Ch09 the transportation_system

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Ch09 the transportation_system

  1. 1. Chapter 9: The Transportation System
  2. 2. Learning Objectives- After reading this chapter, you should be able to do the following: <ul><ul><li>Explain the economic role transportation plays in the economy. </li></ul></ul><ul><ul><li>Discuss the economic and service characteristics of the basic modes. </li></ul></ul><ul><ul><li>Describe the carrier selection process. </li></ul></ul><ul><ul><li>Discuss the economic effect of rates, transit time, reliability, capability, accessibility, and security in the carrier selection decision. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  3. 3. Learning Objectives <ul><ul><li>Compare the advantages and disadvantages of using common, regulated, contract, exempt and private carriers --- the five legal classes of carriers. </li></ul></ul><ul><ul><li>Discuss the economic and service characteristics of intermodal transportation and explain the dominance of rail-truck (piggyback) intermodal service. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  4. 4. Learning Objectives <ul><ul><li>Discuss the economic rationale of using containerization. </li></ul></ul><ul><ul><li>Discuss the economic and service characteristics of indirect and special carriers. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  5. 5. Logistics Profile: Victoria’s Secret <ul><ul><li>33 to 35 percent of the $2.9 billion store, catalog, and E-commerce sales ship via the United States Postal Service (USPS). </li></ul></ul><ul><ul><li>Victoria’s Secret uses Global Logistics, a package expeditor, to service its southeast USPS shipments, with the object of three to five day service. </li></ul></ul><ul><ul><li>All loads to the USPS are palletized and are standing appointments and live uploads. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  6. 6. The Role of Transportation in Logistics <ul><ul><li>Transportation is the physical link connecting the firm to its suppliers and customers. </li></ul></ul><ul><ul><li>In a nodes and links scenario, transportation is the link between fixed facilities (nodes). </li></ul></ul><ul><ul><li>Transportation also adds value to the product by providing time and place utility for the firm’s goods. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  7. 7. The Role of Transportation in Logistics <ul><ul><li>As firms engage in global competition, transportation costs are becoming even more significant. </li></ul></ul><ul><ul><li>In 1999, U.S. firms spent an estimated $554 billion to move freight, or 9.9% of the GNP 1 ; this is up from 397 billion, or 6.3% of the GDP in 1993. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  8. 8. The Role of Transportation in Logistics <ul><ul><li>In 1999, as a percentage of sales, transportation was 3.24%, warehousing 1.84%, customer service 0.48%, administration 0.38%, and carrying cost 1.52%. </li></ul></ul><ul><ul><li>Outbound transportation was clearly the largest component of total physical distribution costs. </li></ul></ul><ul><ul><li>Cost trade-offs abound in transportation and are typified by trading lower inventory costs for higher transportation costs. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  9. 9. The Transport Selection Decision <ul><ul><li>The Transportation – Supply Chain Relationship </li></ul></ul><ul><ul><ul><li>Firms need to recognize that the lowest cost carrier does not necessarily guarantee that this carrier will result in the lowest landed cost. </li></ul></ul></ul><ul><ul><ul><li>Therefore, firms need to keep the big picture in mind when attempting to select a carrier. </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  10. 10. The Transport Selection Decision <ul><ul><li>The Carrier Selection Decision: </li></ul></ul><ul><ul><ul><li>Various modes of transportation should be considered. </li></ul></ul></ul><ul><ul><ul><li>Choose a carrier or carriers within the selected mode, if there is a choice. </li></ul></ul></ul><ul><ul><ul><li>Carefully examine the service capabilities of the carrier as services can vary widely between carriers. </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  11. 11. Figure 9-1 The Carrier Selection Decision Chapter 9 Management of Business Logistics, 7 th Ed.
  12. 12. The Transport Selection Decision <ul><ul><li>Carrier Selection Determinants: </li></ul></ul><ul><ul><ul><li>Cost </li></ul></ul></ul><ul><ul><ul><li>Transit time and reliability </li></ul></ul></ul><ul><ul><ul><ul><li>Can be a competitive advantage </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Lowers customers’ inventory costs </li></ul></ul></ul></ul><ul><ul><ul><li>Capability </li></ul></ul></ul><ul><ul><ul><li>Accessibility </li></ul></ul></ul><ul><ul><ul><li>Security </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  13. 13. Figure 9-2 Carrier Selection Determinants and User Implications Chapter 9 Management of Business Logistics, 7 th Ed.
  14. 14. The Transport Selection Decision <ul><ul><li>The Pragmatics of Carrier Selection: </li></ul></ul><ul><ul><ul><li>Transit time reliability </li></ul></ul></ul><ul><ul><ul><li>Negotiated rates </li></ul></ul></ul><ul><ul><ul><li>Consolidating shipments among a few carriers </li></ul></ul></ul><ul><ul><ul><li>Financial stability </li></ul></ul></ul><ul><ul><ul><li>Sales rep </li></ul></ul></ul><ul><ul><ul><li>Special equipment </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  15. 15. Figure 9-3 Importance Ranking of Carrier Selection Determinants Chapter 9 Management of Business Logistics, 7 th Ed.
  16. 16. The Basic Modes of Transportation <ul><ul><li>The basic modes available to the logistics manager are rail, motor, water, pipeline, and air. </li></ul></ul><ul><ul><li>Distribution of ton-miles* for the various modes is outlined in Table 9-1. </li></ul></ul><ul><li>*(a ton-mile is one ton of cargo carried one mile, and is a standard statistical measurement used in the transportation industry). </li></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  17. 17. Table 9-1 Modal Distribution of Ton-Miles Chapter 9 Management of Business Logistics, 7 th Ed.
  18. 18. The Basic Modes of Transportation: Railroads <ul><ul><li>Capable of carrying a wide variety of products, much more so that other modes. </li></ul></ul><ul><ul><li>Very small number of carriers; likely only one will be able to serve any one customer location. </li></ul></ul><ul><ul><li>Trend is to merge smaller companies into larger ones with ultimate goal of having perhaps two transcontinental rail carriers. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  19. 19. The Basic Modes of Transportation: Railroads <ul><ul><li>This would permit seamless dock-to-dock service by one company; a distinct improvement over current systems. </li></ul></ul><ul><ul><li>Rail is a long haul, large volume system (high fixed costs; own rights-of-way). </li></ul></ul><ul><ul><li>Accessibility can be a problem. </li></ul></ul><ul><ul><li>Transit times are spotty, but are generally long. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  20. 20. The Basic Modes of Transportation: Railroads <ul><ul><li>Reliability and safety are improving and are generally good. </li></ul></ul><ul><ul><li>Premium intermodal services </li></ul></ul><ul><ul><ul><li>Straight piggyback and containerized freight </li></ul></ul></ul><ul><ul><ul><li>Double stacks </li></ul></ul></ul><ul><ul><ul><li>RoadRailer service </li></ul></ul></ul><ul><ul><li>Unit train service </li></ul></ul><ul><ul><li>Intermodal Marketing Company (IMC) </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  21. 21. On the Line: It’s the Service, Stupid <ul><ul><li>It’s difficult to assess the railroad industry without getting into the subject of service… </li></ul></ul><ul><ul><li>Shippers complain; rail carriers say they are trying to improve. </li></ul></ul><ul><ul><li>Wall Street says that improving service is imperative. </li></ul></ul><ul><ul><li>Actual improvements are coming, but slower than the demand for faster, more reliable, and cheaper service. One problem is that standards continue to increase. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  22. 22. The Basic Modes of Transportation: Motor Carriers <ul><ul><li>The motor carrier industry is characterized by a large number of small firms. In 1999, there were 505,000 registered motor carriers. </li></ul></ul><ul><ul><li>Low cost of entry causes these large numbers. </li></ul></ul><ul><ul><li>Used by almost all logistics systems and account for 82 percent of U.S. freight expenditures. </li></ul></ul><ul><ul><li>Consists of for-hire and private carriers. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  23. 23. Figure 9-4 Overview of Interstate Motor Carrier Industry Chapter 9 Management of Business Logistics, 7 th Ed.
  24. 24. The Basic Modes of Transportation: Motor Carriers <ul><ul><li>Large number of small firms; in 1999, there were 12,500 regulated carriers, only 7% of which had revenues >$10 million, with 76% having revenues <$3 million. </li></ul></ul><ul><ul><li>Characterized by low fixed costs and high variable costs. </li></ul></ul><ul><ul><li>Do not own their rights-of-way. </li></ul></ul><ul><ul><li>Limited operating authority regarding service areas, routes, rates and products carried. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  25. 25. The Basic Modes of Transportation: Motor Carriers <ul><ul><li>High accessibility </li></ul></ul><ul><ul><li>Transit times faster than rail or water. </li></ul></ul><ul><ul><li>Reliability can be affected greatly by weather. </li></ul></ul><ul><ul><li>Small vehicle size coincides with lower inventory strategies and quick replenishment (QR). </li></ul></ul><ul><ul><li>Relatively high cost compared to rail and water; trade-off is faster service. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  26. 26. Figure 9-5 Overview of the Domestic Water Carrier Industry Chapter 9 Management of Business Logistics, 7 th Ed.
  27. 27. The Basic Modes of Transportation: Domestic Water Carriers <ul><ul><li>Available along the Atlantic, Gulf and Pacific coasts, along the Mississippi, Missouri, Tennessee and Ohio River systems and the Great Lakes. </li></ul></ul><ul><ul><li>Regulated common and contract carriers haul about 5% of the freight, while private and exempt carriers haul the other 95% of the ton-miles. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  28. 28. The Basic Modes of Transportation: Domestic Water Carriers <ul><ul><li>Relatively low cost mode ; do not own the rights-of-way; easy entry and exit. </li></ul></ul><ul><ul><li>Typically a long distance mover of low value , bulk-type mineral, agricultural and forest products </li></ul></ul><ul><ul><li>Low rates but long transit times </li></ul></ul><ul><ul><li>Low accessibility but high capability </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  29. 29. The Basic Modes of Transportation: International Water Carriers <ul><ul><li>General cargo ships </li></ul></ul><ul><ul><ul><li>Large high capacity cargo holds </li></ul></ul></ul><ul><ul><ul><li>Engaged on a contract basis </li></ul></ul></ul><ul><ul><ul><li>Many have self-contained cranes for loading/unloading </li></ul></ul></ul><ul><ul><li>Bulk carriers </li></ul></ul><ul><ul><ul><li>Specially designed to haul minerals </li></ul></ul></ul><ul><ul><ul><li>Can handle multiple cargoes </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  30. 30. The Basic Modes of Transportation: International Water Carriers <ul><ul><li>Tankers </li></ul></ul><ul><ul><ul><li>Specially designed for liquid cargoes </li></ul></ul></ul><ul><ul><ul><li>Largest vessels afloat, some VLCCs at 500k+ tons </li></ul></ul></ul><ul><ul><li>Container ships </li></ul></ul><ul><ul><ul><li>High speeds for ships; increasingly more common and important </li></ul></ul></ul><ul><ul><ul><li>Larger vessels can handle up to 5,000 containers. </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  31. 31. The Basic Modes of Transportation: International Water Carriers <ul><ul><li>RO-RO (Roll on-Roll off) </li></ul></ul><ul><ul><ul><li>Basically a large ferry that facilitates the loading and unloading process by using drive on/off ramps </li></ul></ul></ul><ul><ul><ul><li>May also have the capacity to haul containers </li></ul></ul></ul><ul><ul><li>Other </li></ul></ul><ul><ul><ul><li>OBO multipurpose carriers </li></ul></ul></ul><ul><ul><ul><li>Barges (not transoceanic) </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  32. 32. The Basic Modes of Transportation: Air Carriers <ul><ul><li>Limited number of large carriers earn about 90% of the revenue. </li></ul></ul><ul><ul><li>Any of the air carriers can carry air freight although some haul nothing but freight. </li></ul></ul><ul><ul><li>Cost structure is highly variable; do not own rights-of-way. </li></ul></ul><ul><ul><li>Transit times are fastest of the modes, but rates are highest. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  33. 33. The Basic Modes of Transportation: Air Carriers <ul><ul><li>Average revenue per ton mile 18 times higher than rail; twice that of motor carriers. </li></ul></ul><ul><ul><li>Seek goods with a high value to weight ratio. </li></ul></ul><ul><ul><li>Accessibility is low as is capability. </li></ul></ul><ul><ul><li>Reliability subject to weather more than other modes. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  34. 34. The Basic Modes of Transportation: Pipelines <ul><ul><li>Refers only to the oil pipelines , not natural gas </li></ul></ul><ul><ul><li>Not suitable for general transportation </li></ul></ul><ul><ul><li>Some research has been performed to move minerals in a liquid medium, but outside of a few attempts to transport slurried-coal via pipeline, no real successes have occurred. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  35. 35. The Basic Modes of Transportation: Pipelines <ul><ul><li>Accessibility is very low. </li></ul></ul><ul><ul><li>Cost structure is highly fixed with low variable costs. </li></ul></ul><ul><ul><li>Own rights-of-way much like the railroads. </li></ul></ul><ul><ul><li>Major advantage is low rates. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  36. 36. Table 9-2: Performance Rating of Modes Chapter 9 Management of Business Logistics, 7 th Ed. Selection Determinants Railroad Motor Modes Water Air Pipeline Cost 3 4 2 5 1 Transit time 3 2 4 1 --- Reliability 2 1 4 3 --- Capability 1 2 4 3 5 Accessibility 2 1 4 3 --- Security 3 2 4 1 ---
  37. 37. Legal Classifications of Carriers: Common Carrier <ul><ul><li>For-hire carrier that serves the general public at reasonable rates and without discrimination. </li></ul></ul><ul><ul><li>Stringent economic regulation designed to protect the public. </li></ul></ul><ul><ul><li>Must transport all commodities offered... </li></ul></ul><ul><ul><li>Commodities are limited to those that the carrier’s equipment will handle. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  38. 38. Legal Classifications of Carriers: Common Carrier <ul><ul><li>Carrier is liable for damages to products carried. </li></ul></ul><ul><ul><li>Exceptions to liability include acts of God, acts of the public enemy, acts of public authority, acts of the shipper and defects inherent in the goods. </li></ul></ul><ul><ul><li>Continued service is assisted by ceiling and floor limits on the rates charged. </li></ul></ul><ul><ul><li>Backbone of the transportation industry. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  39. 39. Legal Classifications of Carriers: Regulated Carrier <ul><ul><li>Regulated carriers are found in motor and water carriage. </li></ul></ul><ul><ul><li>The ICC Termination Act of 1995 eliminated most of the common carrier economic regulation for these two modes, including entry controls, reasonable rates, and nondiscrimination provisions. </li></ul></ul><ul><ul><li>When acting as a contract carrier, not subject to STB economic regulations. </li></ul></ul><ul><ul><li>Must provide safe and adequate service. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  40. 40. Legal Classifications of Carriers: Contract Carriers <ul><ul><li>For-hire carrier that does not have to serve the general public. </li></ul></ul><ul><ul><li>May serve one or a few shippers exclusively. </li></ul></ul><ul><ul><li>May offer specialized equipment. </li></ul></ul><ul><ul><li>Not subject to regulation on services; rates usually lower than common or regulated carriers. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  41. 41. Legal Classifications of Carriers: Contract Carriers <ul><ul><li>Other aspects of the carrier/shipper relationship are made a part of the contract between the two parties. </li></ul></ul><ul><ul><li>Becoming more popular as logistics managers use contract carriage to assure rates and service levels. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  42. 42. Legal Classifications of Carriers: Exempt Carriers <ul><ul><li>For-hire carrier exempt from economic regulation regarding rates and services. </li></ul></ul><ul><ul><li>Limited entry controls; low rates. </li></ul></ul><ul><ul><li>Usually haul agricultural products, but there are special rules as to what may be hauled by each mode of transportation, e.g., rail piggyback is exempt.. </li></ul></ul><ul><ul><li>Limited number of carriers restricts availability. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  43. 43. Legal Classifications of Carriers: Private Carriers <ul><ul><li>Private carriage is the firm’s own transportation. </li></ul></ul><ul><ul><li>Not for-hire and not subject to Federal regulations. </li></ul></ul><ul><ul><li>May not be the firm’s primary business but can charge a intracompany fee for transportation services. </li></ul></ul><ul><ul><li>Almost exclusively motor, but some rail, air and water also exist. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  44. 44. Legal Classifications of Carriers: Private Carriers <ul><ul><li>Firms gain ultimate control over shipments and achieve maximum flexibility in moving goods. </li></ul></ul><ul><ul><li>Backhauls are usually empty or return materials to the firm’s plants and/or warehouses. </li></ul></ul><ul><ul><li>Requires a large capital investment. </li></ul></ul><ul><ul><li>Requires management time and expertise. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  45. 45. Intermodal Transportation <ul><ul><li>Refers to use of two or more modes of transportation cooperating on the movement of shipment by publishing a through rate . </li></ul></ul><ul><ul><li>Logistics managers are looking for the best way to move shipments and these often attempt to take advantage of multiple modes of transportation, each of which has certain useful characteristics. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  46. 46. Figure 9-6 Types of Intermodal Services Chapter 9 Management of Business Logistics, 7 th Ed.
  47. 47. Intermodal Transportation <ul><ul><li>Biggest disadvantage is that carriers are reluctant to participate. </li></ul></ul><ul><ul><li>Cultural bias towards using only one mode and this makes change more difficult. </li></ul></ul><ul><ul><li>Certain types have been fairly well developed, such as rail/water, motor/water, rail/motor, and motor/air. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  48. 48. Intermodal Transportation: Containerization <ul><ul><li>Referred to as Container-on-Flat-Car (COFC); goods are placed in a large box, where they are untouched until they arrive at the consigee’s unloading dock. </li></ul></ul><ul><ul><li>Reduces theft, damage, multiple handling costs and intermodal transfer time. </li></ul></ul><ul><ul><li>Changes materials handling from labor intensive to capital intensive and may reduce costs from 10 to 20%. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  49. 49. Intermodal Transportation: Containerization <ul><ul><li>“ Land bridge” concept may apply for international shipments where oceans are separated by a large land mass. </li></ul></ul><ul><ul><li>For example, containers moving from Japan to Europe may dock at Long Beach, CA, transfer the containers to a railroad, and reload the containers onboard another ship in Norfolk, VA., continuing on to a European port. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  50. 50. Intermodal Transportation: Piggyback <ul><ul><li>Trailer-on-Flat-Car (TOFC) </li></ul></ul><ul><ul><li>Over the road trailers ride in special rail cars. </li></ul></ul><ul><ul><li>Takes advantage of motor flexibility and rail’s long haul economic advantage. </li></ul></ul><ul><ul><li>Multiple service plans for shippers. </li></ul></ul><ul><ul><li>Some railroads provide varying levels of service, differentially priced. </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  51. 51. Intermodal Transportation: RoadRailers <ul><ul><li>Newest concept referred to as a “RoadRailer” </li></ul></ul><ul><ul><li>Essentially a trailer that has been reinforced to ride on a rail bogey and be coupled together directly without first being placed on a rail flat car </li></ul></ul><ul><ul><li>Saves weight and locomotive power and thus fuel for the railroad </li></ul></ul><ul><ul><li>Special lower rates </li></ul></ul><ul><ul><li>Motor competitive transit times </li></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  52. 52. Indirect and Special Carriers <ul><ul><li>Small-Package Carriers </li></ul></ul><ul><ul><ul><li>Evolved to carry small, irregular shipments </li></ul></ul></ul><ul><ul><ul><li>Fast service, premium rates </li></ul></ul></ul><ul><ul><ul><li>examples are UPS, FedEx, RPS, etc. </li></ul></ul></ul><ul><ul><li>Consolidators and Freight Forwarders </li></ul></ul><ul><ul><ul><li>Consolidates many small shipments </li></ul></ul></ul><ul><ul><ul><li>Saves shippers by using CL or TL rates </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  53. 53. Indirect and Special Carriers <ul><ul><li>Shippers Associations </li></ul></ul><ul><ul><ul><li>Acts as a consolidator for members </li></ul></ul></ul><ul><ul><ul><li>Object is also to get lower rates </li></ul></ul></ul><ul><ul><li>Brokers </li></ul></ul><ul><ul><ul><li>Acts as an intermediary </li></ul></ul></ul><ul><ul><ul><li>May be licensed by STB </li></ul></ul></ul><ul><ul><ul><li>Often used to provide backhauls for private carriers </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  54. 54. Indirect and Special Carriers <ul><ul><li>Intermodal Marketing Companies (IMC) </li></ul></ul><ul><ul><ul><li>An intermediary that solicits shipments for rail/motor intermodal service. </li></ul></ul></ul><ul><ul><ul><li>Can speed traffic through consolidation (fills the normal two-trailer load on an intermodal flat car, avoiding delays waiting for another trailer going to the same destination). </li></ul></ul></ul><ul><ul><ul><li>Particularly advantageous for small (one trailer) shippers. </li></ul></ul></ul>Chapter 9 Management of Business Logistics, 7 th Ed.
  55. 55. Chapter 9: Summary and Review Questions Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 9.
  56. 56. End of Chapter 9 Slides The Transportation System
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