Transport Management & Theory Practices (14)

Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 14
Transportation
Challenges and
Issues
1© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible website, in whole or in part.

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
2
Introduction
• Transport is an enabler of economic, political,
and social development
• In recent decades, consistently low fuel prices
and powers of intense competition push
transport rates lower and improve service levels
• Times may be changing. Pressures from:
– Fuel price volatility
– Capacity constraints
– Environmental-related impacts

Congestion and Transport
Infrastructure
• Congestion in transport network increases
supply chain costs
– Uncertainty created by congestion delays
requires retailers to carry additional inventory
– Delays require carriers to purchase and operate
additional transport equipment and utilize
additional labor
– Delays on the network also impose additional
costs at transport terminals
3

Highway Congestion and
Infrastructure
• High percentage of National Highway
System operates under congested conditions
– Top 10 bottlenecks create 1.5 million annual
truck hours of delay at $30/hr. Cost does not
include inventory-related shipper costs
• Forecasts indicate congestion will worsen
– Funding under existing tax structure not
sufficient to even maintain existing service
levels
4

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.
5

Railroad Congestion and
Infrastructure
• Surging demand for trailer-on-flatcar (TOFC)
and container-on-flatcar (COFC) services
– Creating congestion on portions of mainline rail
network
– Projections indicate congestion will spread to 30%
of network by 2035 if capacity not increased
• Principal means for adding capacity –double
tracking portions of mainlines
– Investment expense is a constraint
6

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.
7

Waterway Congestion and
Infrastructure
• Aging inland waterways infrastructure cause
bottlenecks
– 31% of vessel passages experience delays
• Coastal ports, particularly on West Coast, under
congestion pressures due to:
– Growth of international trade traffic
– Deeper channel draft and dockside requirements
due to larger containership capacities
8

Waterway Congestion and
Infrastructure
• Port congestion relief strategies
– Investments to deepen channels
– Investment in technology and equipment by
carriers and port operators. Intended to:
• Speed ship loading and unloading operations
• Relieve landside congestion in terminals and improve
access to port areas
– Longer port operating hours
– Challenge to balance with environmental concerns
9

Sustainability: The Green Supply Chain
• Can “carbon footprint” and firm costs be
reduced simultaneously?
– More firms discover the answer is yes
• What is “carbon footprint?”
– Generally associated with the amount of carbon
dioxide (CO2) emissions
– Some argue for more comprehensive definition
encompassing full life cycle greenhouse gas
emissions
10

– the amount of carbon (usually in tonnes) being
emitted by an activity or organization (Global
Footprint Network)
– The total amount of greenhouse gases produced
to directly and indirectly support human
activities, usually expressed in equivalent tons of
carbon dioxide (CO2).
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– Your carbon footprint is the sum of all emissions of CO2 (carbon
dioxide), which were induced by your activities in a given time
frame.
– Each of the following activities add 1 kg of CO2 to your personal
carbon footprint:
• Travel by public transportation (train or bus) a distance of 10 to 12 km
(6.5 to 7 miles)
• Drive with your car a distance of 6 km or 3.75 miles (assuming 7.3 litres
petrol per 100 km or 39 mpg)
• Fly with a plane a distance of 2.2 km or 1.375 miles.
• Operate your computer for 32 hours (60 Watt consumption assumed)
• Production of 5 plastic bags
• Production of 2 plastic bottles
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– Greenhouse gases can be emitted through transport, land
clearance, and the production and consumption of food,
fuels, manufactured goods, materials, wood, roads,
buildings, and services
– Scholars suggest the most effective way to decrease a
carbon footprint is to either decrease the amount of energy
needed for production or to decrease the dependence on
carbon emitting fuels
13

• Forces motivating business interest
– Corporate responsibility to society
– Desire to increase or maintain brand reputation
– Competitive pressures
– Internal and external stakeholder pressures or
expectations
– Desire to lower fuel costs
– Current and potential regulatory pressures
14

• Logistics-related impacts on the green
supply chain
– Fuel consumption/efficiency
– Packaging and waste disposal
– Systems interrelationships
• Transport consolidation vs. inventory cost tradeoff
– Transport maxims: “don’t ship air” and “don’t ship water”
– Consolidation reduces network miles, fuel consumption
– Consolidation means larger shipment sizes and may
impact supply chain responsiveness
15

– Systems interrelationships (cont.)
• Packaging for market appeal vs. transport cost
– Market appeal often drives tendency toward larger packages
– Larger packages contain more air and take up more space in
transport vehicle – result is more transport used to move given
amount of product
• Adding water to product to “enhance” product and
market appeal vs. transport cost
– Adding water to liquid products gives appearance to consumer
of getting more for the money
– Adding water increases transport, warehousing, packaging and
retail costs
– Example: Walmart initiative with liquid detergents
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• Carrier efforts to reduce fuel consumption
– Purchase more fuel efficient equipment
– Use of “clean” fuels and hybrid vehicles
– Working with shippers to:
• Reduce overall network miles
• Increase load consolidation opportunities
– Participation in the EPA’s “Smart Way Transport
Partnership”
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• Many opportunities for greener supply chain exist
– Subway restaurants provide one example
– Goal : to become the greenest quick-serve restaurant by
eliminating waste and inefficiency in
• Energy
• Resource utilization
• Waste materials
• Food safety
– Results
• reduced carbon emissions by 120,000 metric tons
• Reduced oil consumption by 277,000 barrels/annually
• Reduced truck miles by 9.3 million miles and shipment by 16,653
18

Fuel Cost and Consumption
• Wild swings in fuel prices since 2005 creates
significant supply chain cost uncertainty
– Fuel price volatility impacts some modes more
than others due to differences in fuel intensity
• Motor carriers
– Very fuel intensive, approaching annual labor
costs as the largest expense category
– Annual fuel cost rose 70% from 2004-2008
– Fuel surcharges used to pass along higher fuel
prices when possible
19

• Air carriers
– Fuel intensive, the most sensitive mode to fuel
cost changes
– Fuel is now the largest operating expense item
• Traditionally, fuel was 12%-15% of operating costs
• In 2007, fuel rose to 30% of operating costs,
contributing greatly to some airline bankruptcies
– Surcharges used to recover higher fuel costs
• However, intense competition deters surcharges
20

• Water carriers
– Water carriage is relatively fuel efficient
– Nonetheless, fuel price increases do impact
operating costs, particularly for ocean carriers
• Marine bunker fuel prices rose 100% from 2005 to
mid-2008
• For some, fuel reached 50%-60% of operating costs
– Fuel surcharges have been imposed but again,
competition puts downward pressure on prices and
deters significant surcharges
21

• Rail carriers
– Rail is a relatively fuel efficient mode
– Rail has not been impacted to the same degree as
other modes by the rise in fuel prices
– Rail benefits from fuel price increases as some
traffic shifts to intermodal service for long hauls
• Pipeline carriers
– Pipelines are a relatively fuel efficient mode
– Costs not significantly impacted by higher fuel
costs
22

• Carrier responses
– Fuel surcharges have been the principal response
• Surcharges have become more sophisticated,
involving formulas that closely match fuel price
fluctuations
• However, no standard industry practice on surcharge
formulas or policy
– Service capacity and network rationalization
• Reduce linehaul cruise speed
• Focus efforts on shorter traffic lanes
• Cutting or reducing service on unprofitable routes
23

– Improve operating efficiency of carriers
• Fleet replacement
– More fuel efficient, lighter weight vehicles
– Alternative fuel vehicles
– Use IT to improve operations through greater
visibility of assets
• Track and trace equipment in real time
– Improves security, enables fleet size reduction, increases
responsiveness to exception reports
• Enables more timely and accurate information
sharing between carriers and shippers
24

Collaboration and Visibility:
Art and Science
• The “science” dimension
– Refers to the models and software apps. used to
improve supply chain design and execution.
Examples:
• Network optimization models
• Warehouse Management Systems (WMS)
• Transportation Management Systems (TMS)
• Scheduling models, inventory control models
– Also refers to application of technology such as
RFID tags and GPS systems
25

Art and Science
• The “art” dimension
– Refers to the relationship building within and
between organizations that is necessary for
collaborative supply chain management
– Collaboration fosters leveraging opportunities
– Operations level collaboration initiatives include:
• Coordinating shipping and loading/unloading times at DCs
• Longer hours of operation at drop yards and DCs
• Faster payments for carriers
• Sharing capacity needs forecasts with carriers
26

Art and Science
– Strategic level collaboration initiatives
• Many are focused on sharing information
– In vendor managed inventory programs, customer data covering
on-hand inventory, SKUs on order, sales and stockouts by SKU,
inventory turns forecasts, and promotional forecasts are shared
with the vendor
– The same info is shared with the logistics service provider
– The info enable the vendor and logistics provider to dramatically
» Reduce DC out-of-stocks and number of expedited orders
» Increase inventory turns
» Smooth the flow of products through the supply chain
» Improve scheduling of pickups/deliveries, reduce empty miles
27

Art and Science
• Visibility – what does it mean?
– No universal definition
• Initially referred to ability to “see” assets, such as
– Amount of inventory on-hand
– Number and location of equipment
– Visibility application capabilities have expanded
• Status of orders, inventory turns, status of shipments across
the supply chain, alerts on service disruptions
• Information has become more useful for decision making
28

Art and Science
– Dole, Inc. track and trace program is example of
enhanced visibility capability
• Application is fully automated
– Uses RFID, GPS and cell phone technologies
– Coverage starts in harvest fields and runs through cooling center
warehouses, carrier terminals and sorting plants
– Products are tagged as they leave the fields
– Time and quantities are tracked, temperature will be added
• Enables better understanding of how product moves
through the supply chain
• Provides alerts if time and temperature move out of control
• May lead to supply chain design/operation improvement
29

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