Chapter 3: Transportation Modes

1. Motor Carriers
2. Railroads
3. Airlines
4. Water (Shipping) Carriers
5. Pipelines
 Transportation Modes

Mode of transport is a term used to distinguish between

different ways of transportation or transporting people or
goods. The different modes of transport are air, water,
and land transport, which includes Rails or
railways, road and off-road transport. Other modes also
exist, including pipelines, cable transport, and space
transport
Components of a mode of transport

 A transport mode is a combination of the following:

• Transportation
infrastructure: thoroughfares, networks, hubs (stations, bu
s terminals, airport terminals), etc.
• Vehicles and containers: motor
vehicles, automobiles, motorcycles, trucks, wagons, train
s, ships, and aircraft
• A stationary or mobile workforce
• Propulsion system and power supply (traction)
• Operations: driving, management, traffic signals, railway
signalling, air traffic control, etc.
Intermodal of transportation
Maritime Shipping
This map of shipping routes illustrates the relative density of
commercial shipping in the world's oceans.
The Global Transportation System - green: global roads ; blue: shipping routes ; red: air
networks
 Select
modes of
transport
ation
1. Motor Carriers
 Types of Motor Carriers
Motor Carrier Industry

For-Hire Private

Local Intercity

Exempt Common Contract Exempt

For-hire vs. Private Carriers

 Provide services to the public.

For-hire
 Charge a fee for the service.
Carriers

 Provide a service to the industry or company that

Private owns or leases the vehicles.
Carriers  Do not charge a fee, but incur cost.
 Transport commodities for hire as exempt for-hire
carriers.
 Classification of For-hire Carriers

5 1  Local carriers pick up and deliver

Regulated Local vs. freight within the commercial zone of
vs. Exempt Intercity 1 a city.
 Intercity carriers operate between
4
specifically defined commercial
Common
General vs. zones.
vs.
Specialized Contract  Local carriers and intercity carriers
2 often work in conjunction.
TL vs. LTL
3
 Classification of For-hire Carriers

5 2  Common carriers are required to

serve the general public upon
Regulated Local vs.
demand, at reasonable rates, and
vs. Exempt Intercity 1
without discrimination.
4 Further classified by the type of
Common commodity authorized to haul
General vs. vs.
 Contract carriers serve specific
Specialized Contract
shippers with whom the carriers
2 have a continuing contract.
TL vs. LTL
3 Dedicated carriage over
“dedicated” regular routes
 Classification of For-hire Carriers
3  TL carriers provide service to
5 shippers who tender sufficient
volume to meet the minimum
Regulated Local vs.
weights required for a truckload
vs. Exempt Intercity 1
shipment.
4  LTL carriers provide service to
Common shippers who tender shipments
General vs. vs. lower than the minimum truckload
Specialized Contract quantities
2 “Heavy LTL” motor carriers
TL vs. LTL
3 (upper end of LTL shipments)
 Classification of For-hire Carriers

5
Regulated Local vs. 4  Specialized motor carriers haul a
vs. Exempt Intercity 1 special commodity such as:
Odd-sized and/or heavy freight
4
Common Liquids products
General vs. vs. Freight requiring controlled
Specialized Contract temperature
2 Hazardous materials
TL vs. LTL
3
 Classification of For-hire Carriers

5
Local vs. 5  An exempt for-hire motor carrier
Regulated transports exempt (unregulated)
vs. Exempt Intercity 1
commodities owned by others for
4 compensation.
Common
General vs. vs.  The exempt commodities usually
Specialized Contract include unprocessed or
unmanufactured goods, fruits and
2 vegetables, and other items of little
TL vs. LTL
3 or no value.
Carrier Selection
 Your Shipping Partner?
 Evaluation:
 Transports the package whether it’s 5km or 5000km
 Provides tracking information
 Delivers the package to the customer’s front door
 Records when the package is actually delivered
 Criteria:
 Price:
 Speed/time, Responsiveness
 Capabilities
 Services, Claims Record, Reliability
Characteristics of the Motor
Carrier Industry
 The Motor Carrier Industry
90.5% of these
 Large in Number, Small in Size carriers operate with
6 or fewer vehicles.

US
Distribution
of Motor
Carriers
2012

 Market Structure and Competition

Monopolistic Competition Oligopolistic Competition

A large number of relatively A small number of relatively large firms with some
small firms with relative freedom degree of capital constraint for entry.
of entry and exit due to limited • LTL. Significant investment in a network of terminals
capital requirement. • Special equipment carriers. Larger investments in
 TL sector with strong equipment and terminals than general freight
competition with private • Large, national TL carriers. Significant capital
carriers. investment for scale and geographic scope of
operations
 Operating and Service Characteristics:
General Advantageous Service Characteristics

Accessibility (Door-to-door services)

Speed (Transit time)

Universal Modal Connector

Carrying Capacity
(Inventory levels and service frequency)
Loss and Damage
(Relatively damage free)
Operating and Service Characteristics:
Equipments
In most cases, equipment represents the largest operating asset
that a carrier maintains.

Equipment Position
Configuration Decisions and
Deployment

Tractor . Axle (e.g. single, twin), More important in an

engine, and drive train combinations. LTL operation than in a
Trailer . Length (e.g. 28 feet, 45 feet, TL operation.
48 feet, 53 feet) and type (e.g. dry
van, refrigerated, ragtop, container,
flatbed).
Images courtesy of Texas Department of Transportation
Operating and Service Characteristics:
Vehicles
Motor Carrier Vehicles

Line Haul City (Straight)

 Line-haul vehicles are used to  City straight trucks are used

haul freight long distances within a city to provide pickup
between cities. and delivery service.
 Usually a tractor–trailer  Normally smaller than line-
combination of three or more haul vehicles and are single
axles. units.
 Line-haul Vehicles

Size (length)
Cargo-carrying
Federal/state maximum weight limits Capacity of Line-
haul Vehicles

Density of the freight

 City Straight Vehicles

 The city truck has the cargo and power

unit combined in one vehicle.
 The typical city truck is approximately 20
to 25 feet long with a cargo unit 15 to 20
feet long.
 “Loaded to ride” – Use of small trailers
(28 feet) for pick up/deliver in the city
and for line-haul.

Images courtesy of Internationale Automobil-

Ausstellung (IAA)
 Special Vehicles
Dry van: Tank trailer: Used
Standard trailer or to haul liquids like
straight truck with petroleum products.
all sides enclosed.

Open top: Trailer Refrigerated

top is open to vehicles: Cargo
permit loading unit has controlled
through the top. temperature.

Flatbed: Trailer High cube: Cargo

has no top or unit is higher than
sides, used normal to increase
extensively to cubic capacity.
haul steel.
Operating and Service Characteristics:
Terminals
 Pickup and Delivery Terminals (PUD),
also called satellite or end-of-the-line (EOL)
1
terminals, most commonly found in the LTL
hub-and-spoke system .

 Break-bulk Terminals, commonly

2 found in the LTL hub-and-spoke
system .

 Relay Terminals necessitated by the

3 maximum hours of service regulation
that is imposed on drivers.
Pickup and Delivery (PUD) Terminals
 Provide the pickup and/or
delivery services for freight on
peddle runs.
 Two elements of a peddle run
 Stem time
 Peddle time
 Services performed
 Shipment consolidation and
distribution operations.
 Vehicle dispatch operations
Terminal Peddle Run
 Other services e.g. tracing,
rating and billing, sales, and
claims.
Pickup and Delivery (PUD) Terminals:
example
Unloading time

Moving time

Moving time Unloading time

Sai Gon Coop
Warehouse in
Song Than
Industrial zone

Moving time
Unloading time
 Break-bulk Terminals

Break-Bulk Terminal
 Provide an intermediate point where freight with common destinations from
the PUD terminals is combined to facilitate higher utilization of vehicle
capacity.
 Services performed
 Shipment consolidation and dispersion (or break-bulk) operations
 Long-haul driver domiciles
 Break-bulk Terminals: example

Sai Gon Coop

Warehouse in
Red pepper supplier
Song Than
Industrial zone

Potato supplier

Tomato supplier
 Relay Terminals

Relay Terminal

 Relay terminals are different from the PUD and break-bulk terminals in that
freight is never touched.
 Services performed. At the relay terminal, one driver substitutes for another
who has accumulated the maximum hours of service (11 hours after 10
consecutive hours off duty).
 “Slip seat” and sleeper team – An alternative to the use relay terminal
Relay Terminals: example
 LTL Operation Recap

The LTL carrier PUD vehicle At the terminals,

1 collects the shipments

at the shipper’s dock
with a PUD vehicle.
2 returns to a PUD
or break-bulk
terminals.
3 the packages are
sorted by their
final destination.

The trailers are unloaded

The shipments are

4
at another break-bulk

5 terminal, then sorted &

reloaded into a PUD
vehicle for delivery.
loaded into 28-foot,
48-foot, or 53-foot
trailers for line haul.
Hub and spoke model
 Example
BX bến thành

BX miền đông

BX miền tây
Terminal Management Decisions
 Number of Terminals
1  The degree of market penetration
and customer service desired
 Terminal size vs. peddle run
distance tradeoffs

 Location of Terminals
 Hours-of-service regulation
 Consideration of backhauls
2 between terminals
 Market penetration and customer
service desired
 Cost Structure of Motor Carriers
High levels of variable costs and relatively low fixed costs, with higher
fixed cost in LTL operation due to terminal systems

Low Motor High

Fixed Carrier Variable
Costs Cost Costs

The public investment in the Labor

highway system Fuel
Ability to increase /decrease Maintenance
number of vehicles in short Highway user fees
periods of time and in small (e.g. fuel tax and
increments of capacity vehicle registration)
 Economies of Scale (EOS)
“Motor carriers are regarded as having limited
economies of scale.”

 Small-scale operations are viable and

competitive.
 Long-run economies of scale
 Not significant in TL motor carrier
segment
 Some degree of EOS in the LTL segment
through greater use of indivisible inputs
such as terminals, management
specialists, and information systems.
 Operating Ratio
“Operating ratio is a measure of operating efficiency
and a benchmark of financial viability.”

 The operating ratio measures the percent of

operating expenses to operating revenue.
 (Operating expenses  Operating revenue) x
100
 LTL motor carriers – between 93 and 96
 TL motor carriers – low to mid 80s
 Other Shipping Cost Factors

 Shipping cost factors :

 Volume
 Distance
 Package weight
 Delivery time
 Issues:
 Calculate the exact cost of picking, packing and shipping → calculate
approximate cost, shipping choices and policies (methods, time to receive
orders, …)
 Pricing strategy for shipping: standard fees or not ?
Operations Management Decisions

Transportation Problem: assignment

Vehicle Routing Problem
Capacitated Plant Location Model
 Transportation Problem
m n
Minimize  cij xij
i =1 j =1
n
S.t. x
j =1
ij = ai ; i = 1, 2,..., m
m

x
i =1
ij = b j ; j = 1, 2,..., n

xij  0; i = 1, 2,..., m; j = 1, 2,..., n

Where: ai = total amount to be shipped out of source i
b j = total amount to be shipped into sink j
 Transportation Problem Solution:
Software Tools
Using “solver” functionality of Excel: for
small size problem only
Using commercial software such as
LINGO, CPLEX:
 Can solve for large size problems
 Need to buy but not so expensive
 Example
While the shipping cost may be lower between certain plants and distribution centers, Meko
has established shipping routes between every plant and every warehouse. This is in case
of unforeseen problems such as a forced shutdown at a plant, unanticipated swings in
regional demands, or poor weather along some routes. The unit costs for shipping 1000
units from each plant to each warehouse is given in the table below:
Shipping Costs per 1000 units in $

Hanoi Danang HCMC Cantho

Haiduong 250 420 380 280
Dongnai 1280 990 1440 1520
Binh Duong 1550 1420 1660 1730

The goal is to determine a pattern of shipping that minimizes the total transportation cost
from plants to warehouses. Develop mathematical model for this case.
 Example
The production quantities at the factories in the next month are expected to be (in
thousands of units)
____________________________________
Plant Anticipated Production (1000s)
_____________________________________
HaiDuong 45
Dongnai 120
Binhduong 95
_____________________________________
Since the total production at the three plants is 260 thousands units, the amounts shipped
to the 4 warehouses will be (rounded to the nearest unit)
___________________________________
Warehouse shipment quantity (1000s)
___________________________________
Hanoi 80
Danang 78
HCMC 47
Cantho 55
___________________________________
 Solution
𝑀𝑖𝑛𝑖𝑚𝑖𝑧𝑒 𝑍 = 250𝑥11 + 420𝑥12 + 380𝑥13 +
⋯ + 1550𝑥31 + 1420𝑥32 + 1660𝑥33 + 1730𝑥34
Subject to:
x11+x12+x13+x14 = 45
x21+x22+x23+x24 = 120
x31+x32+x33+x34 = 95
x11 + x21 + x31 = 80
x12 + x22 + x32 = 78
x13 + x23 + x33 = 47
x14 + x24 +x34 = 55
 Solution

 Solution:
x14 = 45, x21 = 42,
x22 = 78, x31 = 38,
x33 = 47, x34 = 10
 Vehicle Routing Problem:
Clarke- Wright Algorithm
 There is a central depot from which all vehicles depart and return. We assume
that there are known costs of traveling from the depot to each customer location
and between customers: cij, i = 0, .., n and j = 1, … n. The question is how to
assign vehicles to customer locations to meet customer demand and minimizes
delivery costs, subject to not exceeding the capacity constraint or other
constraints.
 Step 1: Calculate saving for all pairs of customers
sij = c0i + c0j – cij
 Step 2: Rank the customer pairs in decreasing order of saving sij , ties are
broken arbitrarily.
 Step 3: Combine customers and create vehicle routes by considering the pairs
in ranked order, checking each time that we do not violate the problem
constraints
 Step 4: repeat step 3 until all pairs have been considered
 Example
 Kinh Do is a small bakery that supplies 5 major customers with bread each morning. If
we locate the bakery at P0(0,0), then the five customer locations and their daily
requirements are
___________________________________________
Customer Location Daily requirements
___________________________________________
1 (15, 30) 85
2 (5, 30) 162
3 (10. 20) 26
4 (5, 5) 140
5 (20, 10) 110
____________________________________________
The bakery has several delivery trucks, each having a capacity of 300 loaves. We shall
assume that the cost of traveling between any two locations is Euclidean distances. The
goal is to find a delivery pattern that both meets customer demand and minimizes
delivery costs, subject to not exceeding the capacity constraint on the size of the delivery
trucks
 Solution
 We have the cost matrix as follows:

0 1 2 3 4 5
0 33.5 30.4 22.4 7.1 22.4

1 10 11.2 26.9 20.6

2 11.2 25 25

3 15.8 14.1

4 15.8

 Step 1: compute the savings for all pairs (i, j), 1  i < j  5
s12 = c01 + c02 – c12 = 33.5 + 30.4 – 10 = 53.9
s13 = 44.7; s14 = 13.7; s15 = 35.3; s23 = 41.6;
s24 = 12.5; s25 = 27.8; s34 = 13.7; s35 = 30.7; s45 = 13.7
 Solution
 Step 2: The ranking
(1,2), (1,3), (2,3), (1,5), (3,5), (2,5), (1,4), (3,4), (4,5), (2,4)
 Step 3:
 Combining 1 and 2 on the same route → load = 85 + 162 = 247 < 300
→ new route: 0 – 1 – 2 – 0
 Combining 1 and 3 → load = 247 + 26 = 273 < 300 → new route: 0 –
3 – 1 – 2 – 0.
 Combining 2 and 3 → already
 Combining 1 and 5 → load = 273 + 110 > 300
 Combining (3, 5), (2, 5), (1, 4), (3,4) are infeasible
 Step 4:
 Combining 4 and 5 → load = 140 + 110 = 250 < 300
 Combining 2 and 4 → infeasible
The capacitated plant location model
The capacitated plant location model: solution
 Transportation Manager Activities
 Contract negotiations
 Efficiency improvement
 Evaluation of customer service quality levels
 Supervision
 Skill requirements
Current Issues

1 Safety

2 Technology

3 LTL Rates

4 Financial Stability
 Current Issues (continued)
Safety Issues Technology Issues

Importance Importance
 FMCSA rules for motor carrier safety  Enhance management control
fitness inspections  Enable timely communications
 Safety impact on profitability  Enhance environmental safety in
Key issues HazMat movement
 Labor safety Key technology
 Alcohol and drug abuse  Transportation Management System
 Drivers’ hours of service and fatigue (TMS)
 Vehicle size and weight  Satellite technology and GPS systems
 Electronic on-board recorders(EOBRs)
 Current Issues (continued)
LTL Rate Issues Financial Stability Issues

Importance Importance
 Shippers must exercise caution  Carrier financial stability is now an
because federal oversight and important aspect of carrier selection.
enforcement is greatly Key issues
diminished.  High operating ratios (exceeding
Key issues 95%) are indications of financial plight
 Limited anti-trust immunity and low competitive rates.
 No tariff filing requirements  Recurring problem of overcapacity
 Homework

Create and solve the example of the

capacitated plant location model by Solver
2. Railroads
 Operating and Service
Characteristics of Railroad Carriers
Commodities Hauled

Notable
trend toward
Non- movements
More than 74 of
percent of total
bulk
Cargo intermodal
rail carloadings containers
in US in 2012 Bulk
and trailers,
involved the Cargo
carrying
movement of high-value
bulk materials. Examples: coal, farm finished
products, chemicals, products.
nonmetallic minerals
 The North–South railway
the principal railway line
serving the country of
Vietnam
Total length of 1,726 km
1m single-track gauge
line
Terminals: Hanoi (begin)
and Saigon (end)
169 Stations (included 2
terminals)
Railway market
Commodities Hauled
 Constraints and Strengths

 Large carrying capacity (few size or weight

constraints).
 Capable of handling almost any type of cargo.
Strengths
 Railroads assume liability for loss & damage.

 Fixed rights-of-way impedes door-to-door service. Constraints

 Through service prone to delays in delivery.
 Relatively high percentage of goods damaged in
transit.
Strength
Equipment – Types of Rail Car
Boxcar: Standardized roofed freight car with sliding doors
on the side used for general commodities (plain); can be
specially modified (equipped) for specialized merchandise,
such as automobile parts.

Hopper car: A Covered hopper:

freight car with the A hopper car with a
floor sloping to roof designed to
one or more transport bulk
hinged doors used commodities that
for discharging need protection
bulk materials. from the elements.
Equipment – Types of Rail Car
(continued)
Flatcar: A freight car with no top or sides
used primarily for TOFC service, and
movements of machinery and building
materials.
Refrigerated car: A freight car with
refrigeration equipment for temperature
control.
Tank car:
Gondola: A freight Specialized car
car with a flat bottom, used for the
fixed sides, and no transport of
top used primarily for liquids and
hauling bulk gases
commodities.
 Equipment – Rail Car Size and
Fleet Composition
Boxcars Others
Trends
6.9% 0.2%
 Significant increases in
Tank Cars Covered average capacity of rail
21.8% Hoppers cars.
31.8%  Fleet composition
Hoppers shifted from the
10.8% Gondolas Flatcars accommodation of
15.2% 12.2% manufactured
commodities to bulk
Refrigerat
goods.
ed Cars
1.1%
Types of Freight Equipment, 2012
 Intermodal (Piggyback) Services
 Designed to increase service levels to
intermodal customers.
 Largely segregated from regular freight,
with dedicated intermodal trains running on
regularly scheduled departures and priority
operating schedules.
 Directed to non-bulk, manufactured
products.
 Competes directly with truckload (TL)
service, but some TL carriers are also
major customers.
Intermodal
multimodal
 Intermodal (Piggyback) Services
TOFC COFC

Trailer on Flatcar Container on Flatcar

 Transports highway trailers on  Transports shipping containers on
railroad flatcars. railroad flatcars.
 Combines line-haul efficiencies of rail  Land-bridge operations key
with the flexibility of motor transport. component of international trade.
 On-time deliveries, regularly  Double-stack container trains greatly
scheduled departures, and fuel improves rail equipment and train
efficiency major reasons for growth. productivity.
 Unit Train Services
 Specialized, one commodity
trains used frequently for coal
and grain shipments.
 Run on priority service
schedules from origin to
destination, with no stops in-
transit.
 Shippers often own rail cars. Images courtesy of cnet.com

 Advantage: Improved overall car utilization

 Disadvantage: Empty backhauls
 Recent Emphasis on Equipment
and Technology

Reduce Damages Reduce Improve Back

In-transit Delays Office Services
Improved
suspension system Terminal Elaborate
End-of-car improvements information and
cushioning devices Equipment redesign communication
In-car force Right-of-way systems for car
instrumentation improvements ordering , billing,
packages Microprocessors for and car tracking
Quality certification communications and
program (M-1003) signaling
 Cost Structure
of the Railroad Industry
Fixed Costs Semi-variable Costs Variable Costs

High proportion of Include maintenance Vary substantially with

fixed costs of rights-of-way, traffic volume
 Right of way structures &  Labor cost
ownerships equipment Largest element
 Terminal facilities  Necessitated by Multiple labor unions
(e.g. freight yards, exposure to weather Outdated work rules
terminal areas and rather than use.  Fuel and power costs
sidings)  Often deferred Second largest
 Equipment (especially during financial More productive &
locomotives) and difficulties. fuel efficient
various types of locomotive
rolling stock
Example
of cost
Example
of cost
 Short-run Economies of Scale
Given the high fixed costs, railroads operate under conditions of increasing
returns until capacity is reached. Per-unit costs decline as fixed costs are spread
out over an increased number of units.

Case 1 Case 2 +20%

Traffic
Fixed costs $3.5 M $3.5 M
Variable costs $2.5 M $3.0 M
Total costs $6.0 M $6.5 M
Revenue $7.0 M $8.4 M
Profit $1.0 M $1.9 M
Cost per ton $0.03 $0.027
 Current Issues Facing
the Railroad Industry
Scarce Nature of railroad
availability work (long hours,
5
High rates of away from home &
Substance low supervision)
services
Local Abuse Employee
Additional
Drayage 1 assistance
transit time
4 programs (EAPs)
Cost
disadvantage Large element
Usually not Small Energy of variable
unionized Railroads costs
Financial
assistance 2 Important enablers
from local and 3 Technology
of services and
state operations
governments
 Issues
 Scheduling time table to match with
customer demand

 Scheduling stop station to avoid collision

and minimize traveling time
 Homework

Case 6-1
3. Airlines
 Overview of the Airline Industry
Types of Air Carriers

Air Carriers

Private For Hire

Type of Services Annual Revenue

Majors Nationals Regionals

All Cargo Air Taxi Commuter Charter International

 Market Structure
A relatively large number of airline companies exist, but a small number (10)
account for more than 90 % of the total revenue.

Top 10 airlines in US by various ranking in 2013

Market Structure (continued)

Top 10 airlines in US by various ranking in 2013

 Intramodal and Intermodal
Competition

Intermodal Competition Intramodal Competition

 Limited competition from  Intense competition among air
other modes for long distance carriers in terms of rates and
(800+ miles) trips in both service as driven by:
passengers and freight New entrants in selected
markets. routes (markets)
Market coverage expansion
Excess capacity
 Service and Cargo Competition

Service Competition Cargo Competition

 The frequency and timing of  Low transit time emphasis
flights on a route primary  Door-to-door service through
service competition. contracts with motor carriers, or
 Advertising used to through own fleets of delivery
differentiate services (e.g. vehicles.
amenities, frequent flyer  Increased competition from surface
programs). carriers entering air cargo business.
 Reduced passenger travel creates
 No-frills service
excess capacity and increased
competition in cargo business.
 Operating and Service
Characteristics of Air Carriers
Constraints and Strengths
 High terminal-to-terminal speed
 Reliability (low transit time variation)
 Low rates of damages
Strengths

 Limited accessibility. Constraints

 Reduced frequency of flights.
 High service rates.
 Added access and terminal time and cost
significant for short distances (under 800 miles).
Equipment – Types of Aircrafts

There are several

different sizes of
airplanes in use, from
small commuter
planes to huge, wide-
body, four-engine
planes used by the
nationals.

Example: Delta
Airlines Fleet
 Terminals (Airports)
 Government (state and local) invest and
operate airports and airways.
 Certain airports in the carriers’ scope of
operation become hubs, similar to the motor
carrier’s break-bulk terminal.
 Air carriers pay for the use of the airport
through:
 Landing fees
 Rent and lease payments for space
 Taxes on fuel and airline tickets
 Aircraft registration taxes

 Airport terminals provide services to passengers, such as restaurants, banking centers,

souvenir and gift shops, and snack bars.
 Users pay a tax on airline tickets and air freight charges.
 Cost Structure
High Variable and Low Fixed Costs
 Airport and
airways usage Low fixed-cost
fees are variable structure is
in nature. attributable to
 Fuel costs (34%) Variable publicly
Fixed
and labor costs Cost provided
(25%) are major Cost airways and
(80%)
elements of (20%) terminals.
operating costs.
 Operating costs
vary by different
types of aircraft
used.
 Economies of Scale and Density
Short-run economies of plane size and utilization are significant in
the air carrier industry.

Economies
of large-scale Economies
Economies
operations of Density
of Scale

Economies of scale for aircrafts and Achieved from having

integrated communication network. significant volume
The inability to inventory unused seats between an origin–
indicates existence of economies of destination pair.
scale for aircraft.
Sufficient demand must exist.
 Rates
Passenger Service Pricing Cargo Service Pricing

Discount Pricing. The price of seats on Cargo pricing is dependent mainly on

different flights and the price of the same seat on weight and/or cubic dimensions. Other
a particular flight can vary due to: factors affecting cargo rates:
 Competition  Over-dimensional charge for low-density
 Time and day of departure/return cargo (< 8 cubic ft.)
 Level of service (e.g. first class, coach)  Special services (e.g. armed guards)

 Advance ticket purchase

 Rates
Measures of Operating Efficiency

 Major and national airlines use a hub approach to their service,

which contributes to operating efficiency.
 Important measures of operating efficiency
 Operating ratio = (Operating Expense  Operating Revenue)  100
 Load factor = (Number of passengers  Total number of seats)  100
 Rates
Relationship between Plane Size & Operating Efficiency

Plane Seats Passengers Load Operating Hourly operating

factor cost per cost per
hours passenger

B747-400 367 239 65% $8,443 $35.39

B747-400 367 80 21.8% $8,443 $105.54

DC-9 101 80 79.2% $2,071 $25.89

 Current Issues Facing
the Airline Industry
Administrative
Accident rates
Substance
3 agencies:
Department of
abuse
Security Homeland Security &
Safety Transportation
Sophisticated
equipment and Security
programs facilitate Administration (TSA)
high speed Security-related
transport 1 initiatives:
Passenger &
Automated
information
2 Technology luggage screening,
processing carry-on limitations,
programs and screening of
Air traffic freight carried on
control system passenger airlines
 Issues in Air Transportation
Management

Airline Planning
 Flight scheduling
 Fleet assignment
 Aircraft routing

Forwarding Operations
 Order management
 Cross-docking operations: receiving,
consolidation, classification,…
 Delivery
 Flight scheduling
 Flight scheduling is
the starting point for
all other airline
planning and
operations.
 The flight schedule is
a timetable consisting
of what cities to fly to
and at what times
 Goal: match
customer demand to
maximize profit
 Fleet Assignment
 Following the
construction of a
flight schedule and
its corresponding
network, the next
step is to assign the
right fleet type to
each flight in the
schedule.
• The task of fleet assignment is to match each aircraft type in
the fleet with a particular route in the schedule
• Goal: maximize utilization of aircraft
 Aircraft routing
 The solution obtained from
the fleet assignment in the
previous chapter identifies
the flow of fleet through
the network
 Aircraft routing is the
process of assigning each
individual aircraft (referred
to as tail number) within
each fleet to flight legs
Transshipment
or Cross-
docking
 Homework

 Case 7-1
4. Water (Shipping) Carriers
Overview of the Water Transport Industry
Types of Carriers

Water Carriers

For-Hire Private

Excempt Regulated

Common Contract
 Industry Classification by
Waterway Used
1 Great Lakes Carriers
 Provide services between ports on Great Lakes.

2  Lake ships tend to remain on lakes.

 Lake ships can access Atlantic and Gulf coast ports via
Great St. Lawrence Seaway (classified as a coastal operation).
Coastal Lakes
Carriers Carriers 2 Coastal Carriers
 Operate ocean-going ships and barges along Atlantic,
Pacific, and Gulf of Mexico coasts.
1  Move large quantities of crude oil from Alaska ports to
refineries along the Pacific Coast.

3 Intercoastal
Carriers 3 Inter-coastal Carriers
 Operate ocean-going ships and barges between East
Coast and West Coast ports via the Panama Canal.
 Move large quantities of petroleum, crude & refined
between the Atlantic and Gulf of Mexico.
 Market Structure
The domestic for-hire water carrier industry consists of a limited number of
relatively small firms, with 584 vessel operators in service in 2011.

Share by Number of Vessels 2012

Other
Great Lakes Coastal
1% 21%

Mississippi & Gulf

Intracoastal
78%
 Market Structure (continued)

Rank by Operating Revenues for Hauling Domestic Freight

Inland (rivers and canals)

1
Coastal
2
Great Lakes
3
 Intramodal and Intermodal
Competition

Intermodal Competition Intra-modal

(Rail & Pipelines) Competition
 Railroad  Limited degree of
 Dry bulk commodities (grain, ores, coal) competition between
 Focused around central US river system water carriers due to the
and the Great Lakes relatively small number of
 Pipeline carriers in the industry.
 Bulk liquids (petroleum, chemicals)
 Focused along the Gulf, Atlantic, and
Pacific coasts & Mississippi River system
Operating and Service Characteristics
Commodities Hauled

Domestic water
transport is an
important mode for
the movements of
low-value-to-weight
bulk commodities
(liquid and dry).

National Internal Commodities Shipped by Waterborne

Traffic of 2012 in US (Millions of Short Tons)
 Constraints and Strengths
 Low cost transport service for large volumes
over medium to long distances
 Relatively large carrying capacity
Strengths
 Fuel efficient

 Speed of service (slowest mode for dry cargoes) Constraints

 Vulnerable to ice, flood, and drought conditions
 Accessibility limitations
 Packaging requirements for high-value goods
 Types of Vessels

Largest vessels

Most commonly used

US Flag Vessels by Types

 Terminals
Functions

1 Facilitate ship loading and unloading.

2 Facilitate intermodal transfers.

3 Provide temporary storage in port area.

Terminals (continued)

 Ship terminals require significant

capital investment.
 Most ports and terminals are publicly
provided and operated.
 Large bulk commodity shippers may
own and operate private terminals.
 Recent improvements focus on the
mechanization of materials-handling
systems.
 Cost Structure
High Variable and Low Fixed Costs
 User charges Low fixed-cost
(lock fees, dock structure can
fees, and fuel be attributed in
taxes) are part to public
variable in nature. aid in
 Not labor- Variable construction &
intensive. Cost Fixed Cost maintenance of
 Major variable (85%) (15%) waterways.
expenses are Fixed costs
line-operating include
costs, operating depreciation &
rents, and amortization
maintenance. and general
expenses.
 Current Issues

• Pre-license and pre- • Competitive economic vs.

employment testing of public concern for
seamen. environment
• Random testing of • Growth of multicarrier
seamen during alliances & larger ship
employment. deployment
Drug and Port
Alcohol Abuse Development
 Issues in Shipping Transportation
Shipping lines issues:
 Shipping schedule
 Transshipment schedule

Port Operations
 Terminal scheduling, loading/unloading
 Quay crane, yard crane, yard trucks scheduling problems
 Empty container relocation and management

Forwarding Operations:
 Scheduling for consolidation of forwarder
 Transportation/Delivery management
 Warehouse management
Scheduling consolidation of forwarder
 Scheduling seaport terminal
terminal

Determine which terminals serve which vessel at which time

Goal: maximize number of process ship and utilization of
terminal
 Scheduling quay crane

Determine
which QCs
unload which
bays of the
ship

Goal: minimize
unloading time
 Empty container relocation
Empty container relocation to serve exporting demand of customer
 Homework

Case 8-1
Case 8-2
5. Pipelines
 Overview of the Pipeline Industry
Ownerships and Type of Carriers
The for-hire carriers
dominate the pipeline Owners of pipelines
industry.
Private  Individual, vertically integrated oil
Carrier 10% companies.
 Jointly owned pipeline companies.

Common  Others
Carrier 90%  Railroads
 Independent oil companies
 Other industrial companies
 Market Structure

Oligopolistic Industry
The pipeline industry has a small number of very large
carriers that dominate the industry.
Dominance of large
Complex oil companies
Existence of procedural (20 major
High startup
the requirements integrated oil
costs (capital
economies for entry and companies control
costs)
of scale associated about two-thirds of
legal costs crude oil pipeline
mileage)
 Intramodal and Intermodal
Competition

Intermodal Competition Intramodal Competition

 Limited competition from other  Limited competition among pipelines due
modes. to:
 Water carriers are principal Small number of companies
competitors due to competitive Oligopolistic market structure
rates and costs, and type of Economies of scale & high fixed costs
commodities hauled. has led to joint ownership of large-
diameter pipelines.
High capital costs preclude duplication
of facilities.
Operating and Service Characteristics
Commodities Hauled

4  Pipelines are limited in the

Oil & oil markets they serve and
Chemicals products commodities they can haul.
1  Pipelines are the only mode
that are unidirectional with no
3 backhaul.
Coal & coal
Natural gas
products

2
 Constraints and Strengths
 Low service rates
 Low loss and damage rates
 Warehousing function (3-5 mph)
Strengths
 High delivery dependability

 Limited responsiveness due to slow speed Constraints

 Limited geographic flexibility
 Limited variety of products carried
 Oil Pipeline Network
Gathering lines
 Bring oil from the fields to storage areas.
 Relatively short distance movement

1
 Small diameter laid on ground surface

Crude trunk lines

 Move crude oil from gathering stations to tank
farm or refineries.
2  Long distance movement
 Large diameter laid underground surface

Images courtesy of Hi-tech Online

3 Finished product trunk lines
 Move product from refineries to market area
terminals
 Long distance movement
 Large diameter lines laid underground
 Cost Structure
Fixed Costs Variable Costs

High proportion of fixed costs Low proportion of variable costs

 Right of way ownerships  Pipelines do not operate vehicles

 Pumping stations and terminal that are frequently a major source
facilities of variable expense.
 Key fixed cost elements: property  Key variable costs
taxes, amortizations of  Labor costs – Low due to the
depreciation, return to investors, high level of automation.
and preventative maintenance.  Cost of fuel for the power
system.
Pricing

 No classification system used due to limited

number and specialization of commodities.
 No differential pricing due to nature of
operations (one-way movement, limited
geographic coverage, limited variety of
products)
 Rates quoted on a per barrel basis
 Point-to-point or zone-to-zone
 Minimum shipment sizes (tenders)
required