Topic 1.

Modes of Transportation
Introduction

Transportation is one of the main activities in logistics and is also one of the biggest
components of its total cost. The reason for its importance lies on the responsibility of physical
transportation of goods and services to comply with the objective of reaching the consumer.

Can you imagine how life would be if each person had to obtain everything they needed from
their point of origin? You are right, it would be like going back to the time when humans lived
in caves. Companies try to satisfy your needs at the most convenient place for you. They decide
to assume risks and costs to take products where they determine may be the optimal site for you
to access products or services, even to the comfort of your home. Of course, the costs incurred
by a company to mobilize this merchandise impact the purchase price. This is the cost assumed
by consumers for obtaining the product in a convenient place near them, and for time saving.

Explanation

1.1 Modes of transportation: characteristics, advantages, and disadvantages

There are different modes of transportation depending on the specific needs of each company
or situation. The basic available modes are:
a. Land transportation

Land transportation in logistics refers to

the cargo truck, comprising movement of merchandise using the existing highway
and road infrastructure. This mode of transportation offers great advantages to
organizations, although their cost is not the lowest among different modes of
transportation, it provides the opportunity of door-to-door delivery in a relatively fast
time compared with other means such as rail or ship transportation.

Also, the land mode of transportation does not require specific infrastructure nor
loading facilities which require a significant investment. It is flexible par excellence,
as it may adapt to the lead times required by the client, cover short- or middle-range
distances, transport almost any kind of product, all of this keeping a high level of
security for merchandise.

A possible disadvantage is that there are uncertainty factors in transit, such as road
accidents, merchandise theft in highways, or delays due to weather conditions. There
are also size and weight restrictions to circulate in highways, which may limit their
use.

Coyle, Langley, Novack and Gibson (2018) mention that, generally, there are three
types of land transportation:

 Truckload (TL) shipping manages individual shipments using the total

capacity of the truck, or exceeding 15 thousand lb. They also provide a direct
service, pick up the load in the point of origin, and deliver directly to their
destination.
 Less than a Truckload (LTL) shipping manages shipments ranging from 150
lb. to 15 thousand lb. in each truck, using a central network and local and
regional terminal facilities to organize and consolidate shipments moving into
a particular area of the market.
 Parcel shipping: manage shipments of up to 150 lb. and handles multiple
shipments in a single van or truck using networks similar to LTL carriers to
move cargo efficiently throughout the country.

The document covering the cargo in the land transportation by highway is known
as bill of lading.
b. Rail transportation

The use of vehicles on guideways for

moving goods is known as rail transportation. This mode of transportation is
convenient to move voluminous and heavy goods, at a relatively low cost. Their main
characteristic is that a single engine can pull a considerable number of containers,
moving volumes of goods that would require up to 300 trucks, using less energy:
thus, being one of the most economic means of transportation.

One disadvantage is the lack of flexibility regarding lead times, schedules, routes,
and facilities. There is also a high rate of merchandise theft, and it is not feasible to
transport perishable products, as transit times are considerably longer than trucks, for
instance.

As reported by Coyle et al. (2018), the rail industry comprises the following types of
carriers:

 Long-haul cargo carriers: provide services between different markets and

customers within the same region. This group includes the seven Class I
railroads providing a full range of inter-regional or regional services.
 Short-haul carriers: offer local connections between individual clients and the
national railway network of Class I railroads. They provide service to smaller
markets, manage local delivery service, and facilitate interline process.

The document covering the cargo in the land transportation by rail is known as rail
bill of lading.

c. Air transportation
 It is the most efficient mode of
transportation regarding lead times, reducing transit of goods to only a couple of
days, with the possibility of connecting with almost any region and country in the
world.

Its main disadvantage lies on the cost of ships, fuel, maintenance, rental of airport
facilities and landing fees, making it the most expensive service. That is the reason
this mode is mostly used in emergencies, when the value of the freight warrants it,
for security reasons, or because time is of the essence.

Coyle et al. (2018), mention two types of air transport carriers:

 Combined cargo: they transport goods and passengers, with the cargo in the
aircraft’s belly. As demand has increased, some of the biggest international
carriers (United, Delta, and American) have aircraft dedicated specifically to
scheduled freight service to meet the demands of global trade.
 Cargo only: they move goods, parcels, letters, and envelopes. Some carriers
offer daily scheduled service through highly coordinated networks, while
others provide low demand service for customers who require immediate or
direct transportation, or full aircraft capacity. Depending on the capacity of
their service, they are classified in:
 Integrated: provide a door-to-door service, collection desks and
scheduled deliveries, and express service through their central
networks and connections. Among the main providers of this service
are FedEx and UPS, with capacity for next day delivery.
 Non-integrated: provide on demand service, only air delivery from one
airport to another. Circulation towards and from the airport is
managed by other land carrier services contracted by the client or
service provider using an intermodal service.

The document covering the cargo in air transportation is known as air waybill

(AWB).

d. Maritime transportation
 Maritime transportation is currently the most
extensively used mode of transportation in international trade, as the cost per shipped
ton is the lowest relative to the travelled distance. That is to say, through maritime
transportation it is possible to ship big volumes of goods through long distances, at a
significantly lower cost than any of the other modes of transportation.

The main disadvantage of this mode of transportation is the lead time, as it is one of
the slowest, and also the service must be contracted with lot of anticipation, which
makes it an unfeasible option in emergencies. Due to the long lead times, it is not
optimal for perishable goods, and the cost of inventory in transit is high. It is also
required to make special packaging for humid conditions, and there is a risk of
merchandise theft.

Coyle et al. (2018) discuss two main types of service for maritime mode:

 Transatlantic services: employing a wide variety of vessels in their fixed route

service and published schedule, transporting individual shipments for their
clients, including containers, pallets, and other cargo units.
 Freight services: trip- or time-based rental for clients following the routes
selected by them. Normally the freight client uses the full capacity of the
vessel for transportation of big volumes of goods.

Like the highway transportation, maritime transportation can be classified depending

on the capacity of the container to be used:

 Full Container Load (FCL): focused on single-client shipments using the

totality of the space in the contracted container.
 Less than a Container Load (LCL): also known as consolidated cargo, as
only a space is reserved in the container, depending on the weight and
volume of goods. The forwarder will consolidate merchandise of different
clients to optimize and make the best use of the space in the container.

The document covering cargo in the maritime means of transportation is known

as Bill of Lading (BL).
e. Pipeline transportation

Pipeline transportation is extensively used,

but often it is not given the importance it deserves. It is used in transportation of
liquids, gases, and suspended solids, and it is one of the cheapest modes available,
mainly because of pressure; fluid physics, gas dynamics and/or conductivity.
Pipelines used range from 3 to 48 inches.

In daily life this mode of transportation is used to supply homes with gas and water
through underground pipelines. In addition to this, it may be used for international
trade purposes, for instance in the shipping of crude oil from one country to another
for processing and refining.

Its disadvantage lies in the initial investment that must be made on pipeline
installation, which is recovered during its lifespan, and charged proportionally in the
service.

The use of each mode of transportation varies depending on the type of product, type
of client, level of emergency, volume of goods, distance to be travelled, cost
structure, transportation service availability, and any other factors deemed relevant in
selecting the means of transportation.

f.Intermodal transportation

Coyle et al. (2018) defines this type of transportation as the service using two or
more vehicles of different modes in the shipping the cargo from the point of origin to
its final destination. Among the main benefits are the following:

 Greater accessibility: Road infrastructure allows trucks to reach sites that are

inaccessible by other modes, mainly air, maritime, and pipeline
transportation.
  Global cost efficiency allows supply chains to use the inherent capacities of
multiple modes to control costs and comply with client requirements without
sacrificing service or accessibility.
 Facilitates global trade: one example is the capacity and efficiency of
maritime transportation, which allows the movement of containers between
continents at relatively low costs per unit; and the speed of air transportation
which allows perishable goods to flow rapidly between countries.

1.2 Transportation planning and strategy

The selection of the mode of transportation must be

based on a comprehensive planning and strategy process involving multiple variables to be
considered. It is important to have all information possible to select the most convenient mode
for the company based on the current necessary conditions for that specific shipment,
considering accessibility, lead time, risk for goods, reliability, security, and costs, among other
specific quantitative and qualitative factors of each industry and company.

Companies perform their transportation strategies according to their specific objectives.

Companies in a same industry do not necessarily have the same approach regarding
transportation of their goods. For instance, the Dell computer company decided to take a
different approach than its competitors, who have a traditional distribution where they set forth
a level of demand, produce the volume required to satisfy the market, and ship their product to
their distribution centers strategically located to reach their consumers, and they restock by land
transportation. Dell, on the other hand, decided to eliminate their inventories and the costs of
maintaining distribution centers to reach their clients, and created a model based on satisfying
the precise requirements of the market in real time, that is, when a client places an order for
computer equipment in the company's webpage, this requirement is sent both to the Dell
assembly company and its suppliers, who send Dell the components via express parcel delivery
to assemble the custom product ordered by the client, to be later sent to the user via the same
way. The transportation expenses are higher for Dell than for its competitors, however, they are
offset by the elimination of inventory and distribution center costs, and a more efficient lead
time. This example is one of the cases in which a company decides to take a different path to
reach the same destination, using different transportation strategies.

It is very common for companies to have different strategies as specific means of contingency,
that is, if by policy a company ships its product by rail due to the high costs of using a different
mode of transportation, it would not be able to compete with the same price than its competitors
in the market, it is possible that in an emergency they find themselves in need of using truck
shipment, even if their contribution margin is significantly reduced, just to comply with a
specific requirement.

There are cases in which, because of the type of product, companies must adapt their logistics
process to another mode of transportation or get additional characteristics. Such is the case of
perishable products, which must use a special type of refrigerated container, or for example,
companies exporting expensive items such as diamonds, they are commonly shipped by air
transportation with special security, considering that their high market value may absorb this
kind of additional costs.

Companies must consider the decision to have its own transportation fleet against outsourcing
services, analyzing benefits and disadvantages this may bring in the short, middle, and long
term, based on their situation in the industry.

1.3 Transportation performance and control

Transportation performance is based on the efforts of the company for the movement of goods.
This includes the preparation of the shipment and selection of the ideal container, in addition to
the creation of all the necessary documents for the transportation.

The preparation of the shipment is one of the principal points for transportation performance, as
whether the goods arrive to their destination in good condition depends on it to a considerable
extent. Also, the selection of the types of containers is one of the key points to maximize a
company’s shipping efficiency.

Regarding follow up and control, today there are many tools allowing users of these services to
track the merchandise during all transportation stages. For instance, virtually all transportation
units have GPS monitoring systems, thus it is possible to know shipment location.

Conclusion

Transportation is essential in the chain of logistics activities, with great repercussion in their
cost. This activity comprises an extraordinarily complex process in which third parties
intervene, thus there is great care in its comprising elements, such as packing and packaging,
selection of intermediaries, route designation, cost control, shipping planning, among others.

Thus, transportation is an activity offering many opportunities for companies to position

themselves in the market if it is managed efficiently during its planning and execution, as it
may be what differentiates the company from the rest of the industry.