Global Freight & Transportation Management Systems Objectives

1. Global Freight & TransportationManagement Systems

2. Objectives • Understand the role of transportation in international logistics • Differentiate between modes/operators • Understand the impact of government regulation on transportation policy and pricing • Explore key principles of transportation management from a carrier and shipper perspective

3. Questions To Consider: • What issues should a logistics manager consider in trying to select a mode of transportation (based on economic and service characteristics)? • The fastest growing “mode” is intermodal. Explain why. • Does privatization lead to competitiveness in transportation? Defend your answer? • What national goals might a government rely on their transportation system to meet?

4. Factors affecting International Transportation • Multiple: Legal Systems; Currencies; Languages; Economies; Cultures • Longer Distances • Intermodal Movements: Longer cycle time and higher cost • Additional (Extensive) Documentation • Political risks • Transportation a higher percentage of the value of goods • Cross-border differences (legal requirements/regulations) • Special insurance, packaging, packing and marking • Outsourcing: The use of specialized contractors/carriers • Customs duties

5. Insurance • Ocean carriers accept no liability for loss or damage of freight • Cargo insurance essential • Air carriers’ liability also sharply limited by international convention and air carrier tariffs

6. Packaging • Factors include transportation and handling, climate, pilferage, freight rates, customs duties, and customer’s requirements • Guidelines: • Know the merchandise • Analyze environment--pack for toughest leg • Know the supplier • Determine packaging requirements by country • Arrange for prompt pickup at point of entry

7. International Transport Deregulation & Privatization Deregulation • Government’s decision to relinquish control and allow free market forces to govern allocation of resources, replacing strict controls & public utility management • Common within economic alliances • Results in increased efficiency & integration Privatization • (Full/Part) Sale of government control to private sector • Transport sector open to market competition

8. Effects of Deregulation on International Maritime Transportation • Intermodal agreements • Easier rate agreement processes • Service contracts (time/volume agreements) • Independent action for particular movements • Shippers’ Associations

9. International Air Regulation • US policy has opened direct flights into many cities other than coastal gateways • Price reductions not yet realized • Foreign carriers may be reluctant -- requires opening of several European cities • IATA provides collective rate making for international carriers

10. Government’s Role in Transportation • Direct: Control & regulation through ownership, price fixing, etc. • Indirect: Regulation through laws, safety requirements, etc. • Provision of infrastructure and transport-related services: safety, cost issues • Law Enactment and Enforcement: Safety, environmental

11. Role of Transportation • Bridges the buyer-seller gap • Adds value (time and place)--allows specialization • Global impact • Important to our economy (6.26% of GNP) • Importance to company (10% of sales) • Cost-service trade-off

12. Role of Transportation in Logistics • Time and Place Utility: • Movement across space or distance. • Place utility - Where it is needed • Time utility - created or added by the warehousing & storage of product until it is needed. Also a factor in time utility; it determines how fast and how consistently a product move from one point to another.

13. Modal Selection & Carrier Management

14. Cargo Characteristics • Size: Dimensions & Volume • Weight: Absolute weight of cargo • Hazardous Cargo: Special handling and service requirements • Density: the weight-to-volume ratio • Stowability: degree to which a product can fill the available space in a transportation vehicle • Handling: ease or difficulty of handling the product • Liability: Likelihood (& cost) of threat of theft or pilferage

15. Landbridge Rail Micro-bridge Truck/rail Rail Mini-landbridge All-water All-water Distribution/Transportation Options

16. Land, Mini-, and Micro-bridges • Consists of containers traveling over a sea leg and a land leg • Reduces ship fuel and capital costs • Reduces transit time • Frees expensive ship for additional travel

17. Pipeline • Initially used to feed other modes (rail) • Common carrier • Move more than 20% of intercity freight • Growth peaked in 1988 • Primarily oil (60%) and natural gas • Efficient (specific commodities), • Low damage risk • Low cost • Limited geographic coverage, one-way Rail Air Truck Water Pipeline

18. Road • Most flexible and widely used • Considerable competition within the industry • Air and rail are chief competitors (particularly intermodal rail) • Suitable for higher value, lower volume products (than rail)

19. Rail • Cost-effective but influenced by government ownership and driving limits • Energy-efficient and competitive with road over 500 miles • Suitable for low value, high volume products

20. Water • Heavy, dense freight • Speed not an issue • Inexpensive and suitable for low value, high volume products • Domestic (inland) vs. ocean carriers

21. Types of Vessels • Breakbulk Freighters • Container Ships • RORO • Bulk Freighters • Tankers • Seagoing Barges

22. US Port Volumes

23. Port Authority • Government organization that owns, operates, or provides wharf, dock, and other terminal investments • Functions: • Rent waterside access • Develop waterways and pier terminals • Capital financing such as container-loading facilities • Promote overall trade (Portland and Seattle even have www sites advertising their capabilities)

24. Future Directions • Expansion due to growth in global trade • Many firms entering markets -- growing need for value-added services • Nationalism may constrain growth to protect domestic interests • International transportation is different and will increase size of transportation firms • FAST Ship technology FASTSHIPS, such as the one rendered above, may well ferry cargo between the U.S. and Europe soon. Thanks to an innovative hull design and high-powered propulsion system, FastShips can sail twice as fast as traditional freighters. As a result, valuable cargo should be able to cross the Atlantic Ocean in days rather than weeks.

25. Liner Rate Making • Costs fairly fixed in nature, low variable costs • Ships designed for a specific trade route • Price according to value of service to maximize profitability • Charges based on a “weight or measure” (W/M) basis • Different commodities would have different W/M charges

26. Conference Rate Making • Conferences represent several firms which have banded together for collective rate making -- a steamship conference • Composed only of member firms • Contract or discounted rates (10 - 15%) charged to shippers signing “exclusive patronage agreements”

27. Problems with Conference System • Oversupply of space has resulted in some liner firms withdrawing and offering lower rates • Price cutting by ships owned by the former Soviet Union (under variable costs) in order to obtain hard currency • Overall, they provide a somewhat stable rate structure which foster uniformity of rates and procedures

28. Air • Expensive • Fast • Move highly perishable, high value and low volume items • Mostly Intermodal

29. Rate Making: Air Cargo • Value of service or cost of service • Value of service applied to sensitive cargo and high demand routes • Cost of service used in pricing cargo • Utilization of space and product density drive • Use standard density of 10.4 lbs/cf

30. Rate Making: Air Cargo • Suppose a carrier charges $90 per cf • Product has weight of 480 lbs with dimensions of 6’x5’x3’ or 90 cubic feet. 480/90 = 5.33 lbs/cf • Carrier charges based on standard density since this is a low density item • 90cuft x 10.4 lbs = 936 lbs is basis for charge • Items with high density (> 10.4 lbs/cf) charged on actual weight

31. Other Air Cargo Rates • General Cargo: Available for many commodities • Class Rate: Used to attract freight and allow shippers to penetrate markets (generate demand) • Container Rates: Cost based, often discounted based on number of containers on a route

32. Other Rate Considerations • Time/volume Rates: Rate reduction for a guaranteed amount of tonnage or containers over a specific time period • Currency Adjustment: Covers currency fluctuations • Ports: Less competitive ports have had higher rail rates

33. Mode Characteristics

34. What is Intermodal Transportation? • The use of two or modes of transportation in moving a shipment from origin to destination • Mostly associated with “piggyback” or container shipments • Combines advantages (anddisadvantages) of each mode used • Reduces risk of theft and loss • Shortens customer order cycle timeand effectively reduces costs • Promotes “seamless” product movement: Eliminates unnecessary handling

35. Growth of Intermodal Transportation • Deregulation • Removed barriers to modes working together • Global business • Off-shore sourcing of goods • Changes in business environment • Higher operating costs • Driver shortages • Increased competitive pressures

36. Containerization • Significant growth during Vietnam War • Improves efficiency, protects materiel, reduces handling & pilferage • Sizes: 20 ft (TEU) or 40 ft (FEU) • Shorter to permit multiple units on railcars

37. Other Forms of Carriers

38. I. Third Party Providers • The offering of nearly any form of transportation to a shipper or receiver as part of a total package of logistics services • Shipper or user avoids capital outlays and investment • Focus on core competency--let experts do logistics

39. II. Freight Forwarders • Formerly common carriers • non-asset owning • Earn difference between what they charge (LTL, LCL) and what they pay (CL, TL) • Issue bill of lading

40. Forwarder Operations For-hire carrier Forwarder Terminal Forwarder Terminal LTL Shipper Consignees Breakbulk Linehaul Consolidation Pickup

41. III. Owner-Operator • Own or lease a truck and trailer and make services available to for-hire carriers • Contract out their services to non-union carriers • Provide overflow capacity and flexibility • Reduce financial risk to carriers

42. IV. Freight Brokers • Intermediaries who bring shippers and carriers together for a fee • Find customers for carriers or carriers for shippers • Reduce burden for carriers & shippers • Find best means/rate for shippers • Help maximize capacity for carrier • Information Systems expanding opportunities

43. V. Express & Courier • UPS, FEDEX, DHL • Fast, door-to-door service • Operate large network of terminals, pick up and delivery vehicles, and line haul • Typically under 200 lbs • Compete with Postal Service • Future good due to expansion and innovative practices

44. Key Principles of Transportation Management

45. I. Improving Efficiency • Rule of efficiency: Straight line, minimize stopping--avoid damage and cost (delay) • Minimize handling: Avoid “handshakes” and attempt to make process “seamless” • Full capacity: Reduce cost per unit • Break bulk & consolidation on long haul • Avoid empty backhauls • Effective Scheduling: “Optimize” labor and equipment (5%-10%) • Transportation rates are distance related, not distance proportional

46. II. Efficient Use of Technology & Equipment High • High utilization of expensive assets • Larger the vehicle, the lower the cost per unit • Speed does not equal economical operations • Minimize vehicle gross weight • Standardized vehicles and equipment • Balance specialization with adaptability • Examine trade-offs between IT and traditional logistics functions Fuel consumption High Speed

47. III. Coordinate Operations • Coordinate operations with requirements to ensure trade-offs and appropriate level of service • Cost accountability as part of performance measurement • Reliability is sometimes better than speed • Look for opportunities to innovate, but recognize proven principles

49. Costing & Pricing

50. Rate versus Price • Rate: • the amount that is lawfully charged and is based on cost plus market supply and demand • Price: • implies value based on prevailing market forces. Charged under deregulation--carriers much more concerned with price.