Transport Management & Theory Practices (5)

Management of Transportation

Seventh Edition Coyle, Novack, Gibson & Bardi

© 2011 Cengage Learning

Chapter 4Transportation’s Role

in Global Trade Execution

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.

Global shipment execution is complex Involves multiple carriers from different modes Many border crossings and long distance shipments

Flawless transportation execution requires: Internal expertise and attention to detail Strong relationships with capable service providers

Chapter organization Global freight flows and key execution activities Key players in global transportation execution Customs clearance

© 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.

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Global freight: two primary service options Direct service▪ Direct origin-destination (one country to another

country shipment), no interim stops-offs▪ Typically between bordering countries ▪ Single mode of transport, typically motor carrier

Indirect service▪ Typically, shipment requires multiple modes, i.e.

intermodal transportation▪ Multiple interim stops required to transfer

freight between carriers or modes


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Figure 4-2

Definition: Two or more modes used to move shipment from origin-destination

Facilitates global trade by combining inherent advantages of each mode Greater accessibility is created for ocean or air

line haul transport by combining with truck or rail

Overall cost efficiency can be achieved without sacrificing service quality or accessibility

Flexibility to suit the shipment situation


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Model combination options – most frequently used combinations are:

Carrier, rather than shipper typically makes determination of which combination to use


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Pick up Linehaul Delivery

Truck Air Truck

Truck or rail Ocean Truck or rail

Truck Rail Truck

Primary freight types Containerized freight▪ Freight loaded into/onto a container or pallet that is

shipped to destination with no interim handling of freight

▪ Containers are efficient way to handle and ship freight▪ Standard height and width specifications▪ Ships and landside loading/unloading facilities designed to

efficiently handle and store standard sized containers ▪ Five common container lengths


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Containerized freight (continued) ▪ Container capacity expressed in twenty-foot

equivalent units (TEU).▪ TEU is a measure of containerized cargo capacity

equal to one standard 20 ft. (length) by 8 ft. width container

▪ Accounts for 90% of non-bulk cargo worldwide▪ Continued growth due to:▪ Application of info. systems to track containers▪ Development of intermodal terminals for efficient

transfers of containers between modes▪ New generation of ships, railcars and trucks

specifically designed for containerized freight © 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.

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Figure 4-5

Trans load freight▪ Goods (shipments) handled individually, not

put in containers or on pallets▪ Typically consists of bulk raw materials that

must be scooped, pumped, lifted, or conveyed when transferring between modes▪ Due to weight and volume of typical

shipment, air transport rarely used for linehaul▪ Ocean, rail, and pipeline are primary modes

used© 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.

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Intermodal routing alternatives to all-water routing Land bridge: movement from one seaport

to another substituting rail for portion of ocean trip▪ Two primary land bridge routes▪ Asia-America-Europe

Rail substitutes for Panama Canal portion of trip Shorter total transit time, larger ships may be used

▪ Asia (Japan, Southeast Asia)-Europe Substitutes Trans-Siberian rail across Russia for voyage

around Cape of Good Hope or through Suez Canal


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Mini-bridge▪ A port is the origin or destination, rail and

ocean transport are used for line haul▪ Example: Seattle to Baltimore via rail coupled

with ocean voyage from Baltimore to Rotterdam (called an ocean focused mini-bridge)

Micro-bridge▪ Similar to mini-bridge except origin or

destination is an inland port▪ Example: St. Louis to Baltimore via rail coupled

with ocean voyage from Baltimore to Rotterdam


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Figure 4-6

Intermodal challenges Landside congestion▪ U.S. seaport capacity, particularly Pacific

coast ports▪ Road and rail congestion on port access

routes Intermodal rail equipment shortages Labor issues


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Principal activities Packing the freight to prevent damage▪ Four potential in-transit problems to protect

against▪ Breakage▪ Moisture▪ Pilferage▪ Excess weight

▪ Normally, air transport requires less protective packaging than ocean transport

▪ Proper carton markings is critical consideration© 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.

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Insuring the goods against key risks▪ Risks to international cargo shipments

higher than for domestic shipments▪ Typically, risk is managed by purchasing Typically, risk is managed by purchasing

freight insurancefreight insurance Completing necessary documentation

to control shipment▪ Four primary documents▪ Invoices▪ Export and import documents▪ Transportation documents


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As in domestic transport, safety, security, and environmental impacts have high priority Primary security-focused legislation▪ Maritime Transportation Security Act of 2002Maritime Transportation Security Act of 2002▪ Container Security InitiativeContainer Security Initiative▪ Advanced Manifest RulesAdvanced Manifest Rules▪ Has been enhanced by the Importer Security Filing

regulation, commonly known as the “10+2” rule© 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.

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All modes, including pipelines, involved in global transport market

Most freight moving between continents (intercontinental) is shipped by ocean or air Ocean carriers transport 98% of

containerized trade volume and 60% of trade value

Most intra-continental freight moves by truck

The focus of this section is on intercontinental ocean and air transport


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Service options Liner service▪ Ships sail on published, regular schedules

> Kapal belayar di diterbitkan, jadual tetap▪ Sail over fixed trade routes with pre-

determined ports of call. Example route:▪ Trans-Pacific between Asia and N. America

▪ Some may sail on “around the world” schedules

▪ Different types and sizes of ships used▪ Ships assigned to routes based on capacity, draft

and cargo handling capabilities

▪ May carry containers or break-bulk freight © 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.

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Charter service▪ Ships hired for specific voyage or period of time▪ Ship owner leases (charters) vessel to customer

(charterer)▪ Four common types of charters▪ Each varies on the basis for charging rates and on the

degree of vessel control assumed by charterer▪ Voyage and time charters, bareboat charter, demise

charter

Private service▪ Ship owed or leased on long-term basis by firm

owning the goods transported▪ Example: Chiquita Brands International’s fleet of

refrigerated ships© 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.

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Ship registry Each ship operating in commercial

service is registered in a country Registration requirements vary by

country Most ships registered in “flags of

convenience” nations rather than owner’s country of citizenship▪ Offer advantageous fees and few regulations▪ Most popular countries are: Panama, Liberia,

China, Malta, and the Bahamas © 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.

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Equipment (vessel) types Containerships▪ High capital cost but designed for quick

unloading/loading▪ Port turnaround time: 12 hours vs. days for break-bulk ships▪ Enables higher ship utilization and return on investment▪ Lower labor costs – lifting/moving done mechanically by

dockside cranes, but, limited to ports with such crane systems

▪ Dominant vessel for packaged goods ocean shipping▪ Number and size of vessels increasing

Largest Panamax ships carry 5,000 TEUs Post-Panamax ships introduced in 1996, 6,400 TEU capacity Newest post-Panamax vessel carries 13,800 TEUs


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Table 4-1

Break-bulk ships▪ Versatile, multi-purpose vessels▪ Capable of carrying varied and unusual sizes of freight ▪ On-board crane systems increase flexibility – not limited to

ports with dockside crane systems

▪ Smaller capacity but lower capital cost than containerships

▪ Varied sizes of freight increase loading/unloading labor intensity and greatly slow port turnaround times▪ Declining share of international trade

RORO ships▪ Specialized design enables wheeled vehicles to be

driven on and off ship© 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.

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Bulk carriers (vessels)▪ Varied vessel types dedicated to specific type

of bulk product▪ Crude carriers (tankers) move petroleum products

Extremely large vessels, limited to deep water ports▪ Dry-bulk carriers move grains, coal, ores, etc.▪ Gas carriers move compressed gases like LNG

Combination ships▪ Small but very flexible vessels with on-board

cranes▪ Capable of handling containers, break-bulk cargo, and

wheeled vehicles on same vessel

▪ Thrive in serving smaller or developing markets © 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.

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Rate structure – liner operations Total cost (capital + operating) structure is

largely fixed and common▪ 80-90% total cost is fixed▪ Large common costs associated with marketing,

management and business development Operating costs alone also largely fixed,

meaning they do not vary with volume hauled▪ Principal variable costs are for fuel and for

loading and unloading operations© 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.

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Due to high portion of fixed costs, liner services rely on value of service pricing to maximize total revenue earned per trip▪ Rates may vary over a wide range depending upon

the traffic’s price elasticity of demand 80% of liner cargo moves under negotiated

contract rates▪ Ocean Shipping Reform Act (OSRA) of 1999▪ Reduced influence of collective rate-making shipping

conferences▪ Fostered a more market-driven rate making environment,

leading to a much higher % of cargo moving under contract rates © 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.27

Rate structure – charter operations Total costs are largely fixed Charter rates are negotiated▪ Rates are heavily influenced by supply-

demand conditions that tend to be very fluid▪ Negotiation process involves the ship owner

and the charterer (customer)▪ Typically each party negotiates through their

shipbroker representative▪ The product of the process is a charter party

(contract)


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Current issues Aligning supply with demand▪ Demand can fluctuate relatively quickly while

adding capacity takes years and is capital intensive▪ When demand rises, there tends to be periods of rising rates

and capacity shortages until additional ships are built▪ When demand falls, there tends to be a capacity surplus and

rapidly falling rates

Rapidly fluctuation fuel prices, rising port fees Environmental protection legislation Freight security


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Significance in global freight transport Small % of tonnage traded internationally,

but accounts for 35% of value Air carriers focus on▪ Small quantities of high value, low weight, semi-

finished and finished goods▪ Computers, precision instruments, electronics▪ Pharmaceuticals, perishable foods, periodicals, fashion

apparel


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Service options – two primary types Air cargo carriers▪ Exclusively carry freight (no passengers)▪ Customers have scheduled or charter service

options▪ Charter or on-demand services tend to be used in

special circumstances, such as: Emergencies, e.g. prevent production line shutdown Oversize goods Locations not served by scheduled service carriers Customized services


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Air cargo carriers (cont.)▪ Integrated carriers - Examples: FedEx, UPS, DHL ▪ Provide door-to-door services focused on time-sensitive goods▪ Offer consistent schedule of pick-up and delivery windows▪ Offer high degree of shipment visibility

▪ Non-integrated carriers – Examples: Cargolux, Polar Air Cargo▪ Provide airport-to-airport, unscheduled service▪ Advantage: speed including potential for same day delivery▪ Utilizes freight forwarders or customers for pick-up, delivery

Combination carriers▪ Move freight and passengers, often in same plane▪ Largest air cargo carriers© 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.

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Table 4-2

Equipment types Distinguished by configuration of plane Air freighters dedicated solely to carrying freight▪ Capable of carrying freight on pallets or in containers

Passenger planes - freight carried in plane belly▪ Shipments tend to be smaller, not palletized or in

containers Combi aircraft▪ Main deck can carry both people and freight


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Rate structure High proportion of variable costs▪ Fixed costs relatively low as carriers do not have

to invest in rights-of-way or airport terminals Rates based on combination of value and

cost of service pricing principles Rate setting must be very sensitive to

cargo density▪ Carriers calculate dimensional weight (dim

weight)▪ Low density cargo rates based on dim weight


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International air freight pricing▪ Governed in part by International Air Transport

Association (IATA) via the Air Cargo Tariff (TACT)▪ Provides general guidelines for rate setting▪ Carriers not required to use guidelines, major carriers

do not

▪ TACT includes three types of rates▪ General cargo rates, class rates, commodity rates

▪ Container rates▪ Cost-based rate▪ Rate applies to a minimum weight in the container


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Current issues Aligning supply with demand▪ During economic downturn, many planes

grounded, routes cut, and service frequencies reduced

Fluctuating price of jet-fuel Cost of security mandates▪ Homeland security fees and cargo screening costs▪ Security personnel training costs and salaries

Overall profitability of air cargo industry © 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.

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Trucking Primary mode for intra-continental shipments Inhibited by varying domestic regulations▪ Truck dimension limits vary from country to country▪ Safety regulations - speed limits, driver hours-of-

service, inspection requirements - also vary▪ Limitations on operations during certain hours of day

Rail and pipeline are principal other modes


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International freight forwarders Primary role: help shippers reduce transport

costs ▪ Primary approach: shipment consolidation

Other roles▪ Help shippers navigate complexity of global transport▪ Expertise in freight documentation, customs clearance

Non Vessel-owning Common Carriers Specialists in less-than-container load

consolidationExport packers

Experts in export cargo packing and marking © 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.

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Most intercontinental trade moves through seaports or airports Most are owned by governments Most are managed by port authorities ▪ Governmental or quasi-governmental public

agencies▪ Port authorities are financially self-supporting▪ Port authorities have power to develop

infrastructure, set user fees, and in some cases, levy taxes

▪ Examples: Port Authority of New York and New Jersey© 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.

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Thousands of seaports globally Most freight moves through relatively

small number of major ports Port infrastructure dictates port

capabilities Cargo handling equipment Water depth and water basin width Number and size of ship berths Size of marshalling yards and warehouses Landside mode accessibility


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Table 4-3

Current issues Increasing size of containerships Security: challenge of maintaining

compliance with dynamic government initiatives.▪ In U. S., these initiatives include▪ Container Security Initiative▪ Security and Accountability for Every Port Act (SAFE)

Preparation for future growth or changing trade flows


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Most intercontinental air freight moves through airports serving passengers and cargo A few new all-cargo airports are emerging▪ Less congested and lower operating costs than multi-

purpose airports Infrastructure

Runway length and number determine capacity Cargo handling equipment Terminal and warehouse facilities


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Current issues Adapting capacity to fluctuating demand

conditions Preparing for future growth New security regulations require▪ Better airport access control▪ Better cargo screening facilities and

equipment Ground safety and air traffic control

systems© 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.

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Can be very complex Customs brokers provide expertise

In U.S., customs clearance is a six step process Entry filing (document filing) Goods arrival Goods examination Classification for charging of import duties Taxation Release of goods for domestic delivery


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Transport Management & Theory Practices (5)

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Transcript of Transport Management & Theory Practices (5)