Chapter 1 transportation s role

Transportation’s role in Supply chainConceptual dimensions of transport • Conceptual dimensions of transport • Fundamentals of supply chain management • Role of transport in the supply c

ROLE

PRESENTED BY: BICH HOAI, MSc

HO CHI MINH CITY UNIVERSITY OF TRANSPORT

Contents

• Transportation’s role in Supply chain

• Transportation’s role in the Economy

Transportation’s role in Supply chain

Conceptual dimensions of transport

• Conceptual dimensions of transport

• Fundamentals of supply chain management

• Role of transport in the supply chain

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• Quality of physical environment

• Quality of daily life

• Transportation is considered as blood system of the whole economy

• Passenger transport

• Cargo transport

Transportation’s role in Supply chain

Conceptual dimensions of transport

• Demand for Transportation

Transport demand is about the movement of people and

goods and we travel in order to satisfy a need (work,

education, relocation etc.)

• Regions or areas tend to specialize in certain economic

activities

• Physical gap between markets and areas of production for

a given goods

• Need of culture exchange

=> This gaps create a demand for transport

Fundamental economic role of transport is to bridge this

supply-demand gap

Transportation’s role in Supply chain

Conceptual dimensions of transport

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Transport Measurement Units

• Ton (freight) and passenger (people)

• Ton-miles (freight) and passenger-miles (people)

• Ton km and passenger Km

Transportation’s role in Supply chain

Conceptual dimensions of transport

L Q L

Q L

Q

1

2 2 1

1

Example:

• Calculate Ts and T miles

7

B: - 4.000 + 10.000

A: +6.000

C:

- 12.000

Freight Transportation

Derived Demand

• Demand for transport service to move a product to a given

location depends upon the existence of demand to consume

(use) that product at that location

Value of (Transport) Service

• Transport cost is a component of landed cost

• Landed cost = Cost of production +Transport cost (from

production point to market)

• Transport costs influence a producer’s landed cost

advantage/disadvantage vs competitors, thus determining the market value of the transport service

• Landed cost also determines extent or range of a producer’s market area (Lardner’s Law)

• The opinion of a LSP to transport cost?

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Service cost (floor transport cost)

• Lowest cost that transport

business can operate

• Rock- bottom of floor freight:

based on marginal costs

• Top of floor freight: based on

total average

Service value

(max cost)

Floor cost Total average Average change

Service value (maximum freight)

• The highest cost that shipper can pay

Cost of product/ ton $ 60.00 $20,000,000

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Service Components of Freight Demand

• Critical service characteristics and related supply chain cost impacts

• Transit time

• Volume and cost of holding inventory

• Potential stockout and/or safety stock costs

• Reliability or consistency of transit time

• Safety stock and/or stockout costs

• Accessibility: impacts transport cost and time

• Capability: “special” service requirements- OOG

• Security: safety stocks and/or stockout costs

Logistics concept

• What is logistics?

"Logistics is the process of planning, implementing and controlling the efficient, effective flow and storage of raw materials, in-process inventory, finished goods, services, and related information from point of origin to point of consumption (including inbound, outbound, internal, and external movements) for the purpose of conforming to customer requirements.“

(Council of Logistics Management- CLM) , 1991

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Fig 1: Inbound and outbound management

Raw Preprocessing Factory Product

inventory Wholesaler

Retailer

CUSTOMERS

Inbound Logistics Materials management

• What is Supply Chain ??

• Supply Chain: "is a network of facilities and selection, distribution performs the function of procurement of raw materials,

converting raw materials into semi-finished and finished

products, distribution of finished products to customers”

• In fact: Theory of logistics is expanded => Supply chain

management

Supply Chain Concept

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Fig 2: Logistics Development

Production storage

Demand planning Production planning

Inventory Packaging

Finished product storage

Start merging

Full merger 1990

Supply Chain Concept

Fig 3: supply chain

3 key elements: product, information and finance

Logistics and SC activities

• Main activities: Major part of logistics cost

Fig 4: relationship between 3 main activities

CUSTOMER

Transportation

Inventory maintenance

Customer order processing

Source: Ronal H Ballou , Basic Business Logistics

By: Bich Hoai, MSc.- UT

Transport helps increasing

“place value”,meanwhile inventory increases “timevalue” for a product

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Contents

• Transportation’s role in Supply chain

• Transportation’s role in the Economy

Transportation’s role in the Economy

• Transport is pervasive, an essential element of daily life Its vital to economic development and growth and has significant social, environmental, and political

consequences

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How transport functions the economy

• Contribution to growth of early civilizations

• Nile River facilitated trade, communication, defense, political and cultural growth in ancient Egypt

• Creation of social structures

• Fosters unification of political and cultural ideals

• Facilitation of trade and economic growth

• Canals, rail and road systems spur U.S expansion and growth through 19th and 20th centuries

• Role in national defense

Transportation’s role in the Economy

Historic significance

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• Conceptual views on the role of transportation in an

economy

• Enabler of utility creation

• Provider of services at a varying costs

• Factor of production

• Influence on market access and extent of market

• Spatial and temporal relationships

• Transport as a bridge for the producer-consumer or demand gap

supply-Transportation’s role in the Economy

Overview

• Law of Squares in Transport and Trade (Lardner’s Law)

• Reduction of producer-consumer gap

• Time utility

• Quantity utility

Transportation’s role in the Economy

Transportation and the Economy- Value of Goods

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Transportation’s role in the Economy

Transportation and the Economy

Fig 4

• Additional concepts: Contribution of transport to:

• Geographic specialization and principle of comparative

advantage

• Enabling of large-scale production economies

• Increased competition through market area expansion

• Changing land values

Transportation’s role in the Economy

Economic Significance- Utility of Goods

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• Principal global trade flows

• Trade flows within countries

Transportation’s role in the Economy

Economic Significance- Transport Patterns

Transportation’s role in the Economy

Environmental Significance

• Social costs of transport

• Various forms of pollution (noise, polluted air)

• Consumption of natural resources

• Policy challenge is to develop clear understanding of

relationships between

• Transport investment and operations

• Economic benefits of transport

• Social costs of transport

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Environmental Significance

The Environment

• More emphasis today placed on achieving balance between:

• Sound and efficient transport system

• Clean and safe environment

• Green supply chain concept

• Business leaders and environmental quality

• Increasingly believe business has important role

• Environmental quality does not have to be a zero-sum

game

Air Quality and Acid Rain

• Acid rain: more acidic rain than normal

• Adversely affects water systems, crops, forests, human

health, and air visibility

• Sulfur dioxide, nitrogen oxides, and volatile organic

compounds produce acid rain

• Internal combustion engine emissions are a source of

these pollutants

• Existing regulations limit emissions

• More reductions may be needed This may involve difficult policy-balancing choices

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Air Quality and Acid Rain

• Greenhouse effect

• Definition: heat radiating from earth is blocked or absorbed

by gases in atmosphere

• Source of gases – human activity, such as transportation

• Contributes to climate change

• Ozone reduction in stratosphere

• Ozone reduces amount or ultraviolet radiation reaching

surface of the earth

• Concern that chlorofluorocarbons used in home and vehicle air conditioners contribute to ozone depletion

Maritime and Water Quality

• Many potential transport-related sources of

adverse impacts on maritime environment

• Oil tanker spills

• Ship generated garbage dumping

• Hazardous material spills

• Motor oils in water runoff

• Adversely affects birds, marine mammals, and

quality of water used for drinking and recreation

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• Noise from transport

• Potential annoyance as well as health concern (Switzerland)

• Principal transport sources of noise

• Airplanes and motor vehicles

• U.S DOT and Federal Aviation Administration

• Sponsors research on noise abatement strategies

• Provides funding for noise abatement projects

• Noise emissions governed by Noise Control Act of 1972

Example of noise affected

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• Transport-related injuries and loss of life

• Passenger transport

• 2006: 44,912 transport-related deaths

• 95% of fatalities occurred in highway vehicles

• Number of deaths has remained stable Death rate is declining due to:

• Increased licensing requirements

• More reliable vehicle designs

• Freight transport

• Safety trends not as favorable as on passenger side

• Rising number of accidents, spills and explosions

Social and Political Significance

• Social significance

• Enhancement of health and welfare

• Famine and other disaster relief efforts

• Political significance

• Wide range of governmental responsibilities

• Regulatory role examples

• Common carrier concept

• Power of eminent domain

• Promotional role

• Facilitation of commerce

• Preservation of national defense

Overview of Transportation Trends

• Deregulations of late 1970s and 1980s stimulated major changes in transport

• Affected how carriers organized, priced, sold services, and

managed operations

• Numerous key trends continue to shape transport

• Key trends in demand for transport services

• Key trends in supply, operation, and management of

transport services

• Key trends in government policy and regulation

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Overview of Global Freight Flows

• 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

multimodal/ intermodal transportation

• Multiple interim stops required to transfer freight between carriers or modes

Fig 5

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Global Transportation Providers

• All modes, including pipelines, involved in global

transport market

• Most freight moving between continents

(intercontinental) is shipped by ocean or air

• Most intra-continental freight moves by truck

• The focus of this section is on intercontinental ocean

and air transport

Global Transportation Providers

Ocean Shipping

• Service options

• Liner service

• Ships sail on published, regular schedules

• 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

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Global Transportation Providers

Ocean Shipping

• 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

Global Transportation Providers

Ocean Shipping

• 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

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Global Transportation Providers

Ocean Shipping

• Containerships

• High capital cost but designed for quick unloading/loading

• Port turnaround time: 12 hours vs days for break-bulk ships

• No time restriction

• 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 (tab.)

The World’s largest container ships

Seq Built Typical vessel Length overallm ft m Beam ft MaximumTEU GT Operator

1 2017 HongkongOOCL (6)- 399.9 1,312 58.8 193 21413 210,890 OOCL (Hong Kong)

2 2018 (1) Antoine de CMA- CGM

Saint Exupery 400 1,312.30 59 193.6 20776 217,673

CMA CGM (France)

3 2017 Maersk (8) -Madrid 399 1,309.10 58.6 192 20568 214,286 (Denmark)Maersk

4 2018 Ever Golden 400 1,312.30 58.8 193 20244 217,612 Evergreen (Taiwan)

5 2017 MOL (2)- Truth 399 1,309.10 58 190.3 20182 210,691 ONE (Japan)

6 2017 MOL (4)-Triumph 400 1,312.30 58.8 193 20170 210,678 ONE (Japan)

7 2018 Shipping Gemini 399.8COSCO (2)- 1,312 58.7 193 20119 194,864 COSCO (China)

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Global Transportation Providers

Ocean Shipping

• 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

Global Transportation Providers

Ocean Shipping

• 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

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Global Transportation Providers

Ocean Shipping

• 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

Global Transportation Providers

Ocean Shipping

• 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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Global Transportation Providers

Ocean Shipping

Current issues

• Aligning supply with demand: Demand can fluctuate

relatively quickly while adding capacity takes years and is capital intensive

• Rapidly fluctuation fuel prices, rising port fees

• Environmental protection legislation

• Freight security