Carrier Strategies

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Chapter 10

• Carrier Strategies

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CARRIER OPERATING CONDITIONS

• Operating Network
• With assets spread over vast geographic
  territories, managers face difficult management
  control issues.
• First, assets and equipment must be deployed to
  the shippers location, which requires continuous
  monitoring of equipment location and customer
  demand. Dilemma of operating the vehicle empty to
  a shippers location, incurring operating cost
  without revenue.

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Management control issues

• 2. Second, a high proportion of operating tasks
  is performed beyond the scope of supervisors.
  Truck drivers, pilots, engineers, and the like
  perform their duties in the absence of immediate
  supervision. The supervisors of equipment
  operators are typically hundreds or thousands of
  miles away. Technology is the link that enables
  the supervision of geographically separated
  operators.

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management control issues

• 3. Third, the vast geographic operating network
  is interrelated and interdependent. That is, the
  origin terminal, pickup vehicles, consolidation
  terminals, and so on, all must work together to
  accomplish the delivery of the shippers freight.
  Information technology connects

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management control issues

• 4. Fourth, the carriers operations and
  equipment are continually exposed to weather
  conditions and other hazards beyond the control
  of management.
• 5. Other hazards beyond management control
  include traffic congestion and calamities.

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management control issues

• 6. operating equipment is located throughout a
  widespread area, making it difficult for carriers
  to protect equipment against vandalism,
  pilferage, and sabotage

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Operations

• Transportation operations come into direct
  contact with the general public, making safety a
  critical factor.
• Because of these interactions with the general
  public, transportation accidents have the
  potential for doing great harm to many people.

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Operations

• The need for safety, coupled with the high
  proportion of tasks performed without immediate
  supervision, necessitates extensive operating
  rules.
• consequences of accidents resulting from unsafe
  operations are so excessive that the cost of
  rigidity is miniscule in comparison.

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Operations

• Gorvernment safety regulations transporting
  hazardous materials.
• carriers are concerned with the safe delivery of
  the cargo. That is, the carriers desire delivery
  of cargo and passengers without damage or undue
  delay.

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Labour

• transportation is a service, and one of the
  characteristics of a service is that it cannot be
  inventoried.
• If a labor strike occurs in a transportation
  company the operation is stopped and no service
  is provided.

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Labour

• The carrier cannot produce the service in
  anticipation of the strike, inventory the
  service, and then sell it during the strike.
• This inability to provide service during a strike
  causes considerable disruption to society in the
  form of canceled travel, plant closings, and
  product shortages.

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Performance Measures

• The service performance measurements include
  time, consistency, and damage.
• Time Delivery time
• Consistency - Consistently producing a desired
  transit time, free of damage, is a value to a
  carrier because it provides a value to the
  shipper in the form of reduced inventory and
  stockout costs

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Performance Measures

• Damage - damage to cargo negatively impacts the
  shipper and/or receiver by rendering the
  delivered item useless, thereby setting the stage
  for the shipper and/or receiver to incur stockout
  costs.

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Financial performance measures

• By monitoring financial performance, carrier
  management attempts to efficiently use resources
  (capital and human) employed in the business.
• financial performance measurements consider the
  short- and long-term financial performance of a
  carrier and the efficient use of resources.
• NOTES

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OPERATING STRATEGIES

• The rule of efficiency states that it is most
  efficient to move in a continuous, straight line
  whenever possible. This rule describes the most
  efficient movement for goods and people.
• Intermediate handlings should be minimized.

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OPERATING STRATEGIES

• The full capacity of the transportation vehicle
  should be maximized on each run. (fixed costs)
  (plane capacity 50 passengers)

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OPERATING STRATEGIES

• Consolidation and break-bulk activities should be
  used to achieve full capacity for long-haul
  moves.
• One means of attaining full equipment use is to
  use a pickup and delivery network to accumulate
  freight for the line-haul efficiency.

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OPERATING STRATEGIES

• Empty mileage should be minimized. The cost of
  moving an empty vehicle is almost that of moving
  a loaded one without the offset of revenue.
• Empty kilometres represent wasted fuel, labor,
  capital costs, and lost revenue.

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OPERATING STRATEGIES

• Movements should be scheduled and dispatched so
  as to fully use labor and equipment in line with
  the market.
• Transportation service cannot be stored. Because
  the service must be in place for the market, this
  rule calls for the optimal equipment levels to be
  in place with the required personnel.

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TECHNOLOGY AND EQUIPMENT

• The more expensive the long-haul vehicle, the
  greater the required investment in fast
  load/unload and other support equipment.

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TECHNOLOGY AND EQUIPMENT

• The economies of high capital investment call for
  high utilization of the equipment throughout the
  day, week, month, or year
• Because these expensive investments are only
  earning revenue when they are running, firms
  strive to operate with a minimum of down time or
  loading and unloading time

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TECHNOLOGY AND EQUIPMENT

• Generally, the larger the vehicle, or the more
  freight or passengers that can be moved in it,
  the less each unit will cost to move.
• Carriers may dedicate vehicles to particular
  routes based on power, speed, and
  maneuverability. Example?

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TECHNOLOGY AND EQUIPMENT

• the size of vehicle used on a particular route is
  determined in part by the demand on the route.
• Carriers attempt to match the vehicle carrying
  capacity with the demand on the route

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TECHNOLOGY AND EQUIPMENT

• The fastest possible speed is not always the most
  efficient for economical operations. The cost of
  fuel consumption in relation to speed for most
  transportation vehicles is shown in Figure 10.1.

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TECHNOLOGY AND EQUIPMENT

• Carriers attempt to maximize the length, width,
  and height of vehicles so as to increase cubic
  carrying capacity and loadability.

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TECHNOLOGY AND EQUIPMENT

• Larger vehicle dimension strategy is particularly
  important to carriers moving low- density
  freight.
• A larger vehicle permits the shipper to increase
  the shipment size that in turn lowers the cost
  per unit shipped.
• The longer the trailer, the greater the cubic
  capacity, the higher the shipment weight, and the
  lower the cost per Rand transported.
• Shippers of low-density freight desire carriers
  to have high cubic capacity vehicles permitting
  larger loads and lower freight costs.

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TECHNOLOGY AND EQUIPMENT

• Equipment should be standardized as much as
  possible.
• Standardized equipment simplifies planning,
  purchasing, crew training, maintenance, and spare
  parts inventories.

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THE HUB-AND-SPOKE ROUTE SYSTEM

• The hub-and-spoke system concentrates the flow of
  passengers and freight along a fewer number of
  routes with a main mixing point (hub) at a
  center.
• It expands the number of points the carrier can
  offer travelers with good schedules, and it
  concentrates more business into a fewer number of
  runs.

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MARKETING

• Transportation firms are faced with the challenge
  of developing and marketing something that cannot
  be felt, inventoried, or tested.
• This makes the marketing of carrier services
  extremely important to the profitability of the
  firm, and a knowledge of marketing concepts is
  critical to this success.

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MARKETING

• Service marketing is different from product
  marketing because of the differences between
  products and services.
• First, services are intangible. The inability to
  see, feel, and try a service before it is
  produced makes it more difficult to sell and more
  difficult for buyers to make purchase decisions.

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Service marketing characteristics

• 2. Second, there is a focus on the service
  provider.
• For example, flight satisfaction influenced by
  flight attendant .
• truck drivers who make customer deliveries can
  reinforce the positive image of a carrier or
  change a customers perception of that image.

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Service marketing characteristics

• service providers are usually highly
  labor-intensive.
• This can make service quality subject to more
  variability.
• Although carriers have high investments in
  equipment, people actually provide the service.

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Service marketing characteristics

• there is a simultaneous production and
  consumption of services that is, there is no
  inventory.
• Transportation services cannot be produced before
  demand occurs to take advantage of production
  economies.
• Equipment, in the form of capacity, can be put
  into place in anticipation of demand, but
  production of transportation service occurs at
  the same time as demand.

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Service marketing characteristics

• services are perishable.
• A move by rail has no shelf life.
• Likewise, empty seats on an airplane are lost
  forever immediately after takeoff.

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MARKETING

• Carriers that stress operations are more likely
  to optimize their existing system at the expense
  of customer satisfaction.
• They tend to be inflexible and are very inwardly
  focused.

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MARKETING

• On the contrary, marketing-oriented carriers
  stress customer satisfaction by tailoring their
  system and services to meet customer needs.
• These carriers are outwardly focused, are very
  flexible, and perceive themselves to be
  supportive of a buyer or receivers logistics and
  business needs.

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• The logical extension of this marketing
  orientation is the establishment of carrier
  outsourcing, third-party operations.
• Most of the major trucking companies and air
  cargo carriers have outsourcing subsidiaries that
  offer a wide variety of value-added services to
  their customers.
• These outsourcing subsidiaries enable the carrier
  to differentiate its services from its
  competitors and gain customer business

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COORDINATION

• A hallmark of successful carrier firms is that a
  close coordination exists between marketing and
  operations departments.
• A close link ensures that marketing efforts are
  conducted with operational costs in mind and that
  an operating department does not allow marketing
  efforts to be wasted on poor service.

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CHALLENGES AFFECTING CARRIER MANAGEMENT

• geographically dispersed - By their very nature,
  carrier operations take place over vast
  distances.
• This causes carriers to rely upon tight controls,
  often with decentralized structures and close
  communications.
• he dispersion problem is compounded by the fact
  that the firms product availability is
  constantly in motion.

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CHALLENGES AFFECTING CARRIER MANAGEMENT

• The carrier employee who came in contact with the
  customer traditionally had been given relatively
  low status and training within the carrier
  organization.
• Todays carriers, however, have realized the
  importance these customer-contact personnel play
  in shaping customer perceptions concerning
  service quality.

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CHALLENGES AFFECTING CARRIER MANAGEMENT

• Transportation operating employees are often
  minimally supervised.
• carrier crews often come into contact with their
  supervisors for only minutes per day and often
  only by phone or radio.
• Without supervision, a driver has the potential
  opportunity for low performance and little
  accountability to the terminal managers.

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CHALLENGES AFFECTING CARRIER MANAGEMENT

• This has caused many carriers to implement strong
  communication and performance measurement
  systems.
• Satellite communication technology also permits
  carrier management to track the progress of
  operating equipment and personnel

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CHALLENGES AFFECTING CARRIER MANAGEMENT

• Single accountability for the transportation
  service product is often minimal (geographic
  dispersion).
• Although transportation service standards can be
  established, without effective discipline and
  accountability, reliable service is difficult to
  maintain.

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CHALLENGES AFFECTING CARRIER MANAGEMENT

• It is often very difficult to determine the exact
  cost of transportation.
• Transportation is an activity in which the total
  cost consists of large amounts of fixed,
  overhead, and joint costs.

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THE TERMINAL THE BASIC TRANSPORTATION SYSTEM
COMPONENT

• General Nature of Terminals
• A terminal is any point in a carriers network
  where the movement of freight or passengers is
  stopped so some type of value-adding activity can
  be performed.

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General Nature of Terminals

• One of the basic tenets of logistics is to keep
  an item moving at a constant speed through the
  system.
• Once this item is stopped, costs are incurred, so
  a delay at a terminal must add more value than it
  incurs costs.

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• An overview of the terminals role in the
  transportation process is given in Figure 10.3.

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Various value-adding activities or services that
terminals provide

• concentration or consolidation.
• This activity takes small shipments or groups of
  passengers and combines them to make larger
  units.

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Various value-adding activities or services that
terminals provide

• dispersion or break-bulk.
• The opposite of consolidation, this activity
  involves separating larger units of freight or
  passengers into smaller units, normally for
  delivery to final destination.
• Consolidation and dispersion are usually
  performed simultaneously at most types of
  terminals.

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Various value-adding activities or services that
terminals provide

• Shipment services are also performed at
  terminals.
• These involve the storage of freight or
  accommodating passengers in transit, the
  protection of freight or passengers from the
  elements, and routing and billing.

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Various value-adding activities or services that
terminals provide

• Many types of terminals are used to provide
  vehicle services, which could include equipment
  maintenance and the storage of equipment until it
  is needed.
• In LTL networks, break-bulks serve as major
  maintenance facilities for line-haul equipment
  and also temporarily store equipment that is not
  needed during periods of slow business.

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Various value-adding activities or services that
terminals provide

• Finally, terminals can provide shipment process
  services such as weighing services, customs
  inspections, claims processing, and interchange
  operations.

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Terminal Ownership

• If the terminal is owned by the carrier, it will
  incur fixed costs, such as interest,
  depreciation, and taxes that will not vary in
  total with the volume of freight.
• As volume increases through these terminals,
  however, the fixed-cost allocation per unit will
  decrease, which can be an indicator of economies
  of increased utilization.

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Terminal Ownership

• The other method of terminal financing is through
  government ownership.
• In this case, the government (state, local, or
  federal) owns the terminal facility and charges
  carriers a user fee based on their activity level
  at the facility.
• This still results in the burden of high fixed
  costs.
• However, the government bears this burden and
  passes it along to users as a variable cost.
• This variable cost can affect the carriers cost
  structure and, ultimately, its pricing structure.

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Types of Terminals

• MOTOR CARRIER (TRUCKLOAD)
• Truckload movements consist of one shipment
  between one consignor and one or more consignees
  i.e. no intermediate handlings no consolidation
  etc
• These terminals are designed primarily to
  accommodate drivers and equipment, but not
  freight

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MOTOR CARRIER (TRUCKLOAD)

• these facilities normally provide dispatching,
  maintenance, and fuel and maintenance services

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MOTOR CARRIER (LTL) Terminal

• The most common type of terminal found in the LTL
  system is the pickup and delivery (PUD) terminal,
  also called a satellite or end-of-the-line (EOL)
  terminal. The PUD terminal serves a local area
  and provides direct contact with both shippers
  and receivers.

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MOTOR CARRIER (LTL) Terminal

• During and after the deliveries, freight will be
  picked up from customers and returned with the
  driver to the terminal at the end of the day.
• When all the drivers return at the end of their
  shifts, the terminal will have freight to be
  consolidated and moved outbound to customers in
  other areas of the country.

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MOTOR CARRIER (LTL) Terminal

• The basic terminal services performed at these
  facilities are consolidation and dispersion /
  break-bulk.

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Terminal Management Decisions

• NUMBER OF TERMINALS
• The degree of market penetration and customer
  service desired by the carrier will help
  determine the number of terminals to establish
• The decision as to the number of terminals in a
  carriers network is ultimately based on total
  cost.
• The carrier will examine the fixed and variable
  costs of operating different numbers of terminals
  in a system and select the number that minimizes
  total costs.

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Terminal Management Decisions

• LOCATIONS OF TERMINALS
• Market penetration and potential will help
  determine terminal location.

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Terminal Management Decisions

• EQUIPMENT SELECTION AND DEVELOPMENT
• Truckload and LTL carriers need to make two types
  of decisions what type of tractor (power) and
  what type of trailer.

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EQUIPMENT SELECTION AND DEVELOPMENT

• Power must be specified to be able to handle the
  size and length of the load along with the
  terrain over which it travels.
• Decisions regarding trailers include length and
  trailer type (dry van, refrigerated, ragtop,
  container, flatbed).
• END