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Modes of Transportation

MOTOR CARRIER

• Motor carriers have developed rapidly during the 20th century and now
represent one of the most important modes of transportation for freight
movement in the 21st century. U.S. business and most individuals depend in
whole or in part upon motor carriers for the movement of goods.
• The public provision (federal, state, and local government units) of highways
has played a major role in the development of the motor carrier because of
the ubiquitous level of accessibility provided by the comprehensive U.S.
highway system.
• The private carrier is a very important part of the motor carrier industry and a
viable option to large and small companies requiring special services, such as
grocery or food deliveries. The need of U.S. industry for dependable and
controlled service has also contributed to the development.
• For-hire motor carriers can be classified in a number of useful ways, including
local versus intercity, common versus contract, regulated versus exempt,
general versus specialized, and TL (Truckload) versus LTL (Less Than
Truckload).
• One of the manifestations of deregulation has been the tremendous growth in
the TL segment of the motor carrier business, especially among the small
truckload carriers, which has significantly escalated the degree of intramodal
competition.
• The LTL segment of the motor carrier industry has experienced increased
concentration; that is, the larger carriers have generated a larger share of the
total tonnage, as they have aggressively expended and marketed their
services.
• The motor carrier industry plays a major role in the movement of
manufactured and food products (i.e., higher-valued, time-sensitive traffic)
because of its generally higher quality of service compared to other modes of
transportation.
• The general service characteristics of motor carriers, including accessibility,
speed, reliability, frequency, and lower loss and damage rates, have given
motor carriers an advantage over other modes.
• Motor carriers offer a variety of equipment for use by shippers that reflect the
distance of service and customer requirements.
• The cost structure of motor carriers is dominated by variable costs largely due
to the carriers’ ability to utilize a publicly provided right-of-way (highways)
where payment is based upon user charges such as fuel taxes and licenses.
• Labor costs are an important element of the motor carrier industry, which
tends to be much more labor intensive than other modes. Increased
equipment size and more nonunion drivers have lessened the impact of wage
costs during the 2000s.
• In contrast to railroads, motor carriers are regarded as having limited
economies of scale; that is, small-scale operations are viable and competitive.
The major exception would be the LTL carriers with their required investment
in terminals. There is increasing evidence that there are some economies of
scale among large LTL carriers.
• Public funding of highways and the level of user charges paid by motor
carriers continue to be arguable issues because it is frequently maintained
that motor carriers do not pay their fair share.
• A number of current issues face motor carriers, including safety, substance
abuse, technology, undercharge claims, and state regulation.

RAIL CARRIER

• The railroads played a significant role in the economic and social development
of the United States for about 100 years (1850-1950) and continue to be the
leading mode of transportation in terms of intercity ton-miles, but they no
longer dominate the freight market.
• The railroad segment of the transportation industry is led by a decreasing
number of large Class I carriers, but the number of small (Class III) carriers
has been increasing in number since the deregulation of railroads in 1980.
• Intermodal competition for railroads has increased dramatically since WW II,
but the level of intramodal competition has decreased as the number of Class
I railroads has decreased. The increased intermodal competition has led to
more rate competition.
• Mergers have been occurring among railroads for many years, but the pace
has accelerated during the past 30 years, leading to rapid decrease in the
number of Class I railroads.
• In recent years, the railroads have become more specialized in terms of the
traffic they carry, with the emphasis being on low-value, high-density, bulk
products, however, there is some evidence of a resurgence of selected
manufactured products such as transportation equipment.
• In recent years, railroads have been emphasizing new technologies and
specialized equipment to improve their service performance and satisfy
customers.
• Intermodal service (TOFC/COFC) has received renewed interest since 1980
and there has been dramatic growth in the movement of such traffic by
railroads.
• Long-distance truckload carriers and other motor-carrier companies such as
UPS have also begun to use rail intermodal service.
• The railroads have a high level of proportion of fixed costs because they
provide their own right-of-way and terminal facilities. Because the large
railroads are multistate operators, the amount of fixed expenditures is
significant.
• The cost of labor is the single most important component of variable costs for
railroads, but the railroad industry has been striving to reduce labor costs on
a relative basis by eliminating work rules that were a carryover from another
era.
• The high level of fixed costs helps give rise to economies of scale in the
railroad industry, which can have a dramatic impact upon profits when the
volume of traffic increases.
• The financial plight of railroads has improved since deregulation in 1980 as
railroads have been able to respond more quickly and aggressively to market
pressures from other modes, particularly motor carriers.
• A number of important issues are facing railroads at present, including
substance abuse, energy, technology, small railroads and local drayage.
AIR CARRIER

• The airline industry began its development in the early part of the 20th
century, and its growth was influenced to a great extent initially by
government interest and policy.
• The airline industry is dominated by revenue from passenger service, but air
freight revenue is growing in importance.
• Both private and for-hire carriers operate as part of the airline industry, but
private carrier service is predominantly passenger movement.
• For-hire carriers can be classified based on service offered (all-cargo, air taxi,
charter, etc.) or annual operating revenue (majors, nationals, or regionals)
• All-cargo carriers and commuter operators have grown in importance in
recent year and play more important role in the total airline industry.
• A relatively large number of airline companies exist, but a small number (25)
account for more than 90 percent of the total earnings.
• Deregulation of airlines was rationalized to some extent with the argument
that an increase in the number of carriers would increase competition.
Initially, there was an increase followed by a decrease; today the number is
higher.
• Airlines are unique in that they face limited intermodal competition, but
intramodal competition is very keen in terms of pricing and service and has
been exacerbated by unused capacity.
• Airline service competition is usually in terms of frequency and timing of
flights, but special passenger services and programs are important.
• The express portion of air freight has grown dramatically. A growing number
of commodities use air freight service, and increased growth is expected.
• Speed is the major advantage of airlines for both passengers and freight, but
the airlines’ speed of service has been offset recently by congestion and fewer
flights.
• The higher cost of airline service can be a trade-off against lower inventory
and warehousing costs, as well as other logistics-related savings.
• Airline carriers are essentially long-haul service providers for passengers and
freight because the cost of takeoffs and landings makes short hauls relatively
uneconomical.
• Airlines usually provide service for small shipments where value is high
and/or the product may be perishable.
• Airlines offer a generally reliable/consistent service, but their accessibility is
limited.
• Airlines use different types of equipment that limits their carrying capacity,
but their overall equipment variety is also limited.
• Airlines use publicly provided airways and terminals, but pay user charges on
both, which helps make their cost structure highly variable.
• Major and national airlines use a hub approach to their service, which
contributes to operating efficiency but often adds travel time.
• Fuel and labor costs are important expense categories for airlines and have
received much managerial attention. The low fuel cost of the late 1990s
helped the airlines improve their profitability: today, however, rising fuel
prices are having a negative impact on industry profits.
• Economies of scale and economies of density exist in the airline industry,
making larger-scale carriers usually more efficient, based on equipment,
markets, and communications.
• In the era of deregulation, discount pricing has become very popular, and it
has made the rate schedules of airlines for passenger service complex.
• Airline safety is a very important issue, but overall airlines have a very good
record.
• Traditionally, airlines have capitalized on new equipment technology to
improve their operating efficiency and to expand capacity. In recent years,
technology improvements have come in a variety of other areas.

WATER CARRIER

• Water carrier played a key role in the development of many U.S. cities and
regions.
• The water carrier system is still a viable part of the total transportation
system and competes with the railroad system and pipelines for the
movement of bulk, low-value commodities.
• The domestic water carrier system can be classified in terms of inland carriers
(rivers, canals, and Great Lakes) and coastal/intercoastal carriers, all three of
which are vital to water transportation.
• Intramodal competition among water carriers is not as important as
intermodal competition, especially railroads and pipelines.
• Water carriers offer low-cost services, but their transit time is slow and can
be interrupted by weather conditions. Accessibility and potential product
damage are also service disadvantages.
• Water carriers have relatively low fixed costs because they use a right-of-way
provided by the government for which they pay user charges like motor
carriers and airlines.
• Water carriers are not labor-intensive for their movement operations but may
require more labor in terminal areas for certain types of freight.

PIPELINE CARRIER

• The development of pipelines began in the 19th century in Pennsylvania by the


Pennsylvania Railroad, but subsequently the ownership and development
were taken on by the oil companies, who operated them as integrated
subsidiaries.
• Ownership by oil companies has continued to the present, but some oil
pipelines are owned by non-oil companies. Also, joint ownership by several
companies has become common because of the large investment of capital
necessary.
• The pipeline industry is a large component of our transportation industry
(more than 20 percent of intercity ton-miles), but it is largely invisible to
many people.
• Because of market-control tactics used by some oil companies, an important
U.S. Supreme Court ruling after WW II required pipelines to operate as
common carriers, even if owned by an oil company.
• Pipelines are very specialized in terms of the commodities that they carry.
Most of the traffic are oil and oil products, but they also carry natural gas,
chemicals, and coal. Water carrier played a key role in the development of
many U.S. cities and regions.
• Only a small number of pipeline companies exist (about 100), and they only
have limited intermodal competition.
• Pipelines are low-cost carriers, when operated at capacity, but they have high
levels of fixed cost because of the heavy investment necessary in
infrastructure.
• Pipeline service is slow and has limited accessibility, but it is also very reliable
with little or no loss and damage.
• Intercity service is provided by large-diameter (30-50 inches) pipelines called
trunk lines. Small-diameter pipelines, called gathering lines, are used to
bring the oil from the producing area to the terminals for storage before
processing and/or transporting.
• Pipelines are highly automated, efficient form of transportation. Oil moves in
one direction in large volumes at a steady, slow speed.
• Although there is always some concern about safety and the environment
pipelines have been a relatively safe mode of transportation.

INTERMODAL AND SPECIAL CARRIER

• The transportation user is not confined to firms and services of the basic
modes. Carriers that appear as hybrids of these modes, as well as special
forms within each, are also available forms of transportation service.
• Regulatory changes governing air, motor, rail, and household goods
transportation aided the development of the special carriers.
• Intermodal transportation involves the joint efforts of two or more modes to
complete the through movement. The most common forms of intermodal
include piggyback (rail-truck), water-rail (container on flatcar), and truck-air.
The container improves the freight interchange efficiency between the modes
and enhances the value of intermodal service.
• Third-party transportation provides offer a total package of logistics services
in which transportation is on component. Third-party transportation involves
outsourcing transportation services ranging from simple freight bill payment
to carrier selection and routing of shipment to storage, partial assembly of
parts, and transportation.
• Today’s transportation system is supported by a number of intermediaries
who provide shipment consolidation, marketing, information, and premium
services to both carriers and shippers. Forwarders, shippers’ associations,
brokers, intermodal marketing companies, owner-operators, and express and
expedited companies are the primary providers of these intermediary
services.
• The household goods moving industry consists of specialized motor carriers
who move the household goods of people and businesses. The industry faces
peak demand during the summer months and utilizes a system of local agents
and owner-operators to provide service.

GLOBAL TRANSPORTATION

• Global transportation is governed by the same set of underlying economic


principles as domestic forms of carriage, but its ownership patterns,
processes, procedures, and government policies are different. Today
companies view markets as global, rather than domestic, and the
international transportation system is being called upon to move ever-
increasing quantities of goods between the countries of the world.
• The United States trades with nearly all countries of the world; Canada,
Japan, Mexico, the United Kingdom, and Germany are the largest U.S. trading
partners.
• All modes of transportation are available for shipments from the United States
to Mexico and Canada, but air and water are the dominant forms of
shipments to other countries.
• Ocean carriers consist of liners, tramps, and private carriers. Liner or
conference carriers offer scheduled services over fixed routes at the published
rate. Tramp carriers follow the trade with no fixed routes at a published rate.
Tram carriers follow the trade with no fixed schedules or rates. Private
carriers are ships operated by the firm moving the goods, which are usually
basic raw materials moving in large quantities.
• Air carriers offer low transit times and high rates. Four types of air carriers
exist: air parcel post, express or courier service, passenger, and all cargo.
• Ancillary service companies provide numerous functions to assist the
international shipper. These companies provide technical expertise, freight
consolidation, vehicle booking, and other services that offer users lower cost
and improved service.
• Global carrier rates are established on the basis of coast and service. Air
carrier rates tend to be based on value of service, whereas ocean rates are
based on cost. Line carriers publish rates via conferences; the International
Air Transport Association acts as domestic rate bureau. Both published and
contract rates are available from both modes, and ship/plane chartering is
available.
• The Federal Maritime Commission regulates ocean rates. No federal agency
regulates international air rates. Major changes in regulation have taken place
under the Ocean Shipping Reform Act of 1998.
• Port authorities are state or local government agencies that own, operate,
finance, or provide services at local ports and/or airports.