7.4 Transportation Modes: What Are Your Options?

Why is shipping by truck so popular? Answer: Because trucking is fast, flexible, and reliable. Consider the following:

• Speed: Trucks travel at an average speed of about 50 miles per hour (mph), offering rapid, same-day delivery for short to medium hauls of up to 500 miles.

• Flexibility: Trucking is the only mode that can pick up and deliver almost anywhere. In the U.S., you'll find more than 4 million miles of paved public roads, which is enough to circle the globe 164 times! No other mode can offer door-to-door service from almost any two points—with the exception of Hawaii.

• Accessibility: You see semi tractor-trailer rigs just about everywhere. In fact, there are more than 400,000 registered motor carriers (trucking and delivery companies) in the U.S. Moreover, you can ship just about anything by truck. You may need specialized equipment like refrigerated or oversized trailers.

• Reliability: Service levels vary greatly across carriers. However, you can find carriers who consistently deliver within the 15-minute delivery time windows required by customers using just-in-time production systems.

The biggest downside for trucking is its high relative cost compared to rail.

As you think about trucking, you need to recognize three different types of operations: truckload (TL) and less-than-truckload (LTL).

• Truckload carriersCarriers that offer direct door-to-door service between two locations for a single shipper, carrying large enough loads so that the weight and volume capacity of a trailer is used as much as possible. offer direct door-to-door service between two locations for a single shipper (i.e., customer). The loads are large enough to consume most of the weight and space capacity of a trailer.

• Less-than-truckload carriers Carriers that consolidate smaller loads from multiple customers to fill a trailer and achieve shipping economies. consolidate smaller loads from multiple customers to fill a trailer and achieve shipping economies. LTL loads are typically smaller than 15,000 pounds.

• Parcel carriersIntegrators such as DHL, FedEx, and UPS, which carry very small loads from individual shippers. like DHL, FedEx, and UPS, also known as integrators, carry very small loads from individual shippers—deliveries as small as a single envelope! Parcel carriers build extensive hub-and-spoke networks so they can gather small shipments from many different customers and consolidate them into larger loads for efficient handling.

Because they move full trailers from point to point, truckload carriers don't need a lot of infrastructure. You could start up your own trucking company with as little as $100,000. All you need is a tractor, trailer, and the licenses to operate. One result: Most TL carriers are small, privately held operations. Of course, exceptions like Schneider National, Swift Transportation, and Werner Enterprises generate over $1.5 billion in annual revenues. LTL carriers, by contrast, require extensive networks of pickup and delivery terminals that collect and disaggregate (breakbulk) freight. Because LTL operations are capital intensive, most are large, publicly traded companies.

When is rail preferred? Answer: When you ship very large volumes over long distances that can't be reached via waterways. Rail's advantage is a much lower cost-per-ton-mile basis (the cost of moving one ton a distance of one mile) than trucking. The lower costs come from large hauling capacities and economies of scale. Let's compare rail and truck:

• Rail Capacity: A single railcar can hold up to 100 tons (200,000 pounds). You can group many (perhaps 100 or more) railcars into a single train to create greater economies of scale. Large shippers in agriculture, mining, and auto industries hire railroads to move unit trainsDedicated trains that move from a single origin to a single destination. non-stop over very long distances. Because unit trains are dedicated trains that move from a single origin to a single destination, service levels and speed improve dramatically.

• Truck Capacity: A typical truck trailer has a weight capacity of about 45,000 pounds. Double and triple trailers (known in the industry as longer-combination vehicles or LCVsTrucks that haul multiple trailers in order to improve transportation economies of scale. LCVs require special clearance to operate on most roadways. ) improve trucking's economies of scale, but only incrementally compared to rail.

  Figure 7-2: Double stack trains lower transportation costs.

Rail operators face two major disadvantages:

• Access/Reach: Railroad's reach is limited. Few companies outside the auto, metals, chemicals, and agriculture industries have a rail spur linking them to the railroad network. Also, the number of miles of track in operation in the U.S. has declined to 140,000 miles. This is down from the all-time high of 254,251 miles back in 1916 (long before the Interstate highway system was built). Further, since the 1980 Stagger's Rail Act deregulated the industry, mergers have reduced shipper options to four large U.S. carriers and subsidiaries of two large Canadian carriers—none of which offers coast-to-coast service. If you want to move product from the East to the West Coast, you must hire two carriers.

• Rights of Way: Railroads must own and maintain their rights of way (the railroad network). Class I railroads (the largest railroads with annual revenues in excess of $360 million) invest huge sums each year to maintain their railroad networks. Trucking, by contrast, uses publically built and maintained roads.

When is water your best option? Answer: When you ship large volumes to points that can be reached by water. Water's big advantage is cost. Massive economies of scale enable water to achieve the lowest costs per ton-mile of any general mode. However, water has two disadvantages:

• Accessibility. Water transport is only a viable option if your shipping destination is located on a navigable waterway. Major engineering projects like the Erie and Panama canals have expanded the reach of water transportation.

• Speed. Moving product by water is slow—typically 5-11 mph for inland and 20 mph for ocean. Water's slow speed means you need to plan ahead and use inventory as a buffer.

When you think about water transportation, you need to think about two distinct settings: inland and ocean.

• Inland Waterways. The most common inland waterway takes advantage of a country's navigable rivers. You've probably seen barges on large rivers, loaded with coal, grain, or some other bulky raw material. The typical length of a barge is 195 feet, with a capacity of 1,500 tons. You can combine several barges together for added efficiency. Because barges are flat-bottom vessels that lack any form of propulsion, you need either a tug (which pushes) or a towboat (which pulls) to provide propulsion and guidance as the barge travels up- and downstream.

  A second type of inland water transportation is the laker ship. As its name implies, the laker ship (or "laker") refers to a vessel that navigates large lakes like the Great Lakes. Lakers specialize in transporting commodities like grains, coal, gravel, and sand among inland port cities that are inaccessible by larger ocean-going vessels.

• Ocean. The container ship dominates transoceanic (high seas) shipping, moving approximately 90% of the world's manufactured goods. Container ships carry standard-sized cargo containers that can move by ship, truck, or rail. Most of the durable consumer products and clothing that you own has spent time in a container aboard a ship on its way to you. The largest container ships today are the Triple E ships (Triple E refers to economy of scale, energy efficient, and environmentally improved) operated by Danish shipping company Maersk. These ships are massive—about a quarter-mile (400 meters) in length. They can carry more than 18,000 twenty-foot equivalent units (TEUs). Twenty-Foot Equivalent Units (TEUs)The standard measure for ship capacity, referring to a container that measures 20 feet in length. The largest containerships in operation today have capacity for 18,000 TEUs. are the standard measure for ship capacity. One TEU refers to a container that measures 20 feet in length. Aside from container ships, you might find the following plying the oceans:

  • Roll on Roll off (Ro-Ro)Ships that have built-in ramps so that cargo like cars, military equipment, or construction equipment can be rolled on and off efficiently. - Ships that have built-in ramps so that you can roll cargo like cars or construction equipment on and off efficiently.

  • TankerShips that move liquids like chemicals, oil, and natural gas. - Ships that move liquids like chemicals, oil, and natural gas. A typical tanker can carry 225,000 barrels (9,450,000 gallons, or 34,353 tons) of oil.

  • Bulk FreighterShips that carry unpacked cargo, such as coal or grain. - Ships that carry unpacked cargo, especially commodities like coal or grain.

When should you consider airfreight? Answer: When you are shipping high-value or perishable items long distances—in other words, when time and speed are critical. Airfreight is by far the fastest mode of transportation. However, planes are susceptible to delays due to bad weather, computer glitches, and traffic congestion. Volcanoes have even disrupted air travel. Short delays can cause significant problems—especially when you use air for emergencies (e.g., to keep an assembly line or piece of earth-moving equipment running). Airfreight's biggest drawback is expense. Airfreight can cost 7-20 times the cost of other options. Although a single Boeing 747-8 freighter costs about $368 million, the following variable costs are the key cost drivers: jet fuel, maintenance, labor, and landing fees (paid for use of public airports).

When you think about airfreight, you need to know that freight moves in two forms.

• Dedicated Air Cargo. All-cargo airlines like DHL, FedEx, and UPS use specially equipped freighters to move large volumes of freight on a scheduled basis. The floors of these planes are equipped with rollers to allow for easy loading and unloading.

• Belly Hold. Airlines make money by selling "unused" space in their cargo bins. Simply put, a lot of airfreight moves with passengers' luggage in the "belly" of the airplane below the passenger cabin. If your luggage is a no show, it's possible that it got "bumped" by cargo that was already loaded on the plane.

When is pipeline transportation appropriate? Answer: When shipping via pipeline offers extremely low cost, but pipelines can only move fluid commodities like chemicals, gas, oil, and water. Actually, you might be surprised to know that pipelines are used to transport beer to football stadiums in some European cities. Pipeline transportation is also slow, but the product is "fungible"—that is, each unit is indistinguishable from the next. So, you can mix and match deliveries to customer needs. Pipelines are also very reliable since they are immune to traffic congestion and bad weather. You may also be interested in the following facts:

• Infrastructure: To operate a pipeline, you need to buy the land, install and maintain the pipeline, and invest in pumping stations to provide propulsion. The huge expense means that private ownership is limited to very large companies.

• Regulation: Although large energy companies often own the pipelines, the government regulates them as a form of common carriage.

• Visibility: You seldom cross paths with a pipeline because they are usually buried below ground in populated areas.

  Figure 7-4: Pipelines—like the Trans-Alaska pipeline—are critical and criticized.

Table 7-2 summarizes the service and operating characteristics that you need to grasp to make the right modal choice. Please remember that values represent industry averages. Performance of specific carriers can, and will, vary—often dramatically.

Sometimes, your best option to move product is a combination of two or more of the five modes we just discussed. When you combine modes, you are using intermodal transportationThe practice of combining transportation modes while moving products. . Why would you want to combine modes? Consider two primary reasons:

• Necessity: Sometimes the only way you can get a product from an origin point (where you make it) to a destination point (where your customer uses it) is by combining modes. For example, most freight that moves by containership is intermodal. That is, the odds are that your factory is not located at the port. So, once the shipment is loaded in a container, it is transported it to the port by rail or truck. At the port, the container is transfered to the ship. The process is repeated—in reverse—when the ship arrives at its destination port.

• Economics: Sometimes you want to take advantage of the operating characteristics of two modes. Combining truck and rail (aka, trailer on flatcar (TOFC) or piggybackCombining the operating characteristics of truck and rail by placing a trailer on a flatcar. This method allows shippers to take advantage of the low cost of rail for the long-haul and the reach of a truck for the final delivery. ) gives you the low cost of rail for the long-haul portion of a shipment and the flexibility and reach of truck for pick up and final delivery. Simply put, you get the best of both worlds. When fuel prices rise, you tend to look for creative intermodal options like those depicted in Figure 7-5.

Before we discuss the economics of transportation, can you think of any other modes of transportation? Think about the Internet. Some things like blueprints, books, music, and CAT scans no longer need to be physically moved from one place to another. As additive manufacturing matures, more "product" will move by cyberspace to "form" in remote locations.