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Moving Freight over the Road

Lecture Objectives:
1. Why companies choose to move freight on the road.
2. Cost structure is majority fuel and driver wages
3. Infrastructure is made up of vehicles and terminal

Lecture Summary:

Service Characteristics

Accessibility
Speed
Reliability
Flexibility

Types of Vehicles

City trucks
Line-Haul (40 foot and 53 foot trailers)
Special vehicles

Motor Freight Terminals

Pickup and delivery


Cross-dock terminals
Break-bulk terminals
Relay terminals

Cost Structure

fuel 39%
driver salary 26%
cab and trailer 17%
maintenance 12%
insurance and fees 5%

Motor Carriers
Lecture Objectives:
1. Understand how motor carriers operate
2. How motor carriers compete
3. Look into the future of the industry

Lecture Summary:

Motor Carrier Industry Structure

According to the American Trucking Association (ATA):

Trucks moved roughly 67% of the nation's freight by weight


About 3 million class 8 trucks used for business purposes
About 6 million commercial trailers registered

According to US Department of Transportation (in 2010):

1.3 million total trucking companies


408,782 for-hire carriers
662,544 private carriers
168,680 other interstate motor carriers

Most trucking companies are small businesses:

90.2% operate 6 or fewer trucks


97.2% operate fewer than 20 trucks

Trucking is a vital industry for the economy:

About 7 million people employed throughout the economy in jobs that relate to trucking activity
About 3 million truck drivers employed

Basic Operations

Truckload (TL)

Moved directly from shipper to consignee


Average 242 miles
Many small carriers
Weight 20,000 to 50,000 lbs.

Less-than-Truckload (LTL)

Picked up, moved to a terminal, reloaded for line-haul, delivered to terminal, locally delivered
Average distance about 550 miles
Requires national or regional network
Weight 50 to 10,000 lbs.
About 150 carriers

Parcel

Home/business pickup, consolidated, moved to sortation facility, trucked/flown/railed to distribution


center and home/business delivered
Weight 1 to 150 lbs.
Fast (good for time-sensitive goods)
Very expensive

Competition

There are few ways in which firms can differentiate themselves, the main area of competition is
price.

Cost structure: high variable costs (70-90%), low fixed costs (10-30%)
Government support of highway structure
Terminals not too capital intensive
Operating cost in the United States are currently between$1.20 - $1.80 per mile
Carriers use fuel surcharges to recover some of cost
Flying Freight
Lecture Objectives:
1. What makes air freight attractive to shippers?
2. Cost structure is majority fuel and equipment
3. What kind of equipment is used?

Lecture Summary:
Air Freight Service Characteristics

When importance of speed outweighs cost, then air is attractive for freight!

Emergency shipments
Typical commodities include mail, communications products, racehorses, etc.

Speed of service considerations

Speed, travel time advantage can be off-set by flight frequency and timing
Smaller communities have experienced reduced frequencies
In-direct routing due to hub and spoke networks

Cost Structure

The industry operates at: high variable costs (70-90%), low fixed (10-30%)

Government support of highway structure


Terminals not too capital intensive

High variable costs (about 60% of total, but can be as high as 80%)

About 30% attributable to flight operations


About 12% for maintenance
About 17% for aircraft and traffic servicing

How to deal with fuel costs:


Increases have major impact on operating costs
More fuel efficient aircraft and smaller planes on low-density routes

Types of Equipment

We need different planes for different purposes.

All cargo

Extra-large planes
Wide body
Narrow body

Belly cargo

Existing airliners
Smaller loads maybe a few containers

Air Carriers
Lecture objectives:
1. Understand how air carriers operate
2. How air carriers compete
3. Look into the future of the industry

Lecture Summary

Operations

All-cargo airlines are operating similar to TL - you rent the entire plane.
Commercial airlines are able to carry smaller quantities as belly cargo - similar to LTL.
Parcel carriers are also using planes for small shipments - but they are often very expensive.

Rates
The rates in air transportation are often a mystery to many. While the rate is quoted by weight, the
actual rate charged corresponds to that weight if the package has a certain density. This is also
known as the volumetric density.

So what happens when it is not the 'right' density?

If it is less dense, then you get charged for the volume translated to the corresponding weight
If it is heavier then you pay for the actual weight

Competition

Fuel costs: who can best manage the largest expense and hedge against future price increases
Who can manage the delays put on by security concerns. Technology is starting to help alleviate
these issues.
Containers on a Train
Lecture objectives
1. What is intermodal?
2. Why use different modes together?
3. What makes it work?

Lecture Summary

What is intermodal?

Most products have the ability to trade time versus cost. As a basic rule - if the cargo comes in full
containers then it is a good candidate for intermodal. The key to intermodal is the use of containers
and its seamless transfer from one mode to another. Think about it this way if we can easily move
freight from one truck to another then we can simply substitute another mode of transportation that is
more efficient on that part of the lane - the cargo in the container stays untouched.

Advantages:

On long distances rail transportation has a significant advantage over truck in terms of fuel
efficiency which translates into a large cost advantage.
On long distances (over 500 miles) rail is not much slower than truck
Accessibility: by combining the advantages of rail and truck, the freight can reach any spot a
regular truck could reach

Express Delivery
Lecture Objectives
1. How do express delivery firms integrate different modes?
2. Cost structure is majority fuel and driver wages
3. Infrastructure is made up of vehicles and terminals
Lecture Summary

Express delivery firms use several modes to the best of their advantage:

1. Rail is the cheapest and reasonably fast over long distances


2. Motor is fast for short distances and can pickup and deliver everywhere
3. Air is fastest and cost is justified for certain items.

The general purpose of these terminals is fourfold:

1. To receive shipments from across their network


2. To send individual packages to customer
3. To collect individual packagers from shippers
4. To route packages to their destinations

Further Reading

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