Transport functionality provides two major functions. Product Movement and Product Storage.
Product Movement
Where the product is in the form of materials, components, assemblies, work-in- progress or finished goods, transportation is necessary to move it to the next stage of the manufacturing process or physically closer to the ultimate customer. A primary transportation function is product movement up and down, the value chain since transportation utilizes Temporal (time), financial and environmental resources, it is important that items be moved only when it truly enhances product value.
The major objective of transportations to move product from an origin location to a prescribed destination while minimizing temporal, financial and environmental resource costs, loss and damage expenses must also be minimized.
A less common function is 'temporary Storage’. Vehicles make rather expensive storage facilities. However, if the in-transit product requires storage but will be moved again shortly (say in few days), the cost of unloading and reloading the product in a warehouse may exceed the per day charge of storage in the transportation vehicle. In circumstances where warehouse space is limited utilizing transportation vehicles may be a viable option.
1) One method may be involving loading product on the vehicle and then have it to take a circuitous route or indirect route to its destination.
2) Another method is by way of diversion. This occurs when an original shipment destination is changed while the delivery is in transit.
Principles:
There are 2 fundamental principles guiding transportation management: 1) Economy of scale
2) Economy of distance 1) Economy of scale
This refers to the characteristics that transportation cost per unit of weight decreases when the size of the shipment increases. It is also generally true that larger capacity transportation vehicles such as rail or water are less expensive per unit of weight than smaller capacity vehicles like truck and tempo. Transportation economies of scale exist because fixed expenses associated with moving and loading can be spread over the loads weight. The more the load, the lesser will be cost per unit weight. The fixed expenses include administrative cost of taking the transportation order; time to position the vehicle for loading and unloading, invoicing and equipment cost.
2) Economy of distance
Refers to the characteristic that transportation cost per unit of distance decreases as distance increases. These principles are important considerations when evaluating alternative transportation strategies or operating practices. The objective is to maximize the size of the load and the distance that it is shipped while still meeting customer service expectations.
Participants in transportation Decisions: 1) Shipper 2) Carrier 3) Consignee 4) Public 5) Government
Modes of transportation
There are five major modes of freight transportation, airlines, motor carriers, pipelines, railroads and water carriers. Each of these modes has distinct characteristics that give them advantage over the others. Which mode is the best depends on the freight hauled cost, speed, reliability, capacity, length of haul and flexibility.
Airlines
Airlines are the fastest terminal-to-terminal mode of transportation. That is the primary advantage. They specialize in time sensitive movement of documents, perishable items, technical instruments, medical supplies and high valued products. Also air transportation has the highest percentage of revenues coming from passenger travel. While airlines are important for some freight movement, their primary business has traditionally been passenger travel. Airfreight services cost more than other modes, primarily due to their speed. Air carriers provide terminal-to- terminal service, meaning that direct delivery to a consumer's door is the rarest of exceptions. Airlines are reasonably reliable. While weather related flight delays might disrupt service, the disrupted service is often still the fastest than the next fastest mode, the motor carrier. The airlines, speed advantage is most apparent for hauls over 500 miles. For trips less than 500 miles, motor carriers can often outperform airlines door-to-door.
Airlines transport small volume shipments rather than large volumes, and packaged products rather than heavy bulk commodities. The physical configuration and cost of air service also limit the variety of products shipped by air. Measured by weight airlines transport very little freight. The percentage of total freight dollars shipped by air is relatively small although the revenue growth rate is promising. As customer service expectations increase, so does the demand for shorter transit times. As a result, many shippers have turned to air transportation
Most airline costs change over a short period of time and depend on output making airlines predominantly variable cost carriers. When the initial cost of the air fleet is significant these fixed costs are spread over the long useful life of the aircraft. Terminals represent a major fixed cost in other modes, but airline terminals are publicly owned facilities for which the airlines pay user fees. The significant start-up costs associated with an airline limit the number of competitors creating an oligopolistic market structure, with only a few large carriers.
Motor carriers (Road)
Motor carriers are the most flexible mode of transportation. This means better direct access to motor carriage for more shippers and final consumers. Motor carriers compete with airlines for higher valued products as well as time-sensitive products (electronics perishable etc,) within a 500 miles radius. Motor carriage ranks as the second fastest mode of transportation, with the additional advantages of door-to-door flexibility and broad geographic coverage. Because trailers vary in length, temperature control and form motor carriers can carry a variety of products. In fact, they can carry almost anything. As industry saying 'if it got there, a truck brought it' rings very nearly true. Motor carrier rates are high compared with all other modes but air. They also face gross weight and length restrictions, as well as other legal limits. Motor carriers are susceptible to delays because of bad weather or traffic congestion. Almost, motor carriers are not well suited to handle extremely heavy bulky products because the trailer is not properly constructed to ship such significant weight efficiently even when permit allow the legal restriction to be lifted.
Pipelines
Pipelines are unique mode of transportation. They are fixed in place, and the product moves through them. This limits the type of products they can transport but
within these limits they can move more tons under a single shipment than any other mode of transportation (30,000 to 25,00,000 tons). They can transport product only in a liquid or gaseous state. Petroleum is the number one product moved by pipelines. Pipelines are cost effective where large quantities of liquid products need to be transported. Pipelines offer one advantage that none of the other modes can offer. A pipeline is a continuous flow mode. When the pipeline is full the product flows to the destination immediately and continues to do so almost without fail. Pipelines are the most dependable mode of delivery unaffected by external factors like weather. However, pipeline transportation is slow, rigid in terms of routes and product types and limited to terminal-to-terminal service. A pipeline's average speed is usually between two and five miles per hour. Pipelines can rarely deliver the product to the consumer's door and the origin and destination of the mode are fixed-unless household water and gas lines are taken into account.
Many pipelines are built by private entities for private use. Different types of liquid can be shipped through a pipeline at the same time separated by a batching plug. A batching plug is a mechanism designed to allow for continuous flow through the pipeline while maintaining the integrity of each individual product. Pipeline costs are predominantly fixed. Pipelines must build their own right-of-way, an extremely expensive undertaking. Pipelines most often move large quantities of a liquid product from a fixed origin to a fixed destination. The construction of a pipeline becomes cost effective only when the high initial fixed cost can be spread over enough volume to keep the unit transportation cost competitive with other modes.
Railroads
Railroads transport a significant amount of domestic freight. Railroads haul high- density low-valued freight over long distances at rates lower than trucking and air, but higher than water and pipeline. Products hauled include coal, stone, sand, metals, grain and automobiles. Their primary competitors include domestic water carriers for large bulk products and motor products for higher valued goods. Railroads can handle a wide variety of goods but generally have not. They lack flexibility and high-speed delivery in their standard operation. Historically, railroads have been unreliable due to poor scheduling, a substandard infrastructure and unreliable equipment. Railroads argue that their assets are older because they must commit considerable resources to build their own right of way. Rail companies have attempted to improve their reputation for customer service by updating old equipment, installing current technologies and implementing customer-oriented strategies.
Like other modes, railroads are classified by annual sales figures. Railroads operate in an oligopoly, with a limited number of interdependent competitors. Fixed costs are high compared with air, water and motor carriage. The higher percentage of fixed costs stems from ownership and construction of the right-of-way. Rail transportation has benefited from significant level of international inter modal freight, which currently provides the industry with its highest growth and profits.
Water Carriers
Water carriers dominate international transportation because of their cost structure and ability to transport large volumes. Their significant modal market share is derived from these international operations. Advantage of water transport includes long haul capabilities-particularly for low-valued products such as coal, stone, grain and ores-at low rates. They can and do haul a broad range of products from ores and grains to Christmas toys. Since water carriers haul a wide variety of commodities, they operate a variety of ships. Tankers primarily carry liquid products like petroleum and crude oil. Measuring over 1.500 feet long and 200 feet wide, these vessels are some of the largest on the ocean. Bulk carriers are constructed to haul commodities like coal, iron
ore, or agricultural products. Furthermore, significant growth in container ships shows the impact containerization has had on water carriage. Standardized containers are loaded, placed on container ships, and shipped across the ocean to their destination. A standard container measures either 8' by'8 by 20' or 8' by 8 by 40'.One twenty-foot container is referred to as one twenty-foot equivalent unit (TEU). A forty foot container is two TEUs.
Water carriers compete heavily with railroads along certain routes and with pipelines for the movement of some products, particularly petroleum. Water carriers cost structure and volume levels are such that they can charge very low rates. Water carriers are relatively slow, unreliable and suffer from a high degree of variability in delivery schedules. Two main types of for-hire carriers make up the deep-water industry. Liners have fixed sailing times and fixed routes, while tramps sail when they reach capacity. Since liners must sail at a specific time, they are not always filled to capacity. Tramps are usually the better choice when service dates and times are not critical, and liners the better choice when these criteria are critical. Water carriers operate in an oligopoly due to the large initial investment, which tends to limit the number of carriers. However, over the life of the ship, variable cost dominates. The initial cost of the ship is significant, but the volume transported over the useful life of the ship is so large that the cost per unit is relatively low.
Mode Comparison- Dominant Traffic
MODE %
SHARE NATURE OF TRAFFIC
Rail 40% Agricultural products, ores, coal, heavy machines, etc.
Road/
Highway 30% Medium & Light manufacturing distribution Water 15 % Mining, cement chemicals, agricultural
products, heavy machinery, etc. Pipeline 10% Petroleum products, chemicals, gas
Air 5% Emergency requirements of any material, small lots