Chapter 1 - Introduction to Freight Transportation

• The changing economic landscape: Driving forces • Supply chain concept • The purpose of transportation... The Changing Economic Landscape: Driving Forces• More complex and competitive

INTRODUCTION TO FREIGHT TRANSPORTATION

TRAN QUOC CONG

Industrial Systems Engineering Department

Mechanical Engineering Faculty

Ho Chi Minh City University of Technology - VNU

CHAPTER 1

• Introduction

• Transport measurement units

• Core component of transportation

• The transport system

• Transportation networks

• The role of transportation

• The changing economic landscape: Driving forces

• Supply chain concept

• The purpose of transportation

The Changing Economic Landscape: Driving Forces

• More complex and competitive operating environment

• Efficient (reducing their cost of doing business) and effective (improving customer service)

• Transportation

• A critical ingredient for overall supply chain performance

• The glue that holds the supply chain performance

• The external forces driving the change

Story of an iPhone

The Fourth Industrial Revolution

Supply Chain Concept (1)

• Typical logistics network – Physical distribution

Supply Chain Concept (2)

• Integrated supply chain

The purpose of transportation

• Purpose of transportation

• Overcome space

• Fulfill a demand for mobility

• Constraints

• Distance – Relative concept involving space, time and effort

• The capacity of modes and infrastructures

• The nature of what is being transported

Distance - a core attribute of transportation

Transport Measurement Units

• Freight: Weight-distance units  ton-mile

• People: Passenger-distance units  passenger-mile

U.S Domestic Freight

Ton-Miles by Mode

(Billions)

Freight transportation (1)

• Demand elasticity – the sensitivity of customers to changes in price

Elasticity = % change in quantity % change in price

• In general, aggregate demand for transportation is inelastic.

• However, the demand for specific modes of transportation or specific carriers is price sensitive

Derived Demand for Freight Transportation

• The demand for freight

transportation is usually

dependent upon the demand

for a product in another

location  Derived demand

insurance or loading costs.

If the landed cost of the product is lower than that of other sources, there will usually be a demand for that product and also for the transportation of that product from its origin point.

Freight transportation (3)

• Extent of market area

Service components of freight demand

• Transit time

• Volume and cost of holding inventory

• Potential stock-out costs

• Reliability or consistency of transit time: Safety stock and/or stock-out costs

• Accessibility: Impacts transport cost and time

• Capability: “Special” service requirements

• Security: Safety stocks and stock-out costs

Core Components of Transportation

Modes

• Conveyances (vehicles) used to move passengers or freight

• Mobile elements of transportation

Infrastructures

• Physical support of transport modes, such as routes and terminals

• Fixed elements of transportation

Networks

• System of linked locations (nodes)

• Functional and spatial organization of transportation

Flows

• Movements of people, freight and information over their network

• Flows have origins, intermediary locations and destinations

The Transport System

Passengers

Freight Information

Volume Frequency

Origins Destinations Intermediacy

Linkages Capacity

Demand

Nodes

Transportation Networks

• Network structures

Centralized Decentralized Distributed

One center has high accessibility

and thus represents the dominant

element of the network and the

spatial structure it supports

This is the common characteristic of

hub and spoke networks

Although the center is still the point of highest accessibility, the network is structured so that sub-centers have also significant levels of accessibility

No center has a level of accessibility significantly different from the others

Structural Components of Transport Networks

GATEWAY NODE HUB

Flow

FEEDER

Link Corridor

• Gateway. A node that is connecting two different systems of circulation that are usually separate

networks (modes) and which acts as compulsory passage for various flows An intermodal function is performed so that passengers or freight are transferred from one network to the other

• Hub A node that is handling a substantial amount of traffic and connects elements of the same

transport network, or different scales of the network (e.g regional and international)

• Feeder. A node that is linked to a hub It organizes the direction of flows along a corridor and can be considered as a consolidation and distribution point

• Corridor. A sequence of nodes and links supporting modal flows of passengers or freight They are

generally concentrated along a communication axis, have a linear orientation and connect to a gateway

• Node. Any location that has access to a

transportation network

• Link. Physical transport infrastructures

that enable to connect two nodes

• Flow The amount of traffic that

circulates on a link between two nodes

and the amount of traffic going through

a node

Gateways and Hubs

Intermodal Transmodal

Point-to-Point and Hub-and-Spoke Networks

Hub

Historical significance of transportation

• The growth of civilizations is directly associated with the development

History of Transportation

Economic significance (1)

• The transportation service adds value to the goods shipped.

• Value of Goods

• A commodity is produced at point

A and costs OC at the point of

production

• The community that needs the

commodity, located at point B, is

the distance AB from A

• The maximum price that people

will pay for the commodity is

shown on the vertical axis as OE, at

community B

• The efficiency of the new system enables the producer located at Point A to expand their market area to include B, which is a value-added service

Economic significance (2)

• Place Utility

• The reduction in transportation costs between points A and B, illustrated

above, gives the commodity place utility or place value

• Reductions in transportation costs permit market areas to purchase products from distant suppliers that might otherwise only be produced locally at a

higher price.

• The reduction in transportation cost is actually greater for longer distances than for short ones because of the fixed charges.

• Law of Squares in transportation and trade (Lardner’s Law)

• A producer at Point A can afford to transport a product 100 miles and meet competitive laid-down or landed costs

• If transportation cost is cut in half, the same sum will now transport the supplier goods for twice the distance

• The relevant market area increased four times in size when the radius doubled from 100 to 200 miles

Economic significance (3)

• Time Utility

• The demand for a particular commodity may exist only during certain periods

of time If a product arrives in a market at a time when there is no demand for

it, then it possesses no value.

• Effective transportation can create time utility by ensuring that products are

at the proper locations when needed.

• The increased emphasis upon just-in-time and scheduled deliveries as well as

high-value products and emergency shipments.

Economic significance (4)

• Quantity Utility

• Transportation gives goods quantity utility through the assurance that the

goods will arrive without damage in the right quantity.

• This utility has increased in importance in recent years with the high level of importance placed on minimizing safety stock inventories for both shippers and receivers.

• Utility of Goods

• Geographic Specialization: the principle of absolute or comparative advantage

• Large-Scale Production (economies of scale)

• Increased Competition

• Land values

Economic significance (5)

• Gross Domestic Product (GDP)

Economic significance (6)

• Modal split

Environmental significance

• Trade-offs: a sound and efficient transportation system vs a safe and

clean environment  green supply chains

• The impact of transportation on the environment:

• Air Quality and Acid Rain

• Maritime and Water Quality

• Noise

• Safety

Political significance

• The origin and the maintenance of transportation systems are dependent on the

government.

• Government intervention is needed to design feasible routes, cover the expense of

building public highways, and develop harbors and waterways.

• Adequate transportation is needed to create national unity; the transportation network permits the leaders of government to travel rapidly to and communicate with the people they govern.

• The government is responsible for aiding all passenger and freight transportation

systems in which the costs cannot be covered reasonably by a central group of users.

• The government has also created regulations that offer consumers the opportunity to transact in a competitive free-market environment.

• Closely connected with transportation’s political role is its function as a provider for

national defense.

Overview of transportation trends (1)