Flying Freight

Lecture Objectives:

1. What makes air freight attractive to shippers?

2. Cost structure is majority fuel and equipment

3. What kind of equipment is used?

Lecture Summary:

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

Lecture objectives:

1. Understand how air carriers operate

2. How air carriers compete

3. Look into the future of the industry

Lecture Summary

Operations

 All-cargo airlines are operating similar to TL - you rent the entire plane.

 Commercial airlines are able to carry smaller quantities as belly cargo - similar to LTL.

 Parcel carriers are also using planes for small shipments - but they are often very expensive.

Rates

The rates in air transportation are often a mystery to many. While the rate is quoted by weight, the
actual rate charged corresponds to that weight if the package has a certain density. This is also
known as the volumetric density.

So what happens when it is not the 'right' density?

 If it is less dense, then you get charged for the volume translated to the corresponding
weight

 If it is heavier then you pay for the actual weight

Competition

 Fuel costs: who can best manage the largest expense and hedge against future price
increases

 Who can manage the delays put on by security concerns. Technology is starting to help
alleviate these issues.
Containers on a Train

Lecture objectives

1. What is intermodal?

2. Why use different modes together?

3. What makes it work?

Lecture Summary

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

Comparison of different modes:

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.