cheapest and reasonably fast over long distances
• Motor is fast for short distances and can pickup and deliver everywhere
• Air is fastest and cost is justified for certain items.
• The general purpose of these terminals is fourfold:

• To receive shipments from across their network

• To send individual packages to customer
• To collect individual packagers from shippers
• To route packages to their destinations
• Top 10: Shipping Companies
http://www.supplychaindigital.com/top-10/top-10-shipping-companies

• intermodal and how it compares to trucking

http://www.transportation.northwestern.edu/docs/2015/11.12Burns.FRArep
ort.pdf
 Speed

• Truck: approximately 50 miles (or 80 kilometers) per hour over the highway for up
to 500 miles (800 kilometers)

• Train: approximately 30 miles (or 50 kilometers) per hour over almost any distance.

• Air: upwards of 200 miles (or 320 kilometers) per hour for distances of more than
500 miles (800 kilometers), including ground operations.
 Distance

• Truck: up to 500 miles (800 kilometers) is the ideal distance, but there are still
advantages over the other modes up to 750 miles (1200 kilometers).

• Train: for distances of more than 750 miles intermodal has some speed advantages,
but the average distance for intermodal is somewhere around 1,700 miles.

• Air: at least 500 miles (800 kilometers) but typically more than 2000 miles.
 Cost

• Truck: current rates are highly variable, but $1.50 per mile is a reasonable starting
value for a TL shipment

• Rail: intermodal freight shipments are typically much cheaper than TL and a
common rule of thumb is about 60-80% of the price of a TL shipment.

• Air: typically we consider air freight to be about 6 to 8 times more expensive than
truck.
 Reference
• Rutgers the State University of New Jersey