TRANSPORTATION MANAGEMENT

Introduction
Transportation plays a key role in economic success by allowing for the safe and efficient distribution of
goods and services throughout the supply chain.
Transportation links the various integrated logistics activities. Without transportation, the integrated
logistics system breaks down. Some view transportation as the glue that holds the entire system together.
Without the transportation link raw material cannot flow into the warehouses and plants, nor can be
finished product flow out of the plant to field warehouses and finally to the customer.
Transportation physically moves products from where they are produced to where they are needed. This
movement across space or distance adds value to products. This value added is often referred to as place
utility.
Time Utility is created by warehousing and storing products until they are needed. Transportation is also
a factor in time utility, it determines how fast and how consistently a product moves from one point to
another. This is known as time-in-transit and consistency of services respectively.
If a product is not available at the precise time it is needed, there may be epensive repercussions, such
as lost sales, customer dissatisfaction, and production downtime, when the product is being used in the
manufacturing process. Transportation !yder Integrated "ogistics and United #arcel Services $U#S% have
achieved successes because they are able to provide consistent time-in-transit and thus increase the time
and place utility of their customer products.
Transportation &unctionality
Transport functionality provides two ma'or functions. #roduct (ovement and #roduct Storage.
Product Movement
Where the product is in the form of materials, components, assemblies, work-in-progress or finished
goods, transportation is necessary to move it to the net stage of the manufacturing process or physically
closer to the ultimate customer. ) primary transportation function is product movement up and down, the
"ogistics (anagement TYBMS *
value chain since transportation utili+es Temporal $time%, financial and environmental resources, it is
important that items be moved only when it truly enhances product value.
The ma'or ob'ective of transportations to move product from an origin location to a prescribed destination
while minimi+ing temporal, financial and environmental resource costs, loss and damage epenses must
also be minimi+ed.
Product Storage
) less common function is Temporary Storage. ,ehicles make rather epensive storage facilities.
-owever, if the in-transit product re.uires storage but will be moved again shortly $say in few days%, the
cost of unloading and reloading the product in a warehouse may eceed the per day charge of storage in
the transportation vehicle. In circumstances where warehouse space is limited utili+ing transportation
vehicles may be a viable option.
*% /ne method may be involving loading product on the vehicle and then have it to take a circuitous
route or indirect route to its destination.
0% )nother method is by way of diversion. This occurs when an original
shipment destination is changed while the delivery is in transit.
#rinciples1
There are 0 fundamental principles guiding transportation management1
1) Economy of scale
2) Economy of distance
1) Economy of scale
This refers to the characteristics that transportation cost per unit of weight decreases when the si+e of
the shipment increases. It is also generally true that larger capacity transportation vehicles such as rail or
water are less epensive per unit of weight than smaller capacity vehicles like truck and tempo.
Transportation economies of scale eist because fied epenses associated with moving and loading can
be spread over the loads weight. The more the load, the lesser will be cost per unit weight. The fied
"ogistics (anagement TYBMS 0
epenses include administrative cost of taking the transportation order2 time to position the vehicle for
loading and unloading, invoicing and e.uipment cost.
2) Economy of distance
!efers to the characteristic that transportation cost per unit of distance decreases as distance increases.
These principles are important considerations when evaluating alternative transportation strategies or
operating practices. The ob'ective is to maimi+e the si+e of the load and the distance that it is shipped
while still meeting customer service epectations.
#articipants in transportation 3ecisions1
*% Shipper
0% 4arrier
5% 4onsignee
6% #ublic
7% 8overnment
(odes of transportation
There are five ma'or modes of freight transportation, airlines, motor carriers, pipelines, railroads and
water carriers. 9ach of these modes has distinct characteristics that give them advantage over the others.
Which mode is the best depends on the freight hauled cost, speed, reliability, capacity, length of haul and
fleibility.
Airlines
)irlines are the fastest terminal-to-terminal mode of transportation. That is the primary advantage. They
speciali+e in time sensitive movement of documents, perishable items, technical instruments, medical
supplies and high valued products. )lso air transportation has the highest percentage of revenues coming
from passenger travel. While airlines are important for some freight movement, their primary business has
traditionally been passenger travel. )irfreight services cost more than other modes, primarily due to their
speed. )ir carriers provide terminal-to-terminal service, meaning that direct delivery to a consumer:s door
is the rarest of eceptions. )irlines are reasonably reliable. While weather related flight delays might
disrupt service, the disrupted service is often still the fastest than the net fastest mode, the motor carrier.
The airlines, speed advantage is most apparent for hauls over 7;; miles. &or trips less than 7;; miles,
motor carriers can often outperform airlines door-to-door.
"ogistics (anagement TYBMS 5
)irlines transport small volume shipments rather than large volumes, and packaged products rather than
heavy bulk commodities. The physical configuration and cost of air service also limit the variety of
products shipped by air. (easured by weight airlines transport very little freight. The percentage of total
freight dollars shipped by air is relatively small although the revenue growth rate is promising. )s
customer service epectations increase, so does the demand for shorter transit times. )s a result, many
shippers have turned to air transportation
(ost airline costs change over a short period of time and depend on output making airlines
predominantly variable cost carriers. When the initial cost of the air fleet is significant these fied costs
are spread over the long useful life of the aircraft. Terminals represent a ma'or fied cost in other modes,
but airline terminals are publicly owned facilities for which the airlines pay user fees. The significant start-
up costs associated with an airline limit the number of competitors creating an oligopolistic market
structure, with only a few large carriers.
Motor carriers (oad)
(otor carriers are the most fleible mode of transportation. This means better direct access to motor
carriage for more shippers and final consumers. (otor carriers compete with airlines for higher valued
products as well as time-sensitive products $electronics perishable etc,% within a 7;; miles radius. (otor
carriage ranks as the second fastest mode of transportation, with the additional advantages of door-to-door
fleibility and broad geographic coverage. <ecause trailers vary in length, temperature control and form
motor carriers can carry a variety of products. In fact, they can carry almost anything. )s industry saying
:if it got there, a truck brought it: rings very nearly true. (otor carrier rates are high compared with all
other modes but air. They also face gross weight and length restrictions, as well as other legal limits.
(otor carriers are susceptible to delays because of bad weather or traffic congestion. )lmost, motor
carriers are not well suited to handle etremely heavy bulky products because the trailer is not properly
constructed to ship such significant weight efficiently even when permit allow the legal restriction to be
lifted.
Pipelines
#ipelines are uni.ue mode of transportation. They are fied in place, and the product moves through
them. This limits the type of products they can transport but within these limits they can move more tons
under a single shipment than any other mode of transportation $5;,;;; to 07,;;,;;; tons%. They can
transport product only in a li.uid or gaseous state. #etroleum is the number one product moved by
"ogistics (anagement TYBMS 6
pipelines. #ipelines are cost effective where large .uantities of li.uid products need to be transported.
#ipelines offer one advantage that none of the other modes can offer. ) pipeline is a continuous flow
mode. When the pipeline is full the product flows to the destination immediately and continues to do so
almost without fail. #ipelines are the most dependable mode of delivery unaffected by eternal factors like
weather. -owever, pipeline transportation is slow, rigid in terms of routes and product types and limited to
terminal-to-terminal service. ) pipeline:s average speed is usually between two and five miles per hour.
#ipelines can rarely deliver the product to the consumer:s door and the origin and destination of the mode
are fied-unless household water and gas lines are taken into account.
(any pipelines are built by private entities for private use. 3ifferent types of li.uid can be shipped
through a pipeline at the same time separated by a batching plug. ) batching plug is a mechanism
designed to allow for continuous flow through the pipeline while maintaining the integrity of each
individual product. #ipeline costs are predominantly fied. #ipelines must build their own right-of-way, an
etremely epensive undertaking. #ipelines most often move large .uantities of a li.uid product from a
fied origin to a fied destination. The construction of a pipeline becomes cost effective only when the
high initial fied cost can be spread over enough volume to keep the unit transportation cost competitive
with other modes.
ailroads
!ailroads transport a significant amount of domestic freight. !ailroads haul high-density low-valued
freight over long distances at rates lower than trucking and air, but higher than water and pipeline.
#roducts hauled include coal, stone, sand, metals, grain and automobiles. Their primary competitors
include domestic water carriers for large bulk products and motor products for higher valued goods.
!ailroads can handle a wide variety of goods but generally have not. They lack fleibility and high-speed
delivery in their standard operation. -istorically, railroads have been unreliable due to poor scheduling, a
substandard infrastructure and unreliable e.uipment. !ailroads argue that their assets are older because
they must commit considerable resources to build their own right of way. !ail companies have attempted
to improve their reputation for customer service by updating old e.uipment, installing current
technologies and implementing customer-oriented strategies.
"ike other modes, railroads are classified by annual sales figures. !ailroads operate in an oligopoly,
with a limited number of interdependent competitors. &ied costs are high compared with air, water and
"ogistics (anagement TYBMS 7
motor carriage. The higher percentage of fied costs stems from ownership and construction of the right-
of-way. !ail transportation has benefited from significant level of international inter modal freight, which
currently provides the industry with its highest growth and profits.
!ater "arriers
Water carriers dominate international transportation because of their cost structure and ability to
transport large volumes. Their significant modal market share is derived from these international
operations. )dvantage of water transport includes long haul capabilities-particularly for low-valued
products such as coal, stone, grain and ores-at low rates. They can and do haul a broad range of products
from ores and grains to 4hristmas toys.
Since water carriers haul a wide variety of commodities, they operate a variety of ships. Tankers primarily
carry li.uid products like petroleum and crude oil. (easuring over *.7;; feet long and 0;; feet wide,
these vessels are some of the largest on the ocean. <ulk carriers are constructed to haul commodities like
coal, iron ore, or agricultural products. &urthermore, significant growth in container ships shows the
impact containeri+ation has had on water carriage. Standardi+ed containers are loaded, placed on container
ships, and shipped across the ocean to their destination. ) standard container measures either =: by:= by 0;:
or =: by = by 6;:./ne twenty-foot container is referred to as one twenty-foot e.uivalent unit $T9U%. ) forty
foot container is two T9Us.
Water carriers compete heavily with railroads along certain routes and with pipelines for the movement
of some products, particularly petroleum. Water carriers cost structure and volume levels are such that
they can charge very low rates. Water carriers are relatively slow, unreliable and suffer from a high degree
of variability in delivery schedules. Two main types of for-hire carriers make up the deep-water industry.
"iners have fied sailing times and fied routes, while tramps sail when they reach capacity. Since liners
must sail at a specific time, they are not always filled to capacity. Tramps are usually the better choice
when service dates and times are not critical, and liners the better choice when these criteria are critical.
Water carriers operate in an oligopoly due to the large initial investment, which tends to limit the number
of carriers. -owever, over the life of the ship, variable cost dominates. The initial cost of the ship is
significant, but the volume transported over the useful life of the ship is so large that the cost per unit is
relatively low.
"ogistics (anagement TYBMS >
Mode Comparison- Dominant Traffic
M#$E % S&AE 'AT(E #) TA))*"
!ail 6;? )gricultural products, ores, coal, heavy machines, etc.
!oad@
-ighway
5;? (edium A "ight manufacturing distribution
Water *7 ? (ining, cement chemicals, agricultural products, heavy
machinery, etc.
#ipeline *;? #etroleum products, chemicals, gas
)ir 7? 9mergency re.uirements of any material, small lots
Cost Structure or Eac! Mode
M#$E )*+E$ "#STS ,A*A-.E "#STS
!ail -igh "ow
!oad "ow capital (edium- fuel, maintenance
Water -igh@ medium "ow
#ipeline -ighest "ow
)ir (edium -igh- fuel human operation
Re"ati#e operatin$ C!aracteristics
#P/
"&ATS
A*. #A$ !ATE P*PE.*'E A*
Speed 5 0 6 7 *
)vailability 0 * 6 7 5
3ependability 5 0 6 * 7
4apability 0 5 * 7 6
&re.uency 6 0 7 * 5
Total score *6 *; *= *B *>
SCALE: 1 TO 5; 1 IS BETTER
4lassification of carriers
"ommon carriers
The basic foundation of the public transport and system is the common carrier. They have the right to
transport any material within a specified +one. $Trucks and tempos%.
"ontract "arriers
4ontract carriers provide transport services for selected customers. The basis for contract is an
agreement between a carrier and a shipper for a specified transportation service at a previously agreed
cost.
"ogistics (anagement TYBMS B
Private "arriers
) private carrier consists of a firm providing its own transportation. They are :not for hire:.
Speciali0ed carriers
a% /il tankers
b% Trailers to carry container $= ft. high, 0; or 6; ft. length A = ft.wide% loads and special
products material.
c% Special closed trucks@tempos.
d% #arcel services-blue dart, &ed-e. 9tc.
,alue )dded Services
These are as follows1
a% 9lectronic tracking
b% )dvanced label imaging system $bar code%
c% 3elivery confirmation service
d% /n-call pick up service
e% #ackaging and forwarding, etc.
Transportation 3ocuments
a) -ill of lading
It is the basic document utili+ed in purchasing transport services. It serves as a receipt and documents
commodities and .uantities shipped for this reason accurate description and count are essential. In case of
loss damage or delay, the bill of lading is the basis for damage claims. The designated individual or buyer
on a bill of lading is the only bona-fide recipient of the goods, a carrier is responsible for proper delivery
according to instructions contained in the document in effect, and title is transferred with completion of
delivery.
The bill of lading specifies terms and conditions of carrier liability and documents responsibility for all
possible causes of loss. /r damage ecept those defined as acts of 8/3 $flood, earth.uake. etc.%
1) )reig2t 1ill
"ogistics (anagement TYBMS =
The freight bill represents a carrier:s method of charging for transportation services performed. It is
developed using information contained in the bill of lading. The freight bill may be either pre-paid or
collect.
c) S2ipping manifest
The shipping manifest lists individual stops or consignees when multiple shipments are placed. The
ob'ective of the manifest is to provide a single documentation that defines the content of the total load
without re.uiring the review of individual bill of lading.
Transportation "ost Structures
%&' i(ed Cost %)' *aria+"e Cost %,' -oint Cost %.' Common Cost
)i3ed "ost4 4ertain costs are constant regardless of the firm:s activity. 9ample of this would include the
capital invested in railroad, tracks, airplanes, or tractors.
) varia1le cost changes as output changes. If a tractor is driven more miles, certain costs increase
proportionately. &uel costs, wages, maintenance costs and tire replacement depend on output. )s miles
increases so do these costs. &uel usage for airlines varies with the number of flights as week as the
distance traveled. To determine if a cost is variable consider what happens if operations shut down. The
costs that disappear are variable and these that continue are fied.
)ll cost in the long run are variable. &or instance, a locomotive is eventually no longer useable and
must be replaced. &or the twenty-five year life of the locomotive the cost is fied. When a new locomotive
is purchased to replace it, the cost changes, it is no longer fied. -owever once the new engine is placed,
it too will have a useful life of many years. The cost again becomes fied. &or most decisions do not reach
beyond its useful life. The benefits of increased volume accrue more to high fied cost carriers than to
high variable costs carriers seek volume to spread the fied costs over more units greatly increasing
profits.
) 5oint cost occurs when the production of one product or service re.uires or offers the production of
another product or service. &or eample, a railroad moves goods from Cew Dork to "os )ngeles. It now
has engines available in "os )ngeles to provide back-haul service to Cew Dork or additional
transportation from "os )ngeles. The cost of placing the train in "os )ngeles is a 'oint cost with the Cew
"ogistics (anagement TYBMS E
Dork to ") run and whatever run follows it. &ied and variable costs can also be 'oint costs. )ll modes
incur 'oint costs to some etent.
"ommon cost cannot be directly associated with a product or activity. Since this creates confusion we
normally assign activities percentage of these common costs. &or instance a tractor traveling from 3allas
to 4hicago with three shipments breaks down and re.uires F7;;; in repairs. -ow much of this repair cost
should be allocated to the three different shipmentsG It is based on space used, weight or bothG ThatHs the
problem with common costs. In transportation common costs are significant and are found in all modes.
Airlines4 )re variable cost mode because they do not own the right of way. 8overnmental entities own the
large airports the federal government operates the airways and airlines pay fees for the privilege of using
them. In keeping with the definition of variable costs airlines pay take off and landing fees only when they
take off and land. /ther large variable costs include fuel, wages and maintenance. (a'or fied costs are
the airplanes and salaries. 3ue to their type of operations airlines have many common costs since they
normally move freight in a single airplane for multiple customers.
Motor carriers1 like airlines2 do not own the way or path of travel. They are variable cost carriers. Some
estimate that E; percent of the motor carrier industry:s cost is variable. They pay user fees $taes etc.% to
offset the road maintenance costs. /ther ma'or variable costs are fuel, driver wages, and e.uipment
maintenance. The ma'or fied costs are the terminals and e.uipment. "" carriers have many common
costs because of the number of shipments in a single trailer. T" carriers have few common costs because
the trailer is filled with product from a single shipper.
Pipelines are categori+ed as heavy fied cost carriers. They own their right of way and their terminals. In
fact because of computeri+ation, this mode is also classified as very capital intensive. This leads to lower
wages and maintenance costs. <ecause pipelines move a variety of li.uid products, they have significant
common costs.
ailroads are fied cost carriers because they own their e.uipment and tracks. 9conomic of scale arise
from increased volume which allow per unit costs to be kept low by spreading fied costs over more units.
) significant portion of railroad cost is common because all traffic share replacement costs.
"ogistics (anagement TYBMS *;
!ater carriers are variable cost carriers because they do not own the waterways. They ways are not free.
4hannels must be maintained in ma'or rivers and ports. In the United States, the U.S. )rmy 4orps of
9ngineers dredges the channels. Water carrierHs ma'or variable costs are labor, fuel and maintenance. "ike
railroads, significant portion of their costs are common because multiple shipments often share a vessel.
&actors influencing Transportation 4osts and #ricing
In general factors influencing transportation costs@pricing can be grouped into two ma'or categories1
product related factors and market related factors. (any factors related to a products characteristic
influenced the cost@pricing of transportation. They can be grouped into the following categories1
*% 3ensity
0% Stow ability
5% 9ase or difficulty of handling
6% "iability
3ensity refers to a product:s weight to volume ratio. Items such as steel, canned &oods, building
products and bulk paper goods have high weight to volume ratios. They are relatively heavy given their
si+e. /n the other hand products such as electronics clothing, luggage and toys have low weight to volume
ratios and thus are relatively lightweight given their si+e. In general, low-density products-those with low
weight to volume ratios-tend to cost more to transport on a per pound $kilo% basis than high-density
products.
Stow ability is the degree to which a product can fill the available space in a transport vehicle. &or
eample, grain ore, and petroleum products in bulk have ecellent stow ability because they can
completely fill the container $e.g. railcar, tank, truck, pipeline% in which they are transported. /ther items
such as automobiles, machinery, livestock and people do not have good stow ability or cube utili+ation. )
product:s stow ability depends on its si+e, shape, fragility, and other physical characteristics.
!elated to stow ability is the ease or difficulty or handling the product. 3ifficult to handle items are
more costly to transport. #roducts that are uniform in their physical characteristics $e.g. raw materials and
items in cartons, cans, or drums% or that can be manipulated with materials handling e.uipments re.uires
less handling epenses and are therefore less costly to transport.
"ogistics (anagement TYBMS **
"iability is an important concern. #roducts that have high value to weight ratios are easily damaged and
are sub'ect to higher rates of theft or pilferage, cost more to transport. Where the transportation carrier
assumes greater liability $e.g. with compute, 'ewelry and home entertainment products% higher price will
be charged to transport the product.
/ther factors, which vary in importance depending on the product category, are the products ha+ardous
characteristics and the need for strong and rigid protective packaging. These factors are particularly
important in the chemical and plastic industries.
Mar6et7elated )actors
In addition to product characteristics, important market related factors affect transportation cost@pricing.
The most significant are1
*% 3egree of intra-mode and inter-mode competition.
0% "ocation of markets, which determines the distance goods, must be transported.
5% Cature and etent of government regulation of transportation carriers
6% <alance or Imbalance of freight traffic into and out of a market
7% Seasonality of product movement
>% Whether the product domestically or internationally
4ustomer service is a vital component of logistics management. Which each activity of logistics
management contributes to the level of service a company provides to its customers, the import of
transportation on customer service is one of the most significant. The most important transportation
service characteristics affecting customer service levels are1
-3ependability consistency of service
-Time and transit
-(arket coverage- the ability to provide door-to-door service
-&leibility- handling of a variety of products and meeting the special needs of shippers
-"oss and damage performance
-)bility of the carrier to provide more than basic transportation service i.e. $to become part of shippers
over all marketing and logistics programs%
"ogistics (anagement TYBMS *0
Eac2 mode of transport7 motor8 rail8 air8 9ater and pipeline7 2as varying service capa1ility/
Service 4hoices and #erformance 4haracteristics
The user of transportation has a wide range of services as his or her disposal all revolving around the
five basic modes, the variety is almost limitless $*% The five modes maybe used in combination $0%
)gencies, associations and brokers maybe used for their indirect services $5% ) single transportation mode
maybe used eclusively. &rom among this plethora of service choices, the user must select a service or
service combination that provide the best balance between the .uality of service provided and the cost of
the service. The task of service choice is not as forbidding as it sounds because the circumstances
surrounding a particular shipping situation often reduce the choice to only a few reasonable service
possibilities. To aid in solving the problem of transportation service choice, transportation service maybe
viewed in terms of characteristics that are basic to all services. These criteria are1
$*% 4ost of service $0% )verage delivery time $5% Transit time variability $6% "oss and 3amage.
It is presumed that the service is available and can be supplied with a fre.uency that makes it attractive as
a possible service choice.
"ost of service4 The cost of service is simply the line-haul cost for transporting goods plus any
accessorial or terminal charges for additional service provided. In the case for- hire service, the rate
charged for the movement of goods between two points plus any additional charges, such as pick-up at
origin, delivery at destination, insurance or the cost of preparing the goods for shipment makes up the total
cost of service. When the shipper owns the service, the cost of service is an allocation of the relevant costs
to the shipment in .uestion. !elevant costs include such items as fuel, labor maintenance, depreciation of
e.uipment and administrative costs.
4ost comparisons for the purpose of transportation-service selection must be made on the basis of
actual charges that reflect the specific commodity being shipped, the distance and direction of the
movement and any special handling re.uired.
$elivery Time and ,aria1ility4 There are many factors to be considered when selecting a transportation
service. !epeated surveys have shown that average delivery time and delivery time variability rank at the
top in importance. 3elivery time is usually referred to as the average time it takes for a shipment to move
from its point of origin to its destination. The different modes of transportation vary as to whether they
"ogistics (anagement TYBMS *5
provide direct connection between the origin and destination points, for eample, shipments move on air
carriers between airports and on water carriers between harbors. <ut for purposes of comparing carriers
performance, it is best to measure delivery time :door-to-door: even if more than one mode is involved.
)lthough the ma'or movement of shipment may be by rail, local pickup and delivery is often by truck if
no rail sidings are available at the shipment origin and destination points.
,aria1ility refers to the normal differences that occur between shipments by the various modes. )ll
shipments having the same origin and destination points and moved on the same mode are not necessarily
in transit for the same length of time due to the effects of weather, traffic congestion, number of stop offs,
and difference in time to consolidate shipments. Transit-time variability is a measure of the uncertainty in
carrier performance.
In recent years there has been renewed interest in the idea of coordinating the service of more than one
transportation mode. The ma'or feature of coordination is the free echange of e.uipment between modes.
&or eample, a truck trailer is carried abroad an airplane or a rail car is hauled by a water carrier. Such
e.uipment interchange creates transportation services that are not available to a shipper using single
transportation mode. 4oordinated services are usually a compromise between the services offered by the
cooperating carriers individually. That is, cost and performance characteristics rank between those of the
participating carriers.
M*+E$ M#$ES (M(.T*M#$A. @*'TEM#$A. TA'SP#TAT*#')
It is not always possible to transport the goods by only one mode of transportation due to economy of
transportation, long distance of transportation. So it is essential to have mied modes some of the most
commonly used are
#iggyback $road I rail %
&ishy back $ road I water %
<irdy back $ road I air%
There are ten possible co-ordinate services1
$*% !ail-truck $0% !ail-water $5% !ail-air $6% !ail-pipeline $7% Truck-air $>% Truck-water
$B% Truck-pipeline $=% Water-pipeline $E% Water-air $*;% )ir-pipeline. Cot all of these combinations are
practical. Some that are feasible have gained little acceptance. /nly rail truck called :piggyback: has seen
widespread use. Truck-water combinations, refereed to as :fishy-backH, are gaining acceptance especially
"ogistics (anagement TYBMS *6
in the international movement of high-valued goods. To a much lesser etent truck-air and rail-water
combinations are feasible but they have seen limited use.
T#)"1 Trailer on flatcar or piggyback refers to transporting truck trailers on rail board flatcars, usually
over long distances than trucks normally haul. T/&4 is blending of the convenience and fleibility of
trucking with the long haul economy of rail. The cost is less than for trucking alone and has permitted
trucking to etend its range. "ikewise, rail has been able to share in some traffic that normally would
move by truck alone. The shipper benefits from the convenience of door-to-door service over long
distances at reasonable rates. These features have made piggyback the most popular coordinated service.
Piggy1ac6 (T#)":"#)")4 In piggyback service, a motor carrier trailer or a container is placed on a rail
flatcar and transported from one terminal to another. )les can be placed under the containers so a truck
can deliver them. )t the terminal facilities, motor carriers perform the pickup and delivery functions.
#iggyback service thus combines the low movement with the fleibility and convenience of truck
movement. Since *EB> shippers have increased their use of piggyback service by 0;; percent. In *EE6
there were =.*million inter-modal shipments with *EE7 and *EE> shipments approimating the same
levels.
Truck and rail partnerships to support inter modalism such as the one begun in *E=E between the Santa
&e railroad and J.<.-unt Transport Services are relatively common. The railroad carriers freight on the
long haul and the trucking company picks up and delivers between the customer and railroad.BB? of inter-
modal users agree that such alliances have a positive impact on transportation options available to them. In
India Konkan !ailway has started this typed service.
oadrailers4 )n innovative inter-modal concept was introduced in the late *EB;s.!oadrailers or trailer
trains as they are sometime called, combine motor and rail transport in a single piece of e.uipment. The
road railer resembles a conventional motor carrier trailer. -owever the trailer has both rubber truck tires
and steel rail wheels. /ver highways tractor power units transport the trailers in the normal way, but
instead of placing the trailer on a flatcar for rail movement, the wheels of the trailer are retracted and the
trailer rides directly on the rail tracks.
The advantages of this inter-modal form of transport are that rail flatcars are not re.uired and that the
switching time to change wheels on the trailer is less than loading and unloading the trailer from the
"ogistics (anagement TYBMS *7
flatcar. The ma'or disadvantages of roadrailers are the added weighted of the rail wheels, which reduces
fuel efficiency and results in higher movement costs in addition to the higher cost of the e.uipment. The
disadvantages have tended to out-weight the advantages resulting in very low usage of this Inter-modal
option. If technology improvements can reduce the cost of this transport option, usage is likely to increase.
Miscellaneous inter7modal issues4 )ny other inter-modal combinations are possible. In international
commerce for eample the dominant modes of transportation are air and water. <oth include Inter-modal
movements through the use of containers and truck trailers. 4ombinations of air-sea, air-rail, truck-sea and
rail-sea are used globally.
)s an eample :<y shipping cargo by ocean from Japan to Seattle, then transferring it to a direct flight
to 9urope from Seattle-Tacoma )irport. )sian eporters reap substantial benefits. They can cut their
transit times from 5; days for all water service to about *6 days and slash freight costs by up to 7 ?
compared with all services.
Third #arty "ogistics Service #roviders
This sector is growing very rapidly. With the increasing emphasis on supply chain management, more
companies are eploring the third party option. &or some firms dealing with one third party firm who will
handle all or most of their freight offers a number of advantages, including the management of
information by the third party, freeing the company from day-to-day interactions with carriers, and having
the third party oversee hundreds or even thousands of shipments. Third parties have administered
activities such as freight payment and dedicated contract carriage for many years. -owever, additional
transportation and logistics activities are being outsourced. In some instances, some companies have
outsourced large parts of their logistics operations to their L5
rd
M parties.
<rokers, freight forwarders, shipper, associations, Inter-modal marketing companies and third party
logistics service providers can be available shipping options for a firm in the same way that the give basic
modes and Inter-modal combinations can. The logistics eecutive must determine the optimal combination
of transport alternatives for his or her company.
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In addition to the preceding alternatives many companies find that other transport forms can be used to
distribute their products. Small package carriers and parcel post are important transporters of many time
sensitive products. These companies use a combination of transport modes, especially air. The U.S.
domestic airfreight market consists of >;? epress, 07? passenger carriers and *7? mail. The growth
rate in this sector has been robust, averaging about *;? a year.
TA'SP#TAT*#' 'ET!#; $ES*<' #PT*#'S4
Transportation 'et9or6 $esign #ptions
4lassical economists neglected the importance of facility, location and overall network design
9conomists, when originally discussed supply N demand relationships, facility, location and transportation
cost differentials were assumed to be non eistent or e.ual among competitors.
The number, si+e, geographical relationship of the facilities are used to perform logistics operation
directly affect customer service capabilities and cost.
'et9or6 design N primary responsibility of logistics.
Typical logistics facilities are manufacturing plants, warehouses, gross dock operations and retail
stores.
The design of a transportation network affects the performance of a supply chain. This is because a
supply chain establishes an infrastructure within which operational decision regarding scheduling and
routing are made. ) well-designed transportation network is very essential for an organi+ation. It allows
the supply chain to achieve the desired degree of responsiveness at a low.
A) $*E"T S&*PME'T 'ET!#;4 The retail stores chain network options for the direct shipment
network. )s the name suggests, the retail stores chain network structures its transportation network in such
a way that the shipment of goods and materials come directly from the suppliers to the retail stores.
In direct shipment network, the path or the route which each shipment has to take is specified. The
duty of the supply chain manager in this case is only to decide on the .uantity of goods that has to be sent
to the retail stores and then, depending on the type and .uantity of goods, he has to decide on the mode of
transportation. -ere the supply chain manager has to strike a balance. In other words, if be decides to
reduce the number of trips of transportation to minimi+e transportation cost, then he has to decide on
larger inventories at a retail stores. <ut maintaining large inventories have their disadvantages as well.
)gain to keep the inventory level minimum at the retail stores, there will be more number of trips by
trucks to the retail stores. This will increase the cost of transportation. -ence, the supply chain manager
has to decide in a 'udicious manner between inventory cost and transportation cost.
-) $*E"T S&*PP*'< !*T& M*.; ('S4 ) milk run is a route in which a truck either delivers
product from a single supplier to multiple retailers or goes from multiple supplier to a single retailer.
-ence, in direct shipping with milk runs, a supplier delivers directly to multiple retail stores on a truck, or
a truck picks up deliveries from many suppliers destined for the same retail stores. When using this
opinion, a supply chain manager has to decide on the routing of each milk run. This is because if a
supplier has to deliver to multiple retail stores, the supply chain manager has to decide which retail stores
are to be given priority and accordingly the routes have to be decided. Similar decision about the route has
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to taken by the supply chain manager when many suppliers have to be contacted by the truck to take
deliver of goods meant for the same retail store. 3irect shipment of goods to the destinations provides the
benefits of eliminating the need of having intermediate warehouses. &urther the milk runs help to lower
the transportation costs by consolidating shipments to multiple stores on a single truck. &or eample if
replenishment to each retail store is considered on a direct shipment basis, it may happen that the lot si+e
dispatched to that retail store may be small and the truck will not be loaded to its full capacity. -owever, if
milk runs are used instead, the deliveries to multiple stores can be profitably, consolidated on to a single
truck. This will result in the better utili+ation of the truck and also helps to reduce cost.
&or eample, Toyota uses milk runs from suppliers to support its Just-in-Time $JIT% manufacturing
system in both Japan and the United State. -owever in Japan, Toyota has many of its assembly plants
located close together and thus uses milk runs from a single supplier for many plants. )gain in the United
State, Toyota uses milk runs from many suppliers to its assembly plant in Kentucky.
") A.. S&*PME'TS ,*A "E'TA. $*ST*-(T*#' "E'TE4 In this transportation network, the
suppliers do not send the shipment of goods directly to the retail stores. The retail chain divides the stores
by geographical region. 9ach region bas 4entral 3istribution 4enter. The supplier sends the goods to the
various central distribution centers. The 4entral 3istribution 4entre, in turn sends the goods to the retail
stores as per the re.uirement.
The 4entral 3istribution 4entre is an etra large between the suppliers and the retailers. It can play
two different roles. &irst role is to store inventory and the second role is to serve as a transfer location. The
presence of a distribution center helps to reduce supply chain cost when suppliers are located far from the
retail stores and the transportation cost are high.
4ross 3ocking of goods and products is taken advantages of when there are large shipments on the
inbound side and on the outbound side, goods and products have to be sent to retail outlets replenishment
lots. ) ma'or benefit of cross docking of products is that little inventory has to be held at the central
distribution center and the products flow faster in the supply chain. 4ross docking also saves handling
costs, because the product does not have to be moved in to and out of storage at the central distribution
center.
Modal c2aracteristics and selection4
In choosing a transportation mode, the transportation managers consider the following criteria.
4ost
Transit time
Safety
!eliability
4laim records
!esponsiveness
Speed
4apability
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