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CHAPTER 8 Transportation

CHAPTER 8 Transportation. Factors Influencing Transportation Costs. Product-related factors density stowability ease or difficulty of handling liability. Market-related factors Degree of competition Location of markets Government regulation Balance or imbalance of freight traffic

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CHAPTER 8 Transportation

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  1. CHAPTER 8 Transportation

  2. Factors Influencing Transportation Costs Product-related factors density stowability ease or difficulty of handling liability Market-related factors Degree of competition Location of markets Government regulation Balance or imbalance of freight traffic Seasonality Domestic versus international movement

  3. Cost-Based vs. Value of Service Pricing • Cost allocation issues • Separable costs • Common costs • Value of service pricing • Allocating common costs on basis of price elasticity of demand • Carrier must have some market power to implement VOSP • Must be able to identify and “separate” markets that have different price elasticities

  4. Motor carriers (trucking firms) utilize more cost-based pricing • Truckload carriers charge per mile • Less-than-truckload (LTL) carriers charge per cwt • Railroads and airlines utilize more value of service pricing • Competition between modes with different cost structures created challenges for regulators

  5. Terms of Sale and Corresponding Buyer and Seller Responsibilities 2.Terms of Sale FOB Shipping Point, FREIGHT ALLOWED 1.Terms of Sale FOB Shipping Point, FREIGHT COLLECT Title passes to buyer Title passes to buyer • Seller pays freight charges. • Seller bears freight charges. • Buyer owns goods in transit. • Buyer files claims (if any). • Buyer pays freight charges. • Buyer bears freight charges. • Buyer owns goods in transit. • Buyer files claims (if any). 3.Terms of Sale FOB Shipping Point, FREIGHT PREPAID AND CHARGED BACK Freight charges paid by buyer Freight charges paid by seller Title passes to buyer • Seller pays freight charges. • Buyer bears freight charges. • Buyer owns goods in transit. • Buyer files claims (if any). Seller Seller Seller Buyer Buyer Buyer Freight charges paid by seller, then collected from buyer by adding amount to invoice. a Source: Harold Fearon, Donald Dobler, and Ken Killen, The Purchasing Handbook, National Association of Purchasing Management, 1993, McGraw-Hill.

  6. Terms of Sale and Corresponding Buyer and Seller Responsibilities (cont.) 4.Terms of Sale FOB Destination, FREIGHT COLLECT 6.Terms of Sale FOB Destination, FREIGHT COLLECT AND ALLOWED Title passes to buyer Title passes to buyer • Buyer pays freight charges. • Seller bears freight charges. • Seller owns goods in transit. • Seller files claims (if any). • Buyer pays freight charges. • Buyer bears freight charges. • Seller owns goods in transit. • Seller files claims (if any). Seller Seller Buyer Buyer Freight charges paid by buyer Freight charges paid by buyer, then charged to seller by deducting amount from invoice. 5.Terms of Sale FOB Destination, FREIGHT PREPAID Freight charges paid by seller • Seller pays freight charges. • Seller bears freight charges. • Seller owns goods in transit. • Seller files claims (if any). Title passes to buyer Seller Buyer 8-3 b Source: Harold Fearon, Donald Dobler, and Ken Killen, The Purchasing Handbook, National Association of Purchasing Management, 1993, McGraw-Hill.

  7. Five Basic Transportation Modes 8-4 • Motor: consists of multiple segments (e.g., TL, LTL, dry van, flatbed, refrigerated, HHG, tankers) with different cost levels and issues • Rail: one of few RR systems in the world that is not government-owned • Air: also not government-owned • Water: inland river and intracoastal • Pipeline: very specialized (gas and liquid)

  8. Comparison of US Domestic Transportation Modes Economic Characteristics 8-5 a

  9. Comparison of US Domestic Transportation Modes (cont.) Service Characteristics 8-5 b

  10. Nonoperating Third Parties 8-6 • Freight forwarders: for-hire consolidators for both trucking and air freight • Shippers’ associations or cooperatives: freight consolidation – members only • Transportation brokers – arrange transportation, matching carrier capacity with shipper demand • Intermodal Marketing Companies (IMC) or shippers’ agents: most rail-truck intermodal movements sold through IMCs • Third-party logistics service providers

  11. Intermodal Rail-Truck • One of fastest growing segments • About 25% of railroad industry’s revenue • TOFC and COFC • Roadrailer • Ownership fragmentation hinders service (e.g., drayage, IMCs, railroads) • Most innovations come from outside RR industry (e.g., double-stack container movements, trucking companies initiating partnerships)

  12. Major U.S. Agencies Regulating Transportation 8-7 • Surface Transportation Board: economic regulation (mostly railroad) • Department of Transportation: modal agencies regulate safety (Fed. Motor Carrier Safety Admin., Fed. Railroad Admin.) • Federal Maritime Commission (international ship lines) • Federal Energy Regulatory Commission (economic regulation of pipeline industry)

  13. Economic Regulation/Deregulation • Biggest public policy issue in U.S. for 100 years, until late 1970s • Deregulation occurred because: • Transportation costs were high • Transportation service was not as good as it could be • Railroad system was on verge of bankruptcy • Adequate level of competition had evolved – i.e., market should work • There were “losers” because regulation fostered “cross-subsidization”

  14. Legally Defined Forms of CarriageBased on Economic Regulation • Don’t worry about these, but need a little background • Common carriers • Contract carriers • Exempt carriers • Private carriers

  15. Some Transportation Issues • Industry consolidation in all modes • Fuel costs • Security • Passenger airline financial health • Providing value-added services (i.e., becoming a supply chain partner) • NAFTA • Safety (e.g., driver hours-of-service) • Capacity concerns • Workforce

  16. Global Aspects • Landbridge: foreign cargo crosses a country en route to anther country • Mini-landbridge: special case of landbridge where foreign cargo originates or terminates at a point within the U.S. (port-to-port) • Micro-bridge: door-to-door service; provides combined rate including rail and ocean transportation in single tariff that is lower than sum of separate rates

  17. International Distribution Shipping Options Landbridge Rail Landbridge Minilandbridge Microbridge Rail Truck/rail All-water All-water 8-8 Source: Adapted from David L. Anderson, “International Logistics Strategies for the Eighties,” Proceedings of the Twenty-Second Annual Conference of the National Council of Phyisical Distribution Management, 1984, p. 363. Used by permission of the Council of Logistics Management.

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