Part I Introduction
2.1 The Transportation System
Transportation accounts for between one-third and two-thirds of total logistics costs;
for most firms, it is the most important single element of logistics costs [5]. Firms and their products’ markets are often separated geographically. Transportation increases the time and place utility of products by delivering them at the right time and to the right place where they are needed. By doing so, the customers’ level of satisfaction increases, which is a key factor for successful marketing.
A comprehensive discussion of transportation is beyond the scope of this text, so we focus here on essential issues of transportation systems, which are more related to the physical flows of materials.
2.1.1 Transport Modes and Their Characteristics
Various options for moving products from one place to another are calledtranspor- tation modes. Road, rail, air, water, and pipelines are considered the five basic modes of transportation by most sources (see, e.g., [2,48]). In addition, digital or electronic transport is referred to as the sixth mode of transportation in some texts (see, e.g., [9]). Any one or more of these six distinct modes could be selected to deliver products to customers (Figure 2.2). However, all transport modes may not be applicable or feasible options for all markets and products.
Road
Road transport—also known as highway, truck, and motor carriage—steadily increased its share of transportation. Throughout the 1960s, road transport became the dominant form of freight transport in the United States, replacing rail carriage [10], and it now accounts for 39.8% of total cargo ton-miles, which is more than 68% of actual tonnage [11].
The key advantages of road transport over other transportation modes are itsflexi- bility and versatility. Trucks are flexible because they offer door-to-door services without any loading or unloading between origin and destination. Trucks’ versatility
Road Rail Air Water
Transportation modes
Pipeline Digital
Figure 2.2 Basic modes of transportation.
is made possible by having the widest range of vehicle types, enabling them to trans- port products of almost any size and weight over any distance [10].
Road transport also offers reliable andfast service to the customers. The loss and damage ratios for road transport are slightly higher than for the air shipment, but are too far lower than for the rail carriage. Road transport generally offers fas- ter service than railroads, especially for small shipments (less than truckload, or LTL).2 For large shipments (truckload, or TL), they compete directly with each other on journeys longer than 500 miles. However, for shipments larger than 100,000 pounds, rail is the dominant mode. Also, as motor carriers are more effi- cient in terminal, pickup, and delivery operations, they compete with air carriers, for both TL and LTL shipments that are transported 500 miles or less [7].
In regard to economic aspects, road transport has relatively small fixed cost, because it operates on publicly maintained networks of high-speed and often toll- free roads. However, the variable cost per kilometer is high because of fuel, tires, maintenance, and, especially, labor costs (a separate driver and cleaner are required for each vehicle) [4]. Road transport is best suited for small shipments and high- value products, moving short distances. Legislative control and driver fatigue are some problems of motor carriers’ long journeys [6].
Rail
Rail carriage accounts for 37.1% of total freight ton-miles (more than 14% of actual tonnage) in the United States [11], which places railroads after motor car- riers as the second dominant mode of transportation. However, in some countries such as the People’s Republic of China, the countries of the former Yugoslavia, and Austria, rail remains the dominant transportation mode [10].
Although rail service is available in almost every major city around the world, the railroad network is not as extensive as the road networks in most countries.
Thus, rail system lacks the flexibility and versatility of the road transport. Indeed, rail carriers offer terminal-to-terminal service rather than the door-to-door service provided by motor carriers. Therefore, railroads, like water, pipelines, and air trans- port, need to be integrated with trucks to provide door-to-door services. Also, rail- roads offer less-frequent services compared to motor carriers.
Rail transportation is relatively slow and quite unreliable, as the loss and damage ratios of rail transport for many shipments are higher than other modes. As a result, the railroad is a slow mover of both raw materials (e.g., coal, lumber, and chemicals) and low-value finished goods (e.g., tinned food, paper, and wood products) [8].
Railroads have high fixed costs and relatively low variable costs. Expensive equipment, multishipment trains, multiproduct switching yards and terminals, and right-of-way maintenance result in high fixed costs [4,5]. However, the variable costs are low, especially for long hauls, so rail carriage generally costs less than motor and air transport on a weight basis. It would be explained later in this chapter,
2Less than truckload: Any quantity of freight weighing less than the amount required for the application of a truckload rate.
that is how we might combine the economy of rail or water movement with truck flexibility, thus using trailer-on-flatcar (TOFC) or container-on-flatcar (COFC) ser- vices (see Section 2.1.2).
Air
Air carriers transport only around 0.1% of ton-mile traffic in the United States [11]. Although airfreight offers the shortest time in transit (especially over long dis- tances) of any transport mode, most shippers consider air transport as a premium emergency service because of its higher costs. However, the high cost of air trans- port may be traded off with inventory and warehousing reductions or justified in some situations: (1) for high-value products, (2) for perishables, (3) in limited mar- keting periods, and (4) in an emergency [4].
The portion of total product costs dedicated to transportation is an important issue for most shippers. The high price of airfright consumes a greater portion of low-valued products’ total costs, so it is not economically justifiable for these items. This could be why air carriers usually handle high-value items.
Total transit time (from pickup at the vendor to delivery to the customer) is important to shippers and the customers. From this point of view, well-managed surface carriers can compete favorably with air carriers, especially on short and medium hauls. Even though air carriers provide rapid time in transit from terminal to terminal, they may spend too much time on the ground (e.g., for pickup, deliv- ery, delays and congestions, and waiting for scheduled aircraft departures) [10].
Loss and damage ratios resulting from transportation by air are considered lower than the other modes. The classic study by Lewis et al. [12] shows that the ratio of claim costs to freight revenue was only about 60% of those for road and rail.
Airline companies generally own neither airways nor airports. Air spaces and air terminals are usually developed and maintained with public funds, so fixed air- freight costs (including aircraft purchases, specialized handling systems, and cargo containers) are lower than rail, water, and pipeline. Air-transport variable expenses are extremely high because of fuel, maintenance, and the labor intensity of both in- flight and ground crew [4]. Variable costs are reduced by the length of journey because takeoffs and landings are the most inefficient phases of aircraft operation.
Moreover, increasing shipment sizes reduces the variable operating cost per ton- mile. Hence, variable costs are influenced by both distance and shipment size [5].
Water
Water carriage—as the oldest mode of transportation—accounts for 5% of total freight ton-miles (around 3.3% of actual tonnage) in the United States [11].
Sampson et al. [13] describe the nature and characteristics of water carriage as follows:
Water carriage by nature is particularly suited for movements of heavy, bulky, low-value-per-unit commodities that can be loaded and unloaded efficiently by mechanical means in situations where speed is not of primary importance, where
the commodities shipped are not particularly susceptible to shipping damage or theft, and where accompanying land movements are unnecessary.
As already mentioned, the majority of commodities transported by water are semiprocessed and raw materials; thus, water transportation competes primarily with rail and pipeline. Water carriage can be broken into the following distinct cat- egories [10]:
1. Inland waterways (such as rivers and canals) 2. Lakes
3. Coastal and intercoastal oceans 4. International deep sea
Water transportation service is limited in scope, mainly for two reasons: its lim- ited range of operation and speed. Water service is confined to waterway systems;
thus, unless the origin and the destination of movement are located on waterways, it needs to be supplemented by another transportation mode (rail or motor carrier).
In addition, the average speed of water carriage is less than rail transport, and the availability and dependability of its service are greatly influenced by weather [4,5].
Containers3are used for many domestic and most international water shipments.
Moving freight in containers on containerized ships affects the intermodal transfer by reducing handling time and shortening total transit time. It also reduces staffing needs and allows shippers to take advantage of volume shipping rates. Finally, con- tainers reduce loss and damage [5,7]. For all these reasons, high-value commodities (especially those in foreign shipments) are shipped in containers and containerized ships.
Loss and damage costs for water carriage are lower in comparison with other transportation modes because damage is not much of a concern with low-valued bulk commodities. Also, because large inventories are often maintained by buyers, losses from delays are not serious. For high-valued products, claims are much higher: approximately 4% of ocean-ship revenues. Most damages are caused by rough handling during loading and unloading operations, so substantial packaging is needed to protect goods [5].
Regardless of the limitations inherent in water transportation, water is the least expensive mode for transporting high-bulk, low-value freights. The fixed cost of water carriage is mainly found in terminal facilities and transport equipment. Although water carriers have to develop and operate their own terminals, rights-of-way and harbors are developed and maintained publicly. This moderates water-transport fixed costs, putting the mode between rail and motor carriages. Water-transport variable costs, including waterway charges and transport equipment operation costs, are very low. Because of the high fixed cost and low line-haul costs of water carriage, its
3Containers are standardized boxes that are typically 8 feet high, 8 feet wide, and of various lengths (usually 10, 20, and 40 feet). The freight is handled as a unit in containers, which are easily transferred as units to other transportation modes [5].
costs per ton-mile decrease significantly as the distance and shipment size increase [4,5].
Pipeline
Pipeline systems were mainly developed for transporting large volumes of pro- ducts, often over long distances. Pipelines tend to be product specific, which means they are used for only one particular type of product throughout their design life [6]. A limited number of products can be transported by pipelines, including natural gas, crude oil, refined petroleum products, chemicals, water, and slurry products.4
Although product movement through pipelines is very slow (only 3 to 4 miles per hour), their effective speed is much greater than the other modes because they operate 24 hours a day, 7 days a week. For transit time, pipeline service is the most dependable of all modes because of the following factors: [10]
G Pumping equipment is highly reliable, so losses and damage because of pipeline leaks or breaks are extremely rare.
G Climatic conditions have minimal effects on products moving in pipelines, so weather is not a significant factor.
G Pipelines are not labor intensive, so strikes or employee absences have little effect on their operations.
G Computers are used to monitor and control the flows of products within the pipelines.
Losses and damage costs from transporting by pipeline systems are low because (1) liquid and gases are not subject to damage to the same degree as manufactured products, and (2) there are fewer types of danger throughout a pipeline operation [5].
Pipelines have the highest fixed cost and the lowest variable cost among trans- portation modes. High fixed costs result from right-of-way, construction, and requirements for control station and pumping capacity. To spread these high capital costs, and to be competitive with other modes, pipelines must operate at high volumes. The variable costs are extremely low and mainly include the power for moving products, because, as noted, pipelines are not labor intensive [4].
Digital
Digital or electronic transport is the fastest mode of transportation. Besides its high speed, digital transport is cost efficient and benefits from its high accessibility and flexibility. However, only a limited range of products can be shipped by this mode, including electric energy, data, and products such as texts, pictures, music, movies, and software, all of which are composed of data [9].
Most logistics references do not cite digital transport as a transportation mode because of its limited product options. However, someday, technology may allow
4 “Slurry systems involve grinding the solid material to certain particle size, mixing it with water to form a fluid, muddy substance, pumping that substance trough a pipeline, and then decanting the water and removing it, leaving the solid material.” [2]
us to convert matter to energy, transport it to desired destination, and convert it back to matter again.
Any one or more of the six above-mentioned transportation modes can be a viable option for a company or individual who wants to move products from one point to another. Shippers take several factors into account in selecting the proper transporta- tion modes. The company and its customers’ needs, the characteristics of the transpor- tation modes, and the nature of traffic are the main factors that should be considered in the modal choice. Table 2.1 summarizes the general and service characteristics of the six transportation modes, based on references [7,14].
In addition to the six basic modes of transportation, several intermodal combina- tions are available to shippers. Such combinations can lead to transportation services with cost and service characteristics that rank between those of the single modes. In fact, intermodalism combines the cost and service advantages of two or more trans- portation modes. Deveci et al. [15] quoted the definition of intermodal transport from reference [16] as follows: “The movement of goods in one and the same load- ing unit or vehicle that uses successively several modes of transport without han- dling of the goods themselves in changing modes.”
If we exclude digital or electronic transport, which has a very low intermodal capability, we have 10 possible intermodal service combinations: (1) railroad, (2) railwater, (3) railair, (4) railpipeline, (5) roadair, (6) roadwater, (7) roadpipeline, (8) waterair, (9) waterpipeline, and (10) airpipeline. These are combinations in theory, but in practice only a few of them turn out to be conve- nient. The most frequent combined intermodal services are railroad (“piggy- back”), roadwater (“fishyback”), and roadair (“birdyback”). Roadwater combinations are gradually gaining acceptance, especially for international ship- ments of high-valued products. However, only railroad combinations have seen widespread use throughout the world [5,8]. The more popular combinations that we have explored in this section are:
1. Trailer on flatcar (TOFC) 2. Container on flatcar (COFC) 3. Roadrailers
Piggyback (TOFC/COFC)
Transporting a motor carrier trailer on a rail flatcar is referred to as TOFC service.
It is also possible to transport only the container on a flatcar to omit the deadweight of understructures and wheels. Such combination is referred to as COFC service.
Although these two services are technically different, they are both referred to as piggyback service by most logistics executives [10]. In piggyback service, first terminal-to-terminal transportation is achieved by placing truck trailers or contain- ers on railroad flatcars and transporting them over longer distances than trucks nor- mally haul. Temporary axles can be employed under the containers so they can be distributed via trucks or tractors. Finally, to achieve point-to-point distribution, the pickup and delivery functions are performed by motor carriers at the terminal facilities.
Road Rail Air Water Pipeline Digital
General characteristics
Product options Very broad Broad Narrow Broad Very narrow Very narrow
Predominant traffic
All types Low-moderate value, moderate-high density
High value, low- moderate density
Low value, high density
Low value, high density
All types of data
Market coverage Point to point Terminal to terminal Terminal to terminal
Terminal to terminal
Terminal to terminal
Point to point (computer to computer) Average length of
haul
Short to long Medium to long Medium to long Medium to long
Medium to long Short to long
Capacity Low Moderate Low Very high Very high Moderate
Service characteristics
Cost Moderate Low High Low Low Very low
Speed (time in transit)
Moderate Slow Fast Very slow Very slow Very fast
Availability High Moderate Moderate Low Low Very high
Delivery time consistency
High Moderate High Low-
moderate
High High
Loss and damage Low Moderate-high Low Low-
moderate
Low Very low
Flexibility High Moderate Low-moderate Low Low High
Intermodal capability
Very high Very high Moderate Very high Very low Very low
19Flows
Piggyback service combines the convenience and flexibility of short-haul truck- ing and the long-haul economy of rail transportation. The cost of this combination is less than for trucking alone and has permitted truck movement to expand its eco- nomical range. Likewise, rail carriage has been allowed through this combination to share in some traffic that normally would move by truck alone. Moreover, this combination brings door-to-door service convenience to shippers over long dis- tances at reasonable rates. The above-mentioned features can interpret why piggy- back service is the most popular intermodal combination [5].
Stock and Lambert [7] mentioned the partnership between the Burlington Northern Santa Fe (BNSF) Railroad and J. B. Hunt Transportation Services as an interesting example of intermodalism. This partnership, which began in late 1989, combined a large railroad company with a national TL motor carrier. As a result, door-to-door intermodal services between California and the Midwest are now available to shippers.
Roadrailers
Roadrailer, also called trailertrain, is an innovative intermodal concept that was first introduced in the late 1970s. Although roadrailers appear similar to conven- tional truck trailers, they have both rubber truck tires and steel rail wheels, thus providing a combination of rail and motor transport in a single piece of equipment (Figure 2.3). The trailers are shipped in the normal way via tractor over highways.
By changing wheels for rail movement, the trailer rides directly on the railroad instead of being placed on a flatcar.
1. Trailer on flatcar (TOFC)
2. Trailer and tractor on flatcar
3. Container on flatcar (COFC)
4. Roadrailer
Figure 2.3 Selected forms of intermodal combination [10].
In comparison with piggyback service, the main advantage of roadrailers is that rail flatcars are not required. Moreover, the required time for switching between highway and rail wheels is less than loading or unloading the trailer from the flat- car. The major disadvantage of this intermodal form is the additional weight of rail wheels, which reduces fuel efficiency and leads to higher costs for the highway portion of the shipment. As a direct result of high operation and equipment costs, the use of roadrailers is limited [10].
2.1.2 Other Transport Options
In addition to the options previously explained, there exist other important entities in transportation systems. These entities, whether unimodal or multimodal in scope, include nonoperating third parties that provide various services to shippers. The major alternatives are:
1. Freight forwarders 2. Shippers’ associations
3. Intermodal marketing companies 4. Brokers
5. Small package carriers
6. Third-party logistics service providers
Freight Forwarders
Freight forwarders or forwarding agents are agencies that organize the freight shipments of other companies or individuals. They often do not own transport equipment except for pickup and delivery operations. Freight forwarders purchase long-distance transport services from truck, rail, air, and water carriers. Then they consolidate numerous small shipments of different shippers into large shipments.
After transporting the bulk load through one or more of the basic modes to a desti- nation, they split the load into the original smaller quantities. The transportation cost per pound of small shipments is higher than that of the large shipments. The difference between the large and small shipments’ rates offsets the operating costs of these companies. This is why forwarding agents offer lower rates to the shippers than they can obtain directly from the carriers. Moreover, these companies can also provide more complete and faster services to the shippers.
Freight forwarders can be classified as surface or air forwarders, based on the transportation modes they use. Also, a forwarding agent can be considered as an international forwarder if it is specialized in shipments to other countries or as a domestic forwarder if it specializes in shipments within the country [5,7].
Shippers’ Association or Cooperative
A shippers’ association is a nonprofit transportation membership cooperative that organizes the domestic or international shipments for member companies. These associations consolidate the small shipments of their members into vehicle-load