itl lecture-15 to 19 (transportation-the backbone of logistics)

07/06/10 1

By :

Prof. Amit Kumar

07/06/10 2

“Logistics has advanced from warehousing and transportation to boardrooms of the successful leading companies across the world. Due to increasing importance of business logistics, it becomes necessary for the student pursuing management education from IILM- Graduate School of Management, to understand logistics, its basic framework and practical utility.”

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Importance of this course

International Trade Logistics

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Course: International Trade Logistics1. Logistics - At the Centre of World Trade

2. Supply Chain Management

3. Warehousing: A Role Beyond Storage

4. Material Handling & Storage System

5. Transportation: Backbone of Logistics

6. Logistics Packaging

7. Logistics Information System

8. Global Logistics & Outsourcing

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International Trade Logistics

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International Trade Logistics Transportation-The Backbone of Logistics

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Contents• Evolution of Transportation System• Transportation Functionality & Guiding Principles• Participants in Transportation Decisions• Five Basic Transportation Modes & Freight Management • Transportation Networks & Route Planning• Multi Modal Transport

Features of Multimodal Transport System Advantages of Multi Modal Transport

• Containerization Classifications of Container, Scope of Containerization Factors Contributed to Growth of Container

• Case Study: Transport Corporation of India- The Indian Road Freight Index

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When the goods or the products are ready after labeling, pricing, packing and packaging etc. done, then these

goods are sent to the transport company, which helps in supplying it to the customer through land, air or sea

transportation.

Thus, transportation of goods is a key part of the logistics management. Transportation is a way of moving people or things from one

place to another.

Introduction: Transportation

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1. Land: Covered Wagon, Train, Subway, Bicycle, Motorcycle, Car & Bus

2. Water: Canoe, Steamboat, Ferry, Passenger ship & Submarine

3. Air: Hot Air Balloon, Plane, Helicopter, Rocket & Space Shuttle

Types of Transportation

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• Covered Wagon: Till 1725, Wagons were pulled by horses. Used by farmers to carry heavy loads long distances before there were railroads.

• Train: 1815, transports people and goods over long distances on a track.

• Subway: 1863-London, 1904-New York City. An electric underground railroads. Mostly in crowded cities

• Motorcycle: 1885, designed like bicycle, with an engine, gas powered. Allows people to move faster and long distances.

• Car: 1886-Karl Benz-Germany, 1903-Henry Ford-US• Bus: 1894, carries many passengers usually along a route

according to schedule.

Types of Transportation: Land

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• Canoe: 1750, first canoe factory (Canada) for travelling streams, rivers and lakes and between islands.

• Steamboat: Invention of the steam engine changed water transportation. 1787, John Fitch, first successful voyage of a steamboat on the Delaware River.

• Ferry: Boat used to carry people, vehicles and freight across narrow bodies of water. 1811, first ferry service in the US was launched between two cities New Jersey and Manhattan.

• Passenger ship (Cruise): 1818, companies began making ships, carries many passengers across oceans, slowly.

• Submarine: 1898, a ship that can travel underwater. Used in war to attack enemy ships or to fire missiles at enemy countries.

Types of Transportation: Water

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• Hot Air Balloon: 1783, a balloon filled with heated air or light gas so that it rises and floats in the air. A basket attached under the balloon carries a pilot and passengers, used for scientific research.

• Airplane: 1903, The Wright Brothers, fastest way of transport• Helicopter: 1940, lifted into air by propellers, can take off and

land in a small space, used in war and for medical rescue, police and traffic

• Rocket : 1969, Apollo 11, carries three astronauts, first to reach moon, space exploration

• Space Shuttle: 1981, Reusable space vehicle, flied into space and returns to Earth

Types of Transportation: Air

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Transportation functionality provides two major functions:1. Product Movement

• Primary transportation function is product movement up and down the value chain.

• Whether the product is in form of materials, components, assemblies, work-in-progress or finished goods, transportation is necessary.

• Loss and damage expenses must also be minimized.• At the same time, movement must take place in a

manner that meets customer demands regarding delivery performance.

2. Product storage

Transportation Functionality

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Transportation functionality provides two major functions:1. Product Movement2. Product storage

• Temporary storage• However, if the in-transit product requires storage but

will be moved again shortly, the cost of unloading & reloading product in a warehouse may exceed profitability.

• A second method to achieve temporary method storage is diversion. This occurs when an original shipment destination is changed while delivery in transit.

Transportation Functionality

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There are two fundamental principles guiding transportationmanagement and operations. They are:1. Economy of Scale

• ‘transportation cost per unit of weight decreases when the size of the shipment increases’.

• Transportation economies of scale exists because fixed expenses associated with moving a load can be spread over the load’s weight.

• It is true that larger capacity transportation vehicles such as rail or water are less expensive per unit weight than smaller capacity vehicles such as motor or air.

2. Economy of Distance

Principles Guiding Transportation

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There are two fundamental principles guiding transportationmanagement and operations. They are:1. Economy of Scale2. Economy of Distance

• ‘transportation cost per unit of distance decreases as distances increases’.

• For example, a shipment of 800 miles will cost less than two shipments (of the same combined weight) of 400 miles.

• Longer distances allow the fixed expense to be spread over more miles, resulting in lower overall per mile charges.


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There are two fundamental principles guiding transportationmanagement and operations. They are:1. Economy of Scale2. Economy of Distance

‘The objective is to maximize the size of the load and the distance, that it shipped while still

meeting customer service expectation’.


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Transport transactions are often influenced by five parties:

Participants in Transportation Decisions

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Shipper Consignee(Receiver)Carrier

Government

Public

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1. Railways2. Road/Highway3. Sea/Water4. Pipeline5. Air

Five Basic Transportation Modes

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• Railways are the principal carriers of men and material and play a major role in country’s trade and commerce activities.

• Chart shows the contribution of various items in total cargo handled by railways in the year 2006-07.

Basic Transportation Modes: Rail

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COAL43%

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The Konkan Railways has introduced a unique scheme of transporting a truck

fully loaded with cargo to the destination.

• This will save precious fuel, which otherwise would have been used by a number of trucks. This way, road traffic may be relieved to some extent and air pollution by those trucks will be curtailed.

Basic Transportation Modes: Rail

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• Indian road conditions not being good, the average distance travelled by a truck is 250-300 kilometers per day as against 550-600 kilometers in by their counterparts in developed countries.

• Of the total national highways, 2% are of four lanes, 34% two lanes and 64% single lane.

The road index computed by Cooper and Lybrand is as follows: India-0.58, Brazil-0.47, China-0.29

and Mexico-0.27.

Basic Transportation Modes: Road/Highway

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Road transportation offers a number of advantages such as:• Door-to-door service• Flexibility• Reliability• Reaching Remote Places• Speed

Basic Transportation Modes: Road/Highway

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• The shipping fleet across the world comprises tankers, dry bulk carriers, container ships and special vessels.

• India has 55 shipping companies, of which 19 are exclusively in coastal trade, 29 in overseas trade and remaining are in both. (major one SCI and Essar)

• In India, 11 major ports handle 95% of international trade and 85% of domestic sea trade.

In shipping, India ranks 6th in Asia and 15th in world merchant shipping trade.

Basic Transportation Modes: Sea/Water

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The composition of sea cargo on Indian ports, 2006-07:

Basic Transportation Modes: Sea/Water

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POL35%

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• Unlike other modes, there is no empty ‘container’ or ‘vehicle’ that must be returned.

• Pipelines have the highest fixed cost and lowest variable cost among transport modes.

• An obvious disadvantage is that pipelines are not flexible and are limited with respect to commodities that can be transported: only products in the form of gas, liquid, or slurry can be handled.

First time developed in 1870 by Samuel Van for transporting petroleum.

Basic Transportation Modes: Pipeline

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• Air transportation is a costly affair and it is used only for the highly perishable commodities and items whose life is short and value is high.

• The air cargo traffic is concentrated around the gateway airports such as Mumbai, Chennai, Delhi, Kolkata and Bangalore. These airports handle 87% of air cargo in India.

Basic Transportation Modes: Air

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Modal Comparison & Dominant Traffic Composition

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Mode Nature of Traffic CompositionRail Extracting industries, Heavy

manufacturing, Agricultural commodities

Highway Medium and light manufacturing, Distribution between wholesalers and retailers

Water Mining and bulk commodities, Chemicals, Cement and Agricultural products

Pipeline Petroleum, Coal slurry, No particular commodities

Air Emergency rather than regular basis

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• The selection of transportation mode depends on the product characteristics and customer service requirements. For example:

Raw materials are transported in bulk and through cheaper mode such as rail or sea

In high-value items, the deliveries required are faster and in smaller consignment with reliability as road & air

• For the logistics manager cost, speed and reliability are the most important factors to select from the all options.

Freight Management

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Freight ManagementTransportation Modes: Characteristics Comparison

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Characteristics Road Rail Water Air Pipeline

Speed

Investment

Freight Cost

Reliability

Frequency

Capability

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Freight ManagementTransportation Modes: Characteristics Comparison

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Characteristics Road Rail Water Air Pipeline

Speed 2 3 4 1 5

Investment 1 2 3 4 5

Freight Cost 4 3 1 5 2

Reliability 2 3 4 5 1

Frequency 2 3 4 5 1

Capability 4 3 2 5 1

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Different types of networks are being used in transportingthe goods from point of production to the point of consumption. • Point-to-Point Network• Multiple Delivery Points• Trans-Shipment Points• Nodal Network• Hub and Spoke Network

Transportation Networks

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Point-to-Point Network• Quite common for long distance hauls on the national

highways.• The point of origin and destinations are fixed. Complete

truck loading is assured for both ways.


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Point of Origin

Point of Destination

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Multiple Delivery Points• Used for round the trip operations, with multiple pickup

and delivery points.• For example, the delivery of filled bottles and pickup of

empty bottles of soft drinks at multiple points (retailers) on a fixed route is quite common.


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Point of Origin


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Trans-Shipment Points• Network having a common point where loading and

unloading takes place for freight consolidation/break bulk.• Most of the national transporters maintain two types of

fleet, that is vehicles dedicated for national long-distance and other ones for catering to local network.


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Point of Origin


Trans-shipmentPoint

Long Distance haulage

Local AreaDistribution

Nodal Network• These networks are used for multi-modal transportation

system and include multi-stops and trans-shipment pickup and delivery stations.

• Example, a box container truck may have predetermined multi-point pickup stations for freight consolidation on its way to rail terminal from where the box container may be taken to port terminal for loading on the ship.


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RoadTerminal

RoadTerminal

RoadTerminal

RailTerminal

PortTerminal

AirTerminal

MultiplePickup and distribution



Hub and Spoke Network• The hub acts like a central feeder point to the distribution

centers, which are at the strategic locations spread across the geographical area.

• High volume and high-speed shipment takes place from hub to DC through the shortest routes called spokes.

• The trans-shipment of consignment is done at DC for distribution across the local area.



MotherHub

DC

DCDC

DC

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Multi modal transport means transport of cargo from premises of shipper to those of consignee by more than one mode, under a single contract evidence by a single transaction

and through freight rate of liability.

Thus, this is the transport of merchandise using two or more means of transportation from the location designated by the exporter to the location of the

importer, where the carrier is responsible for taking custody of the merchandise.

Multi-Modal Transport

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Simply, Multimodal Transport can be viewed as

“the chain that interconnects different links or modes of transport -air, sea, and land into one complete

process that ensures an efficient and cost-effective door-to-door movement of goods under the

responsibility of a single transport operator, known as a Multimodal Transport Operator (MTO), on one

transport document”.


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1. Goods mainly in international trade pass through the hands of more than one carrier and more than one mode of transport

2. Under conventional system of segmented transport, the consignee enters into separate contracts with each other.

3. The liability of each carrier is limited to the carrier in limited to the carriage performed by him.

4. The consignor or his agent has to attend to all arrangements required for transshipment of goods from one mode to another, including warehousing.


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Features:

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1. Minimizes time loss at transshipment points2. Provides faster transit of goods3. Reduces burden of documentation and formalities4. Saves cost5. Establishes only one agency to deal with


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Advantages:

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Containerization is an inter-modal system of transporting the general cargo or product in lots which are too

small for the traditional bulk transport system, using ISO standard containers.

The goods can be easily moved from one location to another in these containers which can be loaded intact onto the

container ships, trucks, railroad cars and planes.

The concept of containerization is considered as the key innovation in the field of logistics which has

revolutionized freight handling in the twentieth century.

Containerization

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• Goods in lots which are too small for the traditional bulk transport can be moved using containers.

• Containerization is best option for high-value and delicate cargo as it provides safety from human and natural factors.

• As containers are moved intact, substantial amount of time and labor cost is saved which would otherwise have incurred in loading and unloading goods.

• It prevents poor handling of goods that results from bulk transport systems.

• Act as mode of storage anywhere along transport route.

Benefits of Containerization

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• Today containerization has become the integral part of logistics. It has revolutionized the cargo shipping.

• Today, nearly 90% of non bulk cargo moves by containers put on transport ships.

• One fourth of world’s total containers start from China. • With the use of ISO standard containers, the size &

shapes of containers are also getting standardized.• Some of the largest global players containerizing

containers today are Bowen Exports, Theiler & Sons Goods, LLC and Patrick Global.

Containerization: At Present

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Transport Corporation of India – The Indian Road Freight Index

Case Study

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Transport Corporation of India – The Indian Road Freight Index

Analysis Questions

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1. What is ‘Indian Road Freight Index’?2. What is the utility of Road Freight Index in logistics

operations?3. How is RFI computed?

itl lecture-15 to 19 (transportation-the backbone of logistics)

Leadership & Management