Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 5
The Motor Car...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible...
Operating and Service Characteristics
Types of Vehicles
• City (straight) trucks
– Single units used for pick-up and deliv...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
Cost Structure
Labor Costs
• Principal variable cost categories
– Labor
– Fuel
– Maintenance
– Highway user charges
• Note...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
Cost Structure
Labor Costs
• Driving time regulations
– Federal limits on the maximum hours an
individual may drive or do ...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
Cost Structure
Fuel Costs
• Fuel costs in 2006 averaged about 48 cents
per mile of operation
– 12.8% of total operating co...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
or duplicated, or posted to a publicly accessible...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
Current Issues
Safety
• Alcohol and drug abuse
– Industry response: substance abuse testing, treatment,
and prevention pro...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
Current Issues
LTL Rates
• LTL rates are market driven, much discounting
• Limited anti-trust immunity
– Immunity for comm...
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible...
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Transport Management & Theory Practices (5)

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Transport Management & Theory Practices (5)

  1. 1. Management of Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 5 The Motor Carrier Industry 1© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  2. 2. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2 Introduction • Brief history – Important role in development of 20th century U.S. economy • Industry emerged at time of WW I • Industry greatly benefited by rapid development of highway system, particularly the Interstate system • Rapid growth of economy following WWII corresponds with rapid growth of trucking industry – Dominant mode of freight transport today
  3. 3. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3 Industry Overview Measures of Industry Significance • Expenditures for trucking services – $645.6B or 83.8% of total expenditures in U.S. for freight transportation in 2006 • Truck share of freight transport – About 31% of total ton-miles • Approx. 8.7M people employed in trucking industry
  4. 4. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4 Industry Overview Types of Carriers • Several classification schemes – Legal form of carriage • For-hire vs. private • Common, contract or exempt for-hire – Local vs. intercity operators – Truckload (TL) vs. Less-than-truckload (LTL) • Heavy LTL – Classification by type of commodity hauled
  5. 5. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5 Industry Overview Number of Carriers • Large number of relatively small carriers – .6M operators, most with 6 or fewer vehicles – Numbers vary significantly by sector • Very large number of TL carriers – Low capital requirements for entry into TL • Much smaller number of LTL carriers – High capital requirements for LTL due to terminal network and pick-up and delivery fleet – Explanation of LTL operation – Yellow dominates national LTL market
  6. 6. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6 Industry Overview Types of Commodities Hauled • Dominates transport of high-value manufactures – Food and manufactured products, consumer and industrial goods – Most transported relatively short distances (less than one day driving time) • Dominates transport of live animals – These shipments move very short distances • Moves substantial quantities of bulk materials – These shipments move very short distances
  7. 7. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7 Operating and Service Characteristics General service characteristics • Trucking has an advantage on most service- related characteristics • Accessibility – Door-to-door service • Speed (transit time) – Enables lower inventory levels • Connections to other modes: universal connector • Smaller carrying capacity – inventory advantage • Lower damage rates than rail
  8. 8. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8 Industry Overview Competition and Market Structure • Intense rivalry within trucking sectors and from private carriers – Few capital or other constraints on entry • Exception at national LTL level • Partial exception for specialty commodities carriers – Despite capital constraints on entry, national LTL segment faces intense competition from other transport segments • Market structure – TL is monopolistically competitive – National LTL is oligopolistic
  9. 9. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9 Operating and Service Characteristics Equipment • Equipment-related advantages – Technical features enable service advantages – Flexibility, smoothness, small capacity – Rapid loading/unloading capability • Principal equipment decisions – Type of tractor (power) – Type of trailer (length and type) – Where and when to position equipment
  10. 10. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10 Operating and Service Characteristics Types of Vehicles • Line-haul vehicles – Used for long distance transport – Typically tractor-trailer combination with 3+ axles • Typical trailer lengths are 45, 48, or 53 feet – Maximum length and weight can vary by state • Fed. max. gross vehicle weight is 80,000 lbs. • Some states have grandfathered rights to allow more • Some loads may be more under permit – Carrying capacity: function of vehicle dimensions and density of cargo
  11. 11. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11
  12. 12. Operating and Service Characteristics Types of Vehicles • City (straight) trucks – Single units used for pick-up and delivery (PUD) • Typically 15-20 foot cargo unit – Growing use of 28 foot line haul trailers (pups) for PUD • Saves multiple handlings of cargo and time • Special vehicles – e.g., flatbed, tank trailer, refrigerated, high cube © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12
  13. 13. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13 Operating and Service Characteristics Terminals • Pickup and delivery terminals (satellite or end-of-run terminals) in LTL operations – Peddle run networks • Peddle time and stem time – Shipment consolidation and distribution operations – Vehicle dispatch operations – Other services
  14. 14. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14
  15. 15. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15 Operating and Service Characteristics Terminals • Break-bulk terminals in LTL operations – Consolidate and re-sort shipments • Designed to facilitate higher utilization of vehicle capacity • Disadvantage: slows transport time, adds handling, reduces reliability – Driver domicile • Relay terminals – Necessitated by hours-of-service regulations – “Slip seat” and sleeper team alternatives
  16. 16. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16
  17. 17. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17
  18. 18. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18 Operating and Service Characteristics Terminal Management Decisions • Number of terminals – Desired degree of market penetration – Trade-offs with length of peddle runs and with level of customer service – Trend has been to reduce number of terminals • Locations of terminals – Influenced by hours-of-service regulations – Consideration of backhauls between terminals
  19. 19. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19
  20. 20. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20 Cost Structure Fixed vs. Variable Cost Components • Cost structure: mix of fixed and variable costs – Varies depending on the type of trucking operation – For long-distance, tractor-trailer operation • 70-90% of total costs are variable • Fixed costs relatively low % of total costs – Public investment in highway system – Small increments of capacity can be added – Few terminals needed – For LTL operation, fixed costs are higher due to terminal system
  21. 21. Cost Structure Labor Costs • Principal variable cost categories – Labor – Fuel – Maintenance – Highway user charges • Note: these are the principal costs associated with daily operations © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21
  22. 22. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22 Cost Structure Labor Costs • For a long-distance, tractor-trailer operation – Total operating cost: $3.75/mile (2006) – Driver cost: 20% of total operating costs • Mileage rate for distance traveled (local delivery drivers paid an hourly rate) • Hourly rate for loading/unloading, operating delays – Total labor costs consume approximately 55% of each dollar of revenue
  23. 23. Cost Structure Labor Costs • Driving time regulations – Federal limits on the maximum hours an individual may drive or do “on-duty” work – Maximum limits • 11 hrs driving, 14 hours “on-duty” • No driving after 60 hrs on-duty in 7 days or 70 hours on-duty in 8 days • Drivers must be off for 10 consecutive hours before working the maximum hour limits © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23
  24. 24. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24 Cost Structure Labor Costs • Qualified driver shortage – Major impact on TL carriers – Contributing factors • Federally imposed commercial driver’s license (CDL) requirements – Imposed nationally in 1992 • Stringent rules on drug and alcohol abuse • Demanding, unattractive life-style – Industry efforts to attract drivers
  25. 25. Cost Structure Fuel Costs • Fuel costs in 2006 averaged about 48 cents per mile of operation – 12.8% of total operating costs • Fuel costs include federal and state diesel fuel taxes imposed as part of highway user tax structure – Federal tax is 24.4 cents/gallon – State diesel fuel taxes average 24.5 cents/gallon © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
  26. 26. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26 Cost Structure Economies of Scale (EOS) • No major EOS in trucking – Some purchase economies may be available for large scale operations – Large scale operations may have higher labor costs i.e. diseconomies of scale, due to unionization • Economies of utilization (use) – Present in LTL operations where fixed costs are higher due to terminals, IT systems – IT systems requirements also adding to fixed costs of TL carriers
  27. 27. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 27 Cost Structure Funding • System of federal and state highway user taxes and fees used to fund the provision of highways – User fees principle: those that benefit most directly should pay for the system – Covers construction and maintenance costs of most non-local roads • Revenues from federal user taxes and fees deposited to Federal Highway Trust Fund (FHTF) • State user fee revenues used to match FHTF distributions • Debate: does each user category pay fair share?
  28. 28. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 28
  29. 29. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 29 Current Issues Safety • Improved safety means improved profitability • FMCSA publishes rules for motor carrier safety fitness inspections – Carriers classified as satisfactory, conditional, or unsatisfactory • If unsatisfactory, carrier given reasonable time to correct deficiencies • FMCSA has power to stop operations if improvements not made – Fitness findings influence carrier selection process
  30. 30. Current Issues Safety • Alcohol and drug abuse – Industry response: substance abuse testing, treatment, and prevention programs – Programs focus on health and safety dangers, abstain from moral judgments. Include: • Consistent, enforceable policies applicable to all employees • Known policies for violations • Counseling and rehabilitation services • Hours-of-service and driver fatigue • Vehicle size and weight concerns © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 30
  31. 31. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 31 Current Issues Technology • Impact of satellite technology – GPS systems for vehicle tracking and onboard computers for communications • Enhance management control • Enable more efficient and timely communications between driver, management and customer – Status notification – Responsiveness to routing and delivery time change requests made by customers – Enhancement of environmental safety in movement of hazardous materials
  32. 32. Current Issues LTL Rates • LTL rates are market driven, much discounting • Limited anti-trust immunity – Immunity for commodity classifications, mileage guide rules, and general rate adjustments • No tariff filing requirements – Carriers must maintain rates, rules, and commodity classifications and furnish to shippers on request – But rates need not be in writing to be enforceable © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 32
  33. 33. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 33 Current Issues Financial Stability • Many carriers have high operating ratios, exceeding 95% – Industry overcapacity is a recurring problem • Problem worsens during economic downturns • Puts much pressure on carriers to discount rates to maintain market share • Alternatively, some carriers try to build market share through mergers and consolidations • Each year, 1,500+ carriers file for bankruptcy – Evaluation of carrier financial stability is now an important aspect of carrier selection process

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