Transportation Management - Motor Carrier Industry PDF

Transportation Management Motor Carriers Industry  Transportation Management TYPES OF CARRIERS  Transportation Management For-hire – Provides services to the public & charges a fee for the service – Local vs. Intercity Operators Local carriers pick up & deliver freig...

Transportation Management Motor Carriers Industry  Transportation Management TYPES OF CARRIERS  Transportation Management For-hire – Provides services to the public & charges a fee for the service – Local vs. Intercity Operators Local carriers pick up & deliver freight within the commercial zone of a city Intercity carriers operate between specifically defined commercial zones. Transportation Management Private Carriers – Provides a service to the industry or a company that owns or leases the vehicles, but does not charge a fee. – May transport commodities for-hire In this capacity, the private carrier is really an exempt for-hire carrier. Transportation Management Exempt Carriers – Specifically exempt from economic regulation – Gains this status by Type of commodity hauled (I.e., agricultural commodities) Nature of its operations (incidental to air transportation) Transportation Management Common Carriers – Required to serve the general public upon demand, at reasonable rates, & without discrimination. Contract Carriers – Service specific shippers with whom the carriers have a continuing contract. – Thus, typically not available for public use Transportation Management A secondary distinction of the motor carrier industry is between the Truck Load and Less-Than-Truck Load carriers. Truckload (TL) Carriers – Provide service to shippers who tender sufficient volume to meet the minimum weights required for a full truckload shipment and TL rate (or who will pay the required amount). Transportation Management Less-than-Truckload (LTL) Carriers – Provide service to shippers who tender shipments lower than minimum truckload quantities, such as 50 to 10,000 lbs. Transportation Management Less-than-Truckload (LTL) Carriers – Consolidate numerous smaller shipments into TL quantities for Intercity transport – Disaggregate TL shipments at destination for delivery in smaller quantities. Transportation Management NUMBER OF CARRIERS Transportation Management The motor carrier industry consists of a large number of small carriers, particularly the TL (truckload) segment of the industry. The large number of small carriers is due to the limited capital needed to enter the TL industry. A motor carrier can be formed with as little as US$5,000 to $10,000 Transportation Management and the balance can be financed with the vehicle serving as collateral for the loan. However the, LTL carriers have terminals that increase the capital requirements and thus add a constraint to entry. Transportation Management TERMINALS Transportation Management Pickup and Delivery (PUD) Terminals – Freight is collected from shippers and brought to the PUD terminal where it is consolidated with other loads going in the same direction or to the same destination. – Consolidated shipments loaded onto a line- hauler for transport to the Transportation Management Pickup and Delivery (PUD) Terminals destination terminal. –At the destination terminal, line-hauler is emptied, and the combined shipments are separated and reloaded unto city trucks. City trucks then deliver the shipments to the ultimate consignee. Transportation Management Pickup and Delivery (PUD) Terminals – PUDs are also used for Sales, billing, and claim handling Limited vehicle maintenance Change freight from one carrier to another – PUDs are also called end-of-line terminals. Transportation Management Break-Bulk Terminals – Basic function is the separation of combined shipments – Freight is unloaded from consolidated truckloads, sorted by destination, and reloaded for dispatch to destination. Transportation Management Break-Bulk Terminals – Generally, break-bulk terminals are centrally located within the carrier’s operating scope and at the junction of major east-west and north-south highways. Provides greater efficiency. Transportation Management Relay Terminals – Unlike PUDs and Break-Bulk terminals, the freight is never touched at a relay terminal. – Necessitated by the maximum hours-of-service regulation that is imposed on drivers. 10 hours maximum driving after 8 consecutive hours off- duty. Transportation Management Relay Terminals – At the relay terminal, one driver substitutes for another (the term slip seat is used for relay terminals) – Relay terminals are normally located within a maximum of 10 hours driving time from the point of origin. – Alternative to the relay terminal is the sleeper team – 2 drivers. Transportation Management MARKET STRUCTURE (commodities hauled) Transportation Management When discussing the carrier industry, consideration must be given to the commodities hauled. Motor carrier vehicles, both for-hire and private, primarily transport manufactured, high-value products. Transportation Management These vehicles carry more than a majority of the various manufactured commodities categories. These commodity list includes food products and manufacturing products, consumer goods, and industrial goods. Transportation Management Motor carriers transport less of commodities such as grain, primary nonferrous metal products, etc., as they are generally moved in large volume over long distance. Therefore based on its capacity, motor carriers mainly move low volume, high-value manufactured goods. Transportation Management COMPETITION Transportation Management Motor carriers compete vigorously with one another for freight. With the large number of for-hire motor carriers, rivalry between firms can be intense The most severe competition for for-hire carriers often comes from the private carrier. Transportation Management The motor carrier industry offers few capital constraints to entry, with a relatively small investment, an individual can start a motor carrier business and compete with existing carrier. On a whole, the motor carrier industry, especially for contract carriers, has been market oriented. Transportation Management Meeting customer requirements has been a common trait of the motor carrier and the small size of the majority of for-hire carriers allows them to give individualized attention to customers. The motor carriers compete with themselves for low volume high-value manufactured or finished goods. Transportation Management GENERAL SERVICE CHARACTERISTICS Transportation Management Offers highest Accessibility of any mode – Can serve virtually any location – Not constrained by waterways, rail tracks, or airport locations – Almost every shipping & receiving locations is accessible via highways Transportation Management Speed – For loads traveling less than 500 miles, usually can deliver in less time than any other mode – Even over 500 miles, can be, in the right situation, faster than air Transportation Management Speed – For example, shipment traveling 600 miles Truck = 12 hours (600 miles @ 50 mph) Air could take up to 24 hours – Flight time = 1 ½ hours – 3 hours needed for pickup and another 3 for delivery – If only 1 flight per day is scheduled, shipment might have to wait 24 hours before it lifts off. Transportation Management Cargo-Carrying Capacity – Though smaller than many other modes, shippers can enjoy the TL rate (volume discount) with a lower volume. Most TL minimums set at 20,000 – 30,000 lbs Rail carload minimums are often set at 40,000 – 60,000 lbs. Barge (water) minimums are set in terms of hundreds of tons Transportation Management Cargo-Carrying Capacity – Smaller shipping size provides buyers and sellers with Lower inventory levels Lower inventory-carry costs More frequent services Transportation Management Smoothness of Transport – Given the suspension system and pneumatic tires used on trucks, motor carriers offer smoother rides than rail or water – Results in less damage to the cargo (though some does occur) – Less damage results in reduced packaging requirements and thus packaging costs Transportation Management Customer Focus – By it’s very nature, the industry tends to be more customer- or marketing-oriented – Due in large part to the small size of most carriers (must offer higher service to compete) Transportation Management TYPES OF TRUCKS Transportation Management Line-Haul Trucks – Tractor-trailer combination of 3 or more axles – Capacity depends on size (length) and state maximum weight limits Most states now allow tractor-trailer combos with 5 axles that can haul a maximum of 80,000 lbs gross weight (110,000 in Michigan) Most vehicles weigh (empty) 30,000 lbs, leaving a maximum net payload of 50,000 lbs or 25 tons. Anything over 5 axles generally requires a special permit Transportation Management Line-Haul Trucks –Capacity is also affected by the density of the freight A 53’ x 8’ x 8’ trailer has 3,392 cubic feet of space If the commodity hauled has a density of 10 lbs per cubic foot, the maximum payload for the vehicle would be 33,920 (3,392 cubic feet x 10 lbs./cubic foot) Transportation Management City Trucks – Normally smaller than line-haulers and are single units – Typically 20 to 25 feet long with a cargo unit 15 to 20 feet long. – There is growing use of small trailers that are 20 to 28 feet long. Transportation Management Special Vehicles – Dry Van Standard trailer or straight truck with all sides enclosed – Open Top Trailer top is open to permit loading of odd-sized freight through the top – Flatbed Trailer has no top or sides; used extensively to haul steel, lumber, etc. Transportation Management Special Vehicles – Tank Trailer Cylinder trailer used to haul liquids and gases – Refrigerated Trailers (Reefers) Cargo unit with controlled temperatures – High Cube Trailer Cargo unit has drop-frame design or is higher than normal to increase cubic capacity Transportation Management Transportation Management COST STRUCTURE Transportation Management Cost structure Approximately 70 to 90 % of motor carrier costs are variable. – Allows the carrier to increase/decrease the number of vehicles used in short periods of time and in small increments of capacity. Transportation Management Cost structure – Low fixed costs due to Public financing of the highway system Terminals are less expensive than those used by other modes Bulk of the carrier’s cost is associated with daily operating costs – fuel, wages, & maintenance – In 1995, average total cost to operate a tractor-trailer was 130.2 cents per mile (70% of which was variable costs Transportation Management Transportation Management Labour Accounts for 29% of total costs per vehicle mile Usually absorb about 50% of a carrier’s revenue dollar. Local drivers paid by the hour Driving Time Regulations (USDOT) – 15 hours on-duty after 8 hours off-duty – 10 hours driving after 8 hours off-duty – Cannot accumulate more than 60 hours on-duty in 7 consecutive days, or 70 in 8. Transportation Management OPERATING RATIO Measure of operating efficiency used by motor carriers. Function of operating expenses and operating revenues – Operating expenses are those expenses directly associated with the transportation of freight, excluding non-transportation expenses and interest costs. Transportation Management OPERATING RATIO – Operating revenues are the total operating revenues generated from freight transportation services. The closer the ratio is to 100, the more indicative of the possible need to raise rates to increase total revenues. – For example, an operation ratio of 94 means that 94 cents of every operating Transportation Management OPERATING RATIO revenue dollar is consumed by operating expenses. –This only leaves 6 cents to cover interest costs and provide a return to the owners. Operation ratio for most motor carriers generally range between 93 and 96. Transportation Management Operating Expenses Operating Ratio = ---------------------- X 100 Operating Revenue  Transportation Management QUESTIONS & ANSWERS  Transportation Management Source: Management of Transportation by Bardi, Coyle & Novack