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
Speed
Truck: approximately 50 miles (or 80 kilometers) per hour over the highway for up to 500 miles
(800 kilometers)
Train: approximately 30 miles (or 50 kilometers) per hour over almost any distance.
Air: upwards of 200 miles (or 320 kilometers) per hour for distances of more than 500 miles (800
kilometers), including ground operations.
Distance
Truck: up to 500 miles (800 kilometers) is the ideal distance, but there are still advantages over
the other modes up to 750 miles (1200 kilometers).
Train: for distances of more than 750 miles intermodal has some speed advantages, but the
average distance for intermodal is somewhere around 1,700 miles.
Air: at least 500 miles (800 kilometers) but typically more than 2000 miles.
Cost
Truck: current rates are highly variable, but $1.50 per mile is a reasonable starting value for a TL
shipment
Rail: intermodal freight shipments are typically much cheaper than TL and a common rule of
thumb is about 60-80% of the price of a TL shipment.
Air: typically we consider air freight to be about 6 to 8 times more expensive than truck.