The Effects of Terminal Costs on Supply Chains with LTL Shipping

1. The Effects of Terminal Costs on Supply Chains with LTL Shipping By Ryan Conrad Observed causes and effects

2. Presentation Outline • Introduction • Summary of Research • Defining Terminal Costs • Causes of Increased Terminal Costs • Remedial measures and solutions • Conclusions/Future Research

3. Introduction How the freight industry values time • Delays • Consistent travel times and schedules are of prime importance • Low overall travel time is next most important(2) • Sources of delays • In transit (congestion) • Terminal delays

4. Summary of Research • Developing research into congestion effects on LTL costs • Figliozzi (2006, 2007) • Golob, et al (2001, 2004) • Research into impacts of congestion on supply chain costs • Hensher & Puckett (2004) • Various research into terminal efficiencies and scheduling problems. • Ballis (2004) • Morris & Kornhauser • So far complete picture of terminal costs and effects on supply chains not conceptualized

5. Exogenous TCs Relative influence of Externalized Endogenous TCs Boundary of effective external influence from supply chain. Relative influence of Internalized Endogenous TCs Defining Terminal Costs • Depend on supply chain/market structure • Three categories of TC influences and how they affect a supply chain: • Internalized Endogenous • Externalized Endogenous • Exogenous • TCs increase when • Delays increase • The value of time increases

6. Internalized Endogenous Distribution of Costs • Carrier is delayed at supplier freight terminal • Imparts delay cost • Carrier charges detention fee • Late carrier arrival at shipping customer • Imparts inventory cost (e.g. inventory buffers) • Customer charges late appt. fee Supplier Detention Fee Terminal Delay Delay cost Carrier Late Appt. Fee Late shipment Inv. cost Customer

7. Internalized Endogenous Supply Chain Properties • Late appt. and detention fees can be continually shifted through supply chain • Effect may mimic “bullwhip” effect that sometimes occurs in volatile markets • Near-perfect market structure (numerous substitutes): • internalizes TCs to companies with incompatible competitive strategies • In some supply chains may actually make TC exchanges (detention/late fees) insignificant, especially if order volatility is high

8. Internalized Endogenous Example: Galvak Corporation • Market/Company properties • Metal galvanizing plant • Competitive market • Developing foreign competition • Problems faced • Delayed truck traffic at receiving terminal • Costs incurred due to inefficient order processing/receiving

9. Internalized Endogenous Example: Galvak Corporation • Solutions • Shift in competitive strategy; efficient to responsive • Computerized inventory management • Receiving Terminal redesign (potential ITS applications) • Outcomes • Due to market structure, lack of change in competitive strategy would result in Galvak losing business • Terminal cost increases largely affect only Galvak Responsive Competitive Strategy Technological Solutions • Supplier • Carriers Incompatible/ infeasible competitive strategy with rest of SC Change in Competitive Strategy Supply Chain Organizational Solutions Efficient

10. Externalized Endogenous Distribution of Costs • Carrier delayed at port • Imparts delay cost • Carrier unable to levy detention fee (lack of market power) • Late carrier arrival at customer • Imparts inventory cost • Late appt. fee charged • Carrier unable to recoup costs • Governmental intervention • Requires port to pay detention fees to carriers • Can be controversial and source of conflict Large privately-operated port Governmentintervention Can be source of controversy Terminal Delay Mandatory fee paid Detention Fee Delay cost Carrier Late Appt. Fee Late shipment Inventory cost Customer

11. Externalized Endogenous Supply Chain Properties • Monopolistic market forces (ports) • Conflicting competitive strategies between carriers and port facilities • Not balanced or rectified by market • Induces incompatible interactions • Governmental intervention • Problematic: sometimes creates more problems than are solved • Disrupt free-market system • Can intensify carrier-port conflicts • Can impose additional costs on supply chain (bureaucratic, regulatory, private lobbying for favorable legislation) • Gov’t assistance necessary • Market-based solutions could successfully remedy problems and decrease rather than increase supply chain costs significantly

12. Externalized Endogenous Example: Southern California Ports • Market/Company Properties • Large, privately-owned port; competitive strategy -> efficient • Small private LTL carriers; competitive strategy -> responsive • Problems • Carriers delayed at ports with impunity • Carriers unable to levy detention fees • Regulations fair to both carriers and ports difficult to enact

13. Externalized Endogenous Example: Southern California Ports • Potential Solutions • Private intermodal freight logistics/management services (many ITS-related improvements) • Gov’t assistance (avoid intervention) • Private Logistic services provide “buffer” between companies with incompatible competitive strategies • Outcome • Problems continue to exist • Ports may resist changes if strategies are interventionist/overbearing • Solutions need to be highly-adaptive in some areas, consistent in others to work with carrier and port competitive strategies and business models LTL Carriers Responsive Competitive Strategy Technological Solutions Organizational Solutions Gov’t economic assistance Private Freight Logistics Services Incompatible competitive strategies not rectified by market forces Private Port/Terminal Facility Efficient

14. Exogenous Terminal Costs Distribution of Costs • Many independent sources of Exogenous TCs • Congestion delays • Parking problems in urban areas • Hours of Service changes • Cities that ban trucks from certain streets • Enter supply chain via existing service/detention/appt. fees • Costs exist outside direct influence of SC • Governmental/regulatory • Political Supplier Late Appt. Fee Detention fee Truck regulations (e.g. HOS) Carrier Traffic Congestion Late Appt. Fee Detention/ service fee Parking problems Street truck bans Customer

15. Exogenous Terminal Costs Supply Chain Properties • Mostly uninfluenced by Supply Chain • Instead influences SC (can cause shift in competitive strategies). • Can exacerbate costs of existing inefficiencies in SC • Increased costs to supply chain may also reduce market competitiveness by introducing barriers to entry for firms

16. Exogenous Terminal Costs “…several managers said their companies are among those that have already decided to increase charges for driver delays.” Examples • HOS changes • Shorter working hours (shorter routes, more trucks, etc.) • Carriers respond with higher detention/service fees; attempt to minimize stopped time • Impose high costs as companies must simultaneously raise existing driver wages while hiring new drivers (or reducing service) • Parking problems • In some areas (e.g. NYC) parking fines inevitable (drivers must often illegally double-park) • Increased service/detention fees levied to customers (many have special rate for NYC only due to horrendous parking problems!) “The recent hours-of-service rewrite, which now counts time waiting at shipper and consignees’ docks against the new 14-hour daily on-duty time limit, makes a driver’s day even more pressure-packed.”

17. Exogenous Terminal Costs Examples • Traffic Congestion • Persistent problem in many urban areas • Some companies outsource deliveries to congested areas due to high costs and delivery difficulties • Costs supply chains and industries billions of dollars a year • Truck bans • Often political decisions (e.g. safety, livability reasons) that do not consider freight impacts • Sometimes force circuitous detours to reach customers • Delay costs compounded when alternate routes congested

18. Exogenous Terminal Costs Potential Solutions • HOS Changes • Increase specialization of loading/unloading tasks (minimize driver tasks) • Improve terminal efficiencies wherever possible • Parking Problems • Consignee businesses sometimes add freight receiving docks • Some problems simply unavoidable • Traffic Congestion • Truck-only freeway lanes and corridors • Congestion tolls with favorable rates for freight companies • Political action allying freight companies with other organizations interested in mitigating congestion problems • Truck Bans • Largely political; more involvement of freight companies in decision processes likely most effective measure

19. Container management automation Conclusions and Recommendations • Supply Chains with Externalized Endogenous TCs most in need of ITS-based solutions • Multimodal freight connections a well-studied subject • Unify/generalize logistical theories with respect to TCs to streamline solution developing process • Economic impacts on supply chains of poor multimodal interactions needs more research (may be most influential factor on terminal costs)

20. Conclusions and Recommendations Improving existing practices • Facility Design • Improve compatibility with existing technology • Design to allow flexibility with shipping and receiving practices • Redesign practices affected by uncontrollable TC factors to be more adaptable • Example: Cross-docking (C-D) at distribution centers • Highly sensitive to synchronization of inbound and outbound shipments • Can be severely impaired by traffic congestion • Design dynamic processes to switch between C-D and put-away operations (may benefit substantially from improved predictive models of traffic congestion) Above: Facility planning simulation software allows the design of flexible terminal and distribution facilities Left: Cross docking at distribution centers reduce inventory costs but can be severely impaired by traffic congestion

21. Conclusions and Recommendations Simulations and Computer Modeling • Operations Management • Appears to be underutilized compared to other industries • Port terminal complexity often necessitates computer simulation(3) • Moderate initial capital cost that has high return on investment (estimated return of $10 for every $1 spent(1)) • Highest flexibility for responding to TC factors (e.g. differing competitive strategies, market conditions, etc.) • May best area for governmental economic stimulation and assistance • Facility Design • Improved ability to select appropriate facility design • Allows operational efficiency to be tested before beginning construction • May help improve compatibility between supply chain firms with differing competitive strategies Screen shots of various terminal simulation programs

22. Thank You

23. References • Lean and Mean Terminal Design Benefits from Advanced Modelling - Freight International. http://www.freight-int.com/categories/container-terminal-design/lean-and-mean-terminal-design-benefits-from-advanced-modelling.asp, Accessed 4/13/2009, 2009. • A. S. FOWKES,1 P. E. FIRMIN,1 G. TWEDDLE & A. E. WHITEING. How Highly does the Freight Transport Industry Value Journey Time Reliability—and for what Reasons? International Journal of Logistics: Research and Applications, Vol. 7, No. 1, March 2004. • Bruzzone, A. G., P. Giribone, and R. Revetria. Operative Requirements and Advances for the New Generation Simulators in Multimodal Container Terminals. Simulation Conference Proceedings, 1999 Winter, Vol. 2, 1999, pp. 1243-1252 vol.2. • Chopra, S., and P. Meindl. Supply Chain Management. Pearson Education, Inc., Upper Saddle River, New Jersey, 2007. • Figliozzi, M. A. Impacts of Congestion on Commercial Vehicle Tour Characteristics and Costs. In Transportation Research Board 87th Annual Meeting, pp. 28. • McKinnon, A. C. The Impact of Traffic Congestion on Logistical Efficiency. No. 2, Institute of Logistics, Edinburgh, Scotland, 1998.