Domestic Transportation Systems

1
Supply Chain Models Logistics

• Domestic Transportation Systems

Dr. John Vande Vate
2
Outline

• The big picture
• Carriers
• TL LTL
• Inland Waterways and Intercoastal Waterways
• Railroads
• Air cargo
• Shippers
• Send goods
• Consignee
• Receives the goods

3
Mode Comparison
4
Transport in the Supply Chain
RetailStores
Warehouses Cross-docks
DCs Cross-docks
Suppliers
Manufacturers
Customers
Transportation, Distribution
Intra-facility Transportation
5
Integrated Transportation andInter-modal Services

• Multi-modal transportation
• Ocean transportation typically involves rail and
  trucking
• Rail transportation typically involves trucking
• Air cargo typically involves trucking

6
Project Inter-modal ExampleChina to New York
Chinese Factory
Port in China
Store
Port of Long Beach
NY DC
Cross Dock
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Trucking Outline

• Background information
• DOT driving regulations
• TL transportation
• LTL transportation

8
Background Information

• Common terms
• TL and LTL
• For hire and private fleets
• Common carriage and contract carriage
• Irregular and dedicated carriage
• Single and team operations
• Key statistics
• Gross freight revenue 485 billion
• Freight weight 7.7 billion tons
• Intercity freight ton-miles 1,000 billion

9
Background Information

• Number of trucks
• 2.3 million tractors
• 4.4 million trailers
• 20 million trucks of all weight classes

10
DOT Driving Regulations

• Duty hours
• Driving or waiting for dispatch
• Inspecting, servicing, or conditioning vehicle
• Loading or unloading
• Maximum driving hours
• Not to exceed10 hours driving following 8
  consecutive off duty hours
• Not to exceed 15 hours of duty following 8
  consecutive off duty hours
• Not to exceed 70 duty hours in any consecutive 8
  day period

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A Feasible Driving Schedule

• Single driver
• Atlanta, GA to San Francisco, CA
• Mileage 2,440
• Average speed 50 miles/hour
• Driving hours 49

Driving Hours
8
16
24
32
40
49
on
off
on
off
on
17
off
on
8
16
off
8
on
16
off
8
on
16
off
8
16
8
16
8
0
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
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Most Aggressive Feasible Driving Schedule

• Single driver
• Atlanta, GA to San Francisco, CA
• Mileage 2,440
• Average speed 50 miles/hour
• Driving hours 49

Driving Hours
10
20
30
40
49
17
8
0
14
6
20
12
2
18
0
8
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
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TL Background Information

• No barrier to entry
• 500,000 interstate carriers
• 80 operate 20 or fewer trucks
• 72 operate 6 or fewer trucks
• Industry issues
• Fragmentation
• Severe competition
• Very low margins
• High fuel cost, fuel surcharge
• Driver shortage and high turnover

14
TL Background Information

• Types of carriage
• Irregular, dedicated, continuous
• Head-haul, backhaul
• Multi-stops
• Top carriers
• Schneider National
• J.B.Hunt
• M.S.Carriers
• Werner Enterprises
• Swift Transportation

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Truckload Topics

• Freight acceptance and solicitation
• Drop and swap
• TL economics 101
• Pricing of services

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Truckload Booking Process Load Acceptance
Composite score
Accept load
Reject load
Load profitability
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Composite Score Factors

• Contract compliance
• Customer importance
• Equipment and driver availability at origin
• Equipment and driver needs at destination
• Execution difficulty
• Windows for pickup and delivery
• Equipment requirements
• Dock doors compatibility
• Special handling requirements
• Team operation

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Drop and Swap

• Why drop and swap
• Duty hour problems
• Missing service
• Emergency driver requests

Calculations for drop and swap opportunities
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TL Economics 101
Trailer

• Cost breakdown
• Fixed
• Variable

Tractor

• Fixed cost is allocated on a time basis
• Variable cost is allocated on a mileage basis

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Tractor/Trailer OperationFixed Costs

• Tractor and trailer depreciation and interest
• Tractor 80,000, 7 years, 20 salvage, 8
  interest
• Trailer 20,000, 12 years, 25 salvage, 8
  interest
• Driver compensation
• Base compensation 45,000 (first)
• Base compensation 35,000 (second)
• Fringes 25
• Nights out 35 per night out
• Tags, taxes, licenses
• 3,000 per year

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Tractor/Trailer OperationFixed Cost Summary

• 50 WEEKS PER YEAR
• Single operation
• Annual cost 75,213
• Weekly cost 1,504
• Plus 35 per night
• Double operation
• Annual cost 118,963
• Weekly cost2,379
• Plus 70 per night

• Annual costs

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Tractor/Trailer OperationVariable Cost Summary

• Fuel and oil cost
• Fuel and oil cost per gallon 1.68
• Fuel efficiency in miles per gallon 6
• Fuel and oil cost/mile .28
• Tractor and trailer maintenance
• Maintenance cost per mile .06
• Tires cost per mile .04
• Total variable cost per mile .38

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Over the Road Tractor/Trailer Cost Example
San Jose, CA
Nashville, TN
Atlanta, GA
8,000
10,000
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Over the Road Tractor/TrailerScheduled Arrivals
and Departures

• Schedule for a Single Driver

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Over the Road Tractor/Trailer Estimated Cost

• Trip represents a full week (5 days)
• Fixed cost 1,504
• Nights out cost 5 X 35 175
• Variable operating cost .38 X 2,514 955
• Total trip cost 2,634
• Cost per mile 1.05
• Consider an incremental positioning cost

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Pricing of TL Transportation Services
Gross margin
20
25
30
Charge per trip
3,293
3,512
3,763
Charge per mile
1.31
1.40
1.50
Per mile stop-off charge
1.27 100
1.36 100
1.46 100
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LTL Transportation
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LTL Transportation Background

• LTL trucking requires a large investment in
  facilities
• Few major national and regional carriers
• For national carriers, tendency for smaller
  number of facilities
• Interlining traffic to gain geographical coverage
  at the required
• service frequency
• Relatively stable driver workforce
• Major players
• Roadway Express
• Yellow
• CNF
• American Freightways (FedEx)
• Arkansas Best
• U.S. Freightways

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LTL Transportation Background

• Typical shipments vary in size from 100 to 10,000
  pounds
• Going directly from shipper to consignee is not
  economical
• Shipments are typically transported via a hub and
  spoke system
• Shipper to origin spoke (satellite terminal)
• Origin spoke to origin hub (breakbulk terminal)
• Origin hub to destination hub
• Destination hub to destination spoke
• Destination spoke to consignee

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LTL Hub and Spoke NetworkShipper to Consignee
Consignee
Shipper
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Hub Operations

• Receiving spoke and hub loads
• Freight breakdown and sorting
• Relays
• Outbound load buildup
• Sending satellite and hub loads
• Local pickups and deliveries

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Illustration of Relays
St. Louis hub
Nashville hub
2
3
Driver B
Pup 1 Atlanta-Nashville Pup 2 Atlanta-St.
Louis Pup 3 Nashville- St.Louis
Atlanta hub
2
1
Driver A
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Freight Flow at Hubs
Pure pups from hubs spokes
Mixed pups Locals and from spokes
Strip pups
Relays
Load pups
Pure pups to hubs spokes
Pure pups Locals, to spokes, and to hubs
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Rail Transportation
35
Impact of Rail

• Carries more than
• 40 of nations intercity freight
• 70 of automobiles from domestic mfgs
• 64 of nations coal
• 40 of nations grain
• Class 1 rail freight volume in 1998 was 1.38
  trillion ton-miles
• Intermodal volume (trailers Containers) has
  nearly tripled in the past 20 years

36
Major Railroads

• Norfolk Southern
• CSX
• Burlington Northern Sante Fe (BNSF)
• Union Pacific
• Canadian Northern (CN)
• Canadian Pacific (CP)

37
General Freight Trains

• Averages
• 69 cars
• 2660 tons
• 21 miles per hour
• Sorted at Hump Yard or Switch Yard
• Local railroad picks up and delivers

38
Switch Yard
39
Unit Trains

• Sufficient volume for dedicated power
• Coal and Grain
• Long, slow, heavy
• No switching

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Intermodal Trains

• Types
• Trailer on Flatcar (TOFC)
• Double Stack
• Roadrailer
• Triple Crown
• Scheduled
• Estimated 9 trillion containers and trailers
  loaded on intermodal trains in 2000

41
Air Cargo Transportation
42
Air Cargo Background

• International air freight is 16 million tons
• 2 of total tonnage but 33 of value traded
• Annual traffic growth rate is 7.5
• Robust growth due to
• Just-in-time manufacturing and retailing
• Strong China growth
• Improvement in Asian crisis markets
• Air cargo key commodities are electronics,
  perishables, fashion apparel, and live animals

43
Top Air Cargo Carriers

• Top 10 air cargo carriers are
• Federal Express
• Lufthansa
• UPS
• Korean Airlines
• Singapore Airlines

• Air France
• Japan Airlines
• British Airways
• KLM
• United Airlines

44
Top Cargo Airports

• Top 10 air cargo airports are
• Memphis
• Los Angeles
• Hong Kong
• Miami
• Tokyo

• New York (JFK)
• Seoul
• Frankfurt
• Chicago
• Singapore

45
Key Players

• Carriers
• Combination carriers
• Integrators
• Freight forwarders
• Third party logistics service providers
• Ground handlers
• Customs brokers

46
Air Cargo Supply Chain
Pickup
Linehaul
Delivery
Forwarder
Combination carrier
Forwarder
Shipper
Consignee
Integrated carrier
Integrated carrier
Integrated carrier

• Forwarders MSAS, AEI, Circle
• Combination carriers American Airlines,
  Lufthansa
• Integrated carriers UPS, Federal Express

47
Cargo Shipment Activities
Three main sets of activities
Pre-shipping
Shipping
Post-shipping
48
Pre-Shipping Activities

• Markets, frequency, fleet
• Schedule
• Pricing
• Reservations
• Rating
• Routing
• Booking
• Revenue management

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Pre-Shipping Activities
Pricing contracts (Pricing)
Revise allotments (Revenue mgmt)
Ad-hoc space (Revenue mgmt)
Determine allotments (Revenue mgmt)
Booking requests (Rating, routing, revenue mgmt)
20 daysbefore departure
Flight departure
6-9 monthsbefore departure
Shipment arrival
50
Air Cargo Routing Process
Shipments
Compatibility
Routes
Sales Requests

• Origin-destination
• Connections
• Transit
• Aircraft type
• Containers
• Door size
• Commodity
• Terminal hours
• Temperature

LAX-NRT A2A 2,000 pds 4 LD3s Electronics
Check capacity availabilityDecrease capacity
51
Shipping ActivitiesAir Cargo Ground Handling
Receiving
Pickup
Land side
Air cargo terminal
Consolidation
Breakdown
Air side
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Air Cargo Ramp Activities at DFW Airport
Driver routes are often long
Zone 4
Cargo Terminal
Zone 1
Zone 2
Zone 3
Zone 5
Terminal A
Terminal C

• 1,000 Flights Arriving/Departing
• 1,500 Containers per day
• 20 Drivers Per Shift