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6 Managing freight transport6.1 Introduction6.2 Freight traffic assignment problems6.3 Service network design problems6.4 Vehicle allocation problems6.5 A dynamic driver assignment problem6.6 Fleet composition6.7 Shipment consolidation6.8 Vehicle routing problems6.9 Real-time vehicle routing problems

6.10 Integrated location and routing problems6.11 Vendor-managed inventory routing6.12 Case study: Air network design at Intexpress6.13 Case study: Meter reader routing and scheduling at Socal6.14 Case study: Dynamic vehicle-dispatching problem with pickups

and deliveries at eCourier6.15 Questions and problems

G. Ghiani, G. Laporte, R. Musmanno Introduction to Logistics System Management © John Wiley & Sons, Ltd 1 / 30

6 Managing freight transport Introduction

Freight transport

- Determines the most important part (often betweenone-third and two-thirds) of the logistics costs;

- significantly affects the service level provided to customers.

Providing efficient and inexpensive freight transport services:- yields an increase in the distance at which the facilities of

the logistics system can be economically set up;- allows the operation of production plants in locations where

economies of scale can be exploited;- allows the possibility to supply geographically far markets

with perishable products and an increased competitionamong companies at a global scale, with advantages for theconsumers.

Freight transport

Players

- Manufacturing companies (shippers), at which the demandfor transport originates and which, in some cases, carry outthe transport services on their own, by using a private fleetof vehicles;

- carriers, which provide transport services to customers;

- governments, which construct and operate the transportinfrastructures and set the transport policies at a regional,national or international level.

Players

Modes of transport

- Train;- road vehicle (e.g. truck);- aircraft;- ship (for transport on oceans, seas, lakes, canals and

rivers);- pipeline.

Differ with respect to cost and transit time.

Intermodal transport- some modes of transport do not allow a door-to-door

connection between any origin and destination and shouldbe used jointly with other modes;

- the commodities can be stored temporarily and thenconsolidated into different bins.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Modes of transport

rivers);- pipeline.

Freight transport cost (1/6)Case of transport realized by the shipper

- sum of costs associated with the depreciation, maintenanceand insurance of the vehicles, crews’ wages, fuelconsumption, loading, unloading and transshipmentoperations, administration and use of vehicle depots;

- additional costs depending on the mode of transport.Example. Port mooring charges, port costs, canal transitcost (maritime or fluvial shipping).Some of the costs depend:

> only on transport time (cost of insurance);> only on the distance covered (fuel consumption);> both on time and on distance (vehicle depreciation).

Other costs (such as administration) are customarilyallocated as a fixed annual charge.

Freight transport cost (2/6)Case of transport entrusted to a carrier

- cost calculated on the basis of rates published by carriers;- for customized transport, the cost of a full load depends on

both the origin and destination of the movement, as well ason the size and equipment of the vehicle required;

- for consolidation-based transport, each shipment is given arating (called a class), which depends on the physicalcharacteristics (weight, density etc.) of the goods.Example. In North America the railway classificationincludes 31 classes, while the US National Motor FreightClassification (NMFC) comprises 23 classes.

- Rates are such that costs can be discontinuous, seeFigure 1 (cost may decrease by adding extra weight).

Freight transport cost (3/6)

WeightRate

zone 4Rate

zone 3Rate

zone 2Rate

zone 1

Tabled rates

Real rates

Figure 1: Transport rates for LTL trucking.

Media ActionMedia Action, a US company, wants to transfer 9400 pounds ofclass 55 freight from New York to Los Angeles. Using a carrierwho applies the NCC rates shown in Table 1 (classes 55 and 70correspond to products having densities higher than 15 and 35pounds per cubic foot, respectively), it should pay94×64.82= $6093.08. If the shipping load were 10000 pounds,the cost would be 100×53.13= $5313. For this reason, thecompany declares to the carrier (which accepts) that it wishes toship freight of 10000 pounds, although the effective weight isless.

Freight transport cost (5/6)Media Action

Weight (W ) Class 55 Class 70

0 ≤W < 500 129.57 153.82500 ≤W < 1 000 104.90 124.60

1 000 ≤W < 2 000 89.43 106.102 000 ≤W < 5 000 75.17 89.24

5 000 ≤W < 10 000 64.82 76.9510 000 ≤W < 20 000 53.13 63.0520 000 ≤W < 30 000 46.65 55.3730 000 ≤W < 40 000 40.15 47.67

W ≥ 40 000 37.58 44.64

Table 1: LTL rates ($ per 100 pounds) from New York to Los Angelespublished by the NCC.

- Air is the most expensive mode of transport, followed byroad, rail, pipeline and water;

- transport by truck is approximately seven times moreexpensive than by train, which is usually four times morecostly than by ship and by pipeline.

- Air is the most expensive mode of transport, followed byroad, rail, pipeline and water;

- transport by truck is approximately seven times moreexpensive than by train, which is usually four times morecostly than by ship and by pipeline.

Transit time

- The time a shipment takes to move from its origin to itsdestination;

- includes the time spent for any loading, unloading andtransshipment operations;

- random variable, influenced by weather and trafficconditions, freight loading and unloading procedures.

Reliability of a transport service- measure: coefficient of variation of the transit time;- the most reliable mode of transport is the pipeline, followed

by air, train, road vehicle and ship (on the basis of severalstatistical investigations carried out on different transportservices).

Transit time

Rail transport- Inexpensive (especially for long-distance movements),

relatively slow, quite unreliable.- Reasons:

> convoys transporting freight have low priority comparedto trains transporting passengers;

> direct train connections are quite rare;> a convoy includes tens of cars to be worth operating.

- Consequences:> railroad is a slow mover of raw materials (coal,

chemicals etc.) and of low-value finished products(steel, paper, sugar, tinned food etc.);

> with the aim of reducing the transfer cost, it is preferredto ship multiple loads of the wagon capacity (carloadtransfers, or CL).

Road transport (1/3)

- Realized by using trucks;- semi-finished and finished products;- truckload (TL) or less-than-truckload (LTL);- main inconvenience: limited capacity of the trucks.

TL- TL service moves a full load directly from its origin to its

destination in a single trip (see Figure 2).LTL

- if shipments add up to much less than the vehicle capacity,it is more convenient to resort to several trucking services inconjunction with cross-docking terminals (see Figure 3);

- LTL trucking is slower than TL trucking.G. Ghiani, G. Laporte, R. Musmanno Introduction to Logistics System Management © John Wiley & Sons, Ltd 13 / 30

Redding

Phoenix

Figure 2: Example of TL transport.

Redding

Phoenix

Palm Springs

San Diego

Stockton

Line C

Line E

Line DLine A

Line B

Figure 3: Example of LTL transport.

Air transport

- Often used along with road transport in order to providedoor-to-door services;

- very fast in principle (the cruise speed of commercial flightsis from 0.75 to 0.86 Mach);

- slowed down in practice by freight handling at airports;- not competitive for short- and medium-haul shipments;- quite popular for the transport of high-value products over

long distances (about 20%, in value, of the world trade usesair as the mode of transport);

- capacity (in terms of both weight and volume) of theaircrafts is relatively limited, compared to that of trains andships.

Air transport

Water transport

- Used mainly in international trade to send bulk materials(cereals, petroleum, coal; 99% (in weight) and 50% (invalue) of international trade);

- significantly less costly than air transport fortranscontinental shipping.

Water transport

- Used mainly in international trade to send bulk materials(cereals, petroleum, coal; 99% (in weight) and 50% (invalue) of international trade);

- significantly less costly than air transport fortranscontinental shipping.

Pipeline transport

- Used only for transporting some specific categories ofgoods (petroleum, its derivatives and gas);

- slowness of the transport (5–6 km/h);- possibility of continuous provision (24 hours a day);- reliability of the pipelines and pumps.

Pipeline transport

Intermodal transport- Moving freight with more than one mode of transport;- hybrid services, with a reasonable trade-off between cost

and transit time;- only few combinations of the five basic modes of transport

are convenient;- most frequent intermodal services: aircraft-truck

(birdyback ) transport, train-truck (piggyback ) transport,ship-truck (fishyback ) transport;

- containers are the most common load units in intermodaltransport and can be moved in two ways:

> loaded on a truck and the truck is then loaded onto atrain, a ship or an aircraft (trailer-on-flatcar);

> loaded directly on a train, a ship or an aircraft(container-on-flatcar).

Classification of transport problems

On the basis of the distance between the origin and thedestination of the shipment:

- long-haul transport problems;- short-haul transport problems.

Long-haul transport problems (1/4)

- Goods are moved over relatively long distances (from somehundreds to some thousands of kilometres);

- direct services can be carried out by owned vehicles or by ashipper;

- indirect services are assigned to shippers;- shippers’ decision-making problems are more complex than

those of companies executing their own transport:> the latter have a need of direct transports from a limited

number of origins to several destinations (few-to-manyproblems);

> shippers serve many customers and have to transferlarge quantities of freight from a high number of originsto many destinations (many-to-many problems).

Shipper’s decision making problems (1/2)- when he operates according to a schedule (line services):

> at the tactical level, assignment of the freight traffic, onthe basis of the transport demand, to the network ofexisting transport lines;

> at the tactical level, design of the service transportnetwork;

- when he operates on the basis of customers’ requests:> at the operational level, dynamic assignment of his

owned fleet (and the vehicles hired eventually by othershippers) to customer requests;

Shipper’s decision making problems (2/2)- at the tactical level, periodic repositioning of empty vehicles,

to minimize the average response time to subsequentrequests;

- at the strategic level, composition of the vehicle fleet topurchase;

- at the tactical level, optimal crew scheduling;- at the operational level, reassignment of vehicles and crews

to take into account unexpected events (changes of thefreight orders, vehicle breakdown, strikes or unfavourableweather conditions).

Decision making problems of a company acting as privateshipper

- at the strategic level, purchase of the fleet of vehicles;- at the tactical level, choice of vehicles to hire to integrate its

own fleet;- at the operational level, consolidation and dispatching of the

shipping orders.

Short-haul transport problems (1/6)

- Origins and destinations in a relatively small-sizedgeographic area (a city or a county);

- involve manufacturing companies, to supply their customersstarting from DCs, using a fleet of their own vehicles (seeFigure 4);

- local fast couriers, which transport loads betweenorigin-destination pairs situated in the same area;

- national or international carriers, which need to collectlocally outbound parcels before sending them to a remoteterminal as a consolidated load, and to locally distributeloads coming from remote terminals (see Figure 5);

- arise in garbage collection, mail delivery, appliance repairservices and so on.

Delivery routes basedat DC 1

Delivery routes basedat DC 2

Figure 4: Freight delivery routes starting from two DCs.

Terminal B

Terminal A

Terminal C

Delivery routes basedat terminal B

Pickup routes basedat terminal A

Figure 5: Pickup or delivery routes for parcels by a national orinternational carrier.

Decision-making problems- at the strategic level, the location of depots at which the

routes originate;- at the tactical level, the sizing of the vehicle fleet;- at the operational level, the determination of vehicle routes

to satisfy customer requests:> case of a single service request: least-cost path

problem from an origin to a destination;> case of several simultaneous requests: vehicle routing

problem, VRP.

Vehicle routing problems (1/2)- static case: the vehicle routes can be planned in advance.

Example 1. A company plans product distribution on thebasis of orders received from customers in previous days.

Example 2. In solid urban waste collection, the serviceroutes are determined once or twice a year, assuming thatthe quantity of waste to collect daily remains almostconstant for a certain number of months.

Short-haul transport problems (6/6)Vehicle routing problems (2/2)

- dynamic case: vehicle routes are updated as soon as thereis a new service request. The availability of low-cost ICTtools (like GIS, GPS, cellular phones, traffic sensors) allowsdata acquisition in real time.

Example. A same-day urban courier company has to pickup and deliver parcels, within a few hours, without previousnotice.

- case of inventory-routing (directly control of the inventorylevel of products at the successor nodes of the logisticssystem, e.g. the retailers): determination of the supplypolicy (how much and when to supply) and the deliveryroute.

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