Motor Carriers

Lecture Objectives:
1. Understand how motor carriers operate
2. How motor carriers compete
3. Look into the future of the industry

Lecture Summary:

Motor Carrier Industry Structure

According to the American Trucking Association (ATA):

 Trucks moved roughly 67% of the nation's freight by weight

 About 3 million class 8 trucks used for business purposes
 About 6 million commercial trailers registered

According to US Department of Transportation (in 2010):

 1.3 million total trucking companies

 408,782 for-hire carriers
 662,544 private carriers
 168,680 other interstate motor carriers

Most trucking companies are small businesses:

 90.2% operate 6 or fewer trucks

 97.2% operate fewer than 20 trucks

Trucking is a vital industry for the economy:

 About 7 million people employed throughout the economy in jobs that relate to trucking activity
 About 3 million truck drivers employed

Basic Operations

Truckload (TL)
 Moved directly from shipper to consignee
 Average 242 miles
 Many small carriers
 Weight 20,000 to 50,000 lbs.

Less-than-Truckload (LTL)

 Picked up, moved to a terminal, reloaded for line-haul, delivered to terminal, locally delivered
 Average distance about 550 miles
 Requires national or regional network
 Weight 50 to 10,000 lbs.
 About 150 carriers

Parcel

 Home/business pickup, consolidated, moved to sortation facility, trucked/flown/railed to

distribution center and home/business delivered
 Weight 1 to 150 lbs.
 Fast (good for time-sensitive goods)
 Very expensive

Competition

There are few ways in which firms can differentiate themselves, the main area of competition is
price.

 Cost structure: high variable costs (70-90%), low fixed costs (10-30%)
 Government support of highway structure
 Terminals not too capital intensive
 Operating cost in the United States are currently between$1.20 - $1.80

Flying Freight
Lecture Objectives:
1. What makes air freight attractive to shippers?
2. Cost structure is majority fuel and equipment
3. What kind of equipment is used?
Lecture Summary:
Air Freight Service Characteristics

When importance of speed outweighs cost, then air is attractive for freight!

 Emergency shipments
 Typical commodities include mail, communications products, racehorses, etc.

Speed of service considerations

 Speed, travel time advantage can be off-set by flight frequency and timing
 Smaller communities have experienced reduced frequencies
 In-direct routing due to hub and spoke networks

Cost Structure

The industry operates at: high variable costs (70-90%), low fixed (10-30%)

 Government support of highway structure

 Terminals not too capital intensive

High variable costs (about 60% of total, but can be as high as 80%)

 About 30% attributable to flight operations

 About 12% for maintenance
 About 17% for aircraft and traffic servicing

How to deal with fuel costs:

 Increases have major impact on operating costs

 More fuel efficient aircraft and smaller planes on low-density routes

Types of Equipment

We need different planes for different purposes.

All cargo

 Extra-large planes
 Wide body
 Narrow body
Belly cargo

 Existing airliners
 Smaller loads – maybe a few containers

Air Carriers
Lecture objectives:
1. Understand how air carriers operate
2. How air carriers compete
3. Look into the future of the industry

Lecture Summary

Operations

 All-cargo airlines are operating similar to TL - you rent the entire plane.
 Commercial airlines are able to carry smaller quantities as belly cargo - similar to LTL.
 Parcel carriers are also using planes for small shipments - but they are often very expensive.

Rates

The rates in air transportation are often a mystery to many. While the rate is quoted by weight, the
actual rate charged corresponds to that weight if the package has a certain density. This is also
known as the volumetric density.

So what happens when it is not the 'right' density?

 If it is less dense, then you get charged for the volume translated to the corresponding weight
 If it is heavier then you pay for the actual weight

Competition

 Fuel costs: who can best manage the largest expense and hedge against future price increases
  Who can manage the delays put on by security concerns. Technology is starting to help
alleviate these issues.

Containers on a Train
Lecture objectives
1. What is intermodal?
2. Why use different modes together?
3. What makes it work?

Lecture Summary

What is intermodal?

Most products have the ability to trade time versus cost. As a basic rule - if the cargo comes in full
containers then it is a good candidate for intermodal. The key to intermodal is the use of containers
and its seamless transfer from one mode to another. Think about it this way – if we can easily move
freight from one truck to another then we can simply substitute another mode of transportation that is
more efficient on that part of the lane - the cargo in the container stays untouched.

Advantages:

 On long distances rail transportation has a significant advantage over truck in terms of fuel
efficiency – which translates into a large cost advantage.
 On long distances (over 500 miles) rail is not much slower than truck
 Accessibility: by combining the advantages of rail and truck, the freight can reach any spot a
regular truck could reach

Express Delivery
Lecture Objectives
1. How do express delivery firms integrate different modes?
2. Cost structure is majority fuel and driver wages
3. Infrastructure is made up of vehicles and terminals
Lecture Summary

Express delivery firms use several modes to the best of their advantage:

1. Rail is the cheapest and reasonably fast over long distances

2. Motor is fast for short distances and can pickup and deliver everywhere
3. Air is fastest and cost is justified for certain items.

The general purpose of these terminals is fourfold:

1. To receive shipments from across their network

2. To send individual packages to customer
3. To collect individual packagers from shippers
4. To route packages to their destinations

peed
Truck: approximately 50 miles (or 80 kilometers) per hour over the highway for up to 500 miles (800
kilometers)

Train: approximately 30 miles (or 50 kilometers) per hour over almost any distance.

Air: upwards of 200 miles (or 320 kilometers) per hour for distances of more than 500 miles (800
kilometers), including ground operations.

Distance
Truck: up to 500 miles (800 kilometers) is the ideal distance, but there are still advantages over the
other modes up to 750 miles (1200 kilometers).

Train: for distances of more than 750 miles intermodal has some speed advantages, but the average
distance for intermodal is somewhere around 1,700 miles.

Air: at least 500 miles (800 kilometers) but typically more than 2000 miles.
Cost
Truck: current rates are highly variable, but $1.50 per mile is a reasonable starting value for a TL
shipment

Rail: intermodal freight shipments are typically much cheaper than TL and a common rule of thumb
is about 60-80% of the price of a TL shipment.

Air: typically we consider air freight to be about 6 to 8 times more expensive than truck.

Here are a number of best practices for

setting up a warehouse.
Streamline the picking process – reduce order pick time:
 Place most frequently picked items closest to the shipping areas. Also, consider the frequency
of orders, rather than the overall amount of products. You should also review sales data
constantly to ensure that the items are stored closest to the shipping area are still the most
frequently picked.
 Locate the highest-demand items within each storage area on the most convenient storage
space (for example: floor level for pallets in racks and between waist and shoulder level for bins
in racks).
 Consider difficulty of retrieval for workers and shorten it as much as possible.

Implement efficient dock management practices:

 Dock space is some of the most critical space in the warehouse.
 All material must flow in and out of your docks, and they are limited in number (and not readily
added to).
 Space on inside and outside of docks is some of the busiest in warehouse.
 Receiving dock becomes a choke point in the supply chain.
 Docks in today’s warehouses must be more flexible and must support a variety of receipts that
are coming in at a faster rate and in greater frequency.

Add automation wisely:

 Use forklifts that enable workers to move pallets and larger items.
 Make the most of conveyor belts, sorters, and automated packing stations. These tools not only
improve efficiency, but they also increase speed and ensure picking accuracy.
 Be careful not to overdo it with technology. Once put in place these expensive automation
systems typically cannot be easily upgraded and changed.

Maximize vertical space:

 Take advantage of every inch of available space (floor to ceiling
 Pallet racking lead to safer working conditions as well as increased efficiency.

Technology:
Implement Warehouse Management Software (WMS) to sequence orders and organize
the workflow inside the warehouse:

 Organize the workflow and optimize sequence performance.

 Sequence your orders by pick path
 Batch pick single lines, same-zone orders, and difficult picks (e.g. non-conveyable items).
 To make the most of your WMS, provide your workers with hand-held RF readers telling them
what and how many
 to pick at each location.

Implement pick-to-light systems:

 Operator scans bar-coded label attached to a box.

 Systems informs operator of the item and quantity they need to pick.
 These systems work best for your top 5% to 20% products.

Pick-to-voice systems

 System informs operator of pick instructions through a headset.

 Enables workers to pick orders without looking at a computer screen or paper pick tickets.
 Warehouses have adopted voice-based picking to complement the pick-to-light systems (for
fastest moving products).
Examples:
In the lecture, I have shown you a traditional warehouse layout. We are going to improve on it a little
by changing some features around. As a reminder, here is the traditional layout: