Chapter 13 - Discussion Questions - Answers

1. Why is transportation management so important?Answer:The availability of inexpensive, efficient, and easily accessed transportation services activates several critical drivers of economic activity. To begin with, transportation enables companies to bridge the geographical gap between the place where products are produced and the place where they are consumed. It is virtually impossible for modern economies to function without the ability of transportation to move products across the supply chain. Second, the more mature the transportation system, the greater the ability of businesses to com-pete with other companies in distant markets on an equal footing. Third, the wider the product distribution and the greater the demand, the more producers can leverage economies of scale in production and channel transportation costs. Finally, the more efficient and the lower the cost of transportation, the lower the selling price. Because transportation costs to the producer are nor-mally calculated into the price of products, as costs decline and delivery capa-bilities rise, producers and distributors normally pass on the savings to their customers in the form of lower prices, thereby increasing marketplace advan-tage.

2. What are the four principles of transportation operations?Answer:The benefits include the following: Standardization of truck trailers, shipping containers, railcars, and cargo

ships. Because of their general availability, capacity to handle a wide variety of products, and ability to be utilized for backhaul, standardized transportation equipment provides the optimal choice.

Unit-load compatibility with standardized transport vehicles and containers to facilitate loading and unloading of shipments. Restraining equipment that is used in the vehicle should be positioned so as to minimize damage to cargo and reduce load shift during transport.

Minimization of deadweight. Deadweight is defined as the total weight of the vehicle, containers, materials handling equipment, and the load. The total weight of all of these elements is used in determining shipping variable costs (such as fuel) and vehicle wear. Normally, the larger the transportation vehicle, the more favorable the ratio of payload to total weight. The use of lighter packaging, lightweight vehicle materials, and vehicle design promoting efficiency can assist in decreasing the deadweight of containers and transport vehicles.

Maximum utilization of capital, equipment, and personnel. Transport ve-hicle design, routing and scheduling, and operational practices can signif-icantly impact the effective utilization of transport resources. Utilization in transport refers to the percentage of time equipment and personnel are in use. The objective of transportation management is to reduce utiliza-

tion imbalances caused by seasonality, the lack of good operational prac-tices such as backhaul, and poor scheduling of vehicle loading and un-loading.

3. Who are the main participants in transportation management?Answer:The main participants are Shippers who need transportation capabilities to have goods moved as

expeditiously as possible, without damage or loss, in as short a delivery time as possible to their destination.

Carriers and agents who perform the actual movement of goods and facilitate the matching of carrier capacities with shipper requirements.

Consignee (receiver) who receives and takes ownership of a shipment. Internet services that enable participants to leverage technology services

for the sharing in real-time information about transportation operations, buying exchanges, and carrier-shipper matching.

Government who will regulate transportation when necessary to promote social and economic growth.

The public who expects and depends on accessible transportation, affordable and competitive rates, ability to function to meet expectations, security, safety, and recently, a commitment to environmental and sustainability standards.

4. Discuss the key challenges facing transportation management today?Answer:The key challenges are as follows: Infrastructure. Governments and companies have increasingly become

aware of the need to tackle transportation infrastructure decay and modernization. Other issues relate to safety, congestion, sustainability and the environment, and inadequate system capacity across all six major transportation modes.

Globalization. Transportation management is essential in an age of increasing outsourcing and emerging economies. As the need to service growing international trade has increased, logistics functions have become extended, disconnected, and more complex across a global network.

Enhanced logistics. Companies and LSPs must develop enhanced transportation functions to respond to growing channel complexity, use of advanced logistics services, and more flexible, agile networks.

Technology. Companies and LSPs are being asked to provide advanced logistics technologies and information solutions that integrate and enable channel networks. These technologies should streamline and accelerate transfer information in real time, and leverage Web-based ordering and cost management tools.

3

Transportation as a key strategy. Transportation today has been elevated from a narrow concern with transaction management to an essential business strategy. The ability of logistics to become more agile and scalable and to provide more robust services at low cost has become a key competitive advantage for all companies.

Security. Growing requirement of safeguards against the possibility of terrorist attacks.

5. How does the distance a load travels to its destination and its weight affect transportation cost?Answer:The distance products travel affects the transportation decision. While vari-able costs (labor, fuel, maintenance) will increase with distance, the total cost curve increases at a decreasing rate (known as the tapering principle). This is so because transport fixed costs can be spread over more miles, resulting in lower costs per unit shipped. The weight of a shipment affects the cost. Economies of scale can be gained from the fact that transport cost per unit of weight decreases as load size increases. This economy occurs because trans-port fixed costs are spread over the incremental load weight. The implication is that small loads should be consolidated into larger loads for cost economy.

6. What are some of the risks that can threaten the effectiveness of transporta-tion?Answer:The threat of the loss of a shipment through theft, piracy, hijacking, and mis-placement constitutes a common risk confronting every shipment. Beyond the direct financial loss, shippers must also bear the indirect costs associated with lost sales to stolen goods, claims processing, expedited costs to replace the shipment, disruption to customer service, damage to brand image, and possi-ble increases in insurance rates. Another important risk is shipment damage. Causes of damage are poor freight handling, improper transport equipment loading, and in transit equipment accidents. Associated with damage is the possibility of shipment contamination to perishables, consumables, and date-sensitive products while in-route caused by vehicle climate control failure, product tampering, and exposure to contaminants.

A major risk to transportation is shipment delay caused by traffic conges-tion on rail lines, port facilities, and roadways; climate changes or conditions that impact in-transit flow; and mechanical breakdown of delivery vehicles. Although disruptions to channel flow-through are rare, they can pose a severe risk. Disruptions are attributed to labor disputes, governmental regulations, catastrophic weather disasters, channel equipment capacity shortages, lack of skilled personnel, and carrier financial problems.

The final risk is threats from security breaches. Risks arise not only from potentially destructive forces seeking to exploit system flaws and security

3

4

vulnerabilities, but also from governmental requirements for more extensive freight inspections, documentation, and costly countermeasures. Areas where security threats arise are lax security processes that make shipments an easy target; unprotected transfer facilities that do little to retard theft, contamina-tion, or possible terrorist damage; and shipment control failures where visibil-ity to shipments “disappear.”

7. What are the four potential costs involved in the actual shipment of a load?Answer:The four components are: Line haul. Whether it is a motor trailer, container, railcar, or other

vehicle, the carrier (private or for-hire) incurs both fixed and variable costs. While the asset costs are fixed and incurred regardless of whether the vehicle is used or not, the carrier must calculate the variable costs per shipment. These costs vary with the distance traveled, not the weight carried.

Pickup and delivery. These costs are charged by the carrier each time a shipment is picked up and delivered. The focus of these costs is a function of the time a vehicle spends in pickup and delivery activities. Basically this cost is a valuation of how much idle time is incurred by a vehicle.

Terminal handling. Each time that a vehicle uses a terminal, extra costs are incurred for unloading, sorting, consolidation into new loads, reloading, and shipment to the next point in the delivery. The more individual shipments that are going to different destinations are in the vehicle, the more consignors can expect to pay.

Billing and collecting. Each time a shipment is made, the appropriate documentation and invoicing must be generated by the carrier. Billing, auditing, and collecting costs can be reduced by consolidating shipments and reducing the pickup and delivery frequency during the transportation route.

8. How do companies with private fleets measure their performance?Answer:Companies that possess their own transportation fleets, measure performance by analyzing fixed costs (vehicles, maintenance facilities, terminals, and in-formation systems) and variable costs (labor, repair and service, fuel, and ad-ministrative staff) to budgeted standards. Additional metrics such as em-ployee compensation, vehicle costs (fixed, as well as operating costs such as depreciation and fuel), support expenses (facilities and equipment), and other expenses (cargo insurance, travel expense, general supplies and expenses) could be added. Key performance indicators (KPIs) include such elements as miles per road driver-hour worked, miles per gallon of fuel, miles per trailer, weight handled per platform-employee hour, and fleet miles per maintenance employee-hour.

5

Companies would also be interested in measuring service-oriented KPIs such as quality of service (how well shipments are meeting customer expecta-tions); cost of service (actual to budgeted costs for shipments); flexibility of service (ability to meet requests for different modal options and capacities to fit shipment characteristics); on-time loading (times vehicles arrived at the scheduled appointment time to pick up loads); on-time delivery (shipments delivered in a timely fashion); delivery consistency (average origin to destina-tion transit time of shipments to the transit time promises made by carriers); claims (number of claims-free deliveries); and freight bill accuracy (accuracy of freight bills to the total number of freight bills tendered).

9. What are the three principles of transportation?Answer:The three transportation principles are: Economy of scale. The principle of economy of scale states that as the

volume and weight of the load increases, the cost of transport decreases. For example, the cost of full truckload (TL) shipments is less per weight unit of measure than less-than-truckload (LTL) shipments. The economy exists because the fixed cost of the vehicle can be spread over the load’s weight. This is the reason why forms of transportation such as ships and trains, which normally transport product in bulk, are generally less expensive than motor carriage or air transport.

Economy of distance. The principle of the economy of distance relates to the fact that transportation cost per unit of weight decreases as distance increases. While it is true that variable costs (such as fuel and tolls) will increase with distance, the longer distance a load travels the more the fixed expenses are spread over the distance, resulting in lower over-all charges. This economy of scale is referred to as the tapering principle since transportation rates taper downward as distance increases.

Cost of velocity. The principle of cost of velocity states that as the speed of the movement of the load increases, the cost of the transportation increases. Faster transportation will often mean moving from slower and cheaper modes of transport, such as water and rail, to more expensive modes, such as motor and air. Increasing the velocity of a load using a single mode normally increases expediting costs involved in handling, tracking, and fuels. Simply, as the velocity of the load increases, economies of scale decrease.

10. Explain the concept of intermodal transportation. What are the benefits of using intermodal transportation?Answer:The concept of intermodal transportation resides in the development of sys-tems that combine elements of the five modes of transportation. The goal of intermodal is to facilitate the transfer of unitized loads from one mode of transport to another.

5

6

The primary benefits of intermodal transportation include the following: Intermodal transport enables shippers and carriers to reach destinations

normally inaccessible to other modes, especially air, water, and pipeline. Loads can easily be moved from one mode to another without unloading and reloading and transported to the final destination.

Intermodal transport achieves overall cost efficiency without sacrificing quality or accessibility. It may seem more costly in the short run to perform terminal services to move trailers and containers from and to railcars, trucks, and water vessels, but in the long run the dramatic decline in shipment handling greatly exceeds the transfer cost. Furthermore, by combining the optimum transportation modes to fit the transportation task, it offers shippers the ability to tailor a transportation package for each delivery that maximizes transport efficiencies.

Intermodal transport facilitates global trade. The use of intermodal trailers and containers enables Easy transport to shipping points, transfer of product to ocean-going vessels, and unloading and movement at global destination ports. International air containers can also be easily loaded and unloaded onto flatbed railcars or trucks positioned at airports.