1. Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 4
Transportation’s Role
in Global Trade
Execution
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2.  Global shipment execution is complex
 Involves multiple carriers from different modes
 Many border crossings and long distance shipments
 Flawless transportation execution requires:
 Internal expertise and attention to detail
 Strong relationships with capable service providers
 Chapter organization
 Global freight flows and key execution activities
 Key players in global transportation execution
 Customs clearance
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2

3.  Global freight: two primary service options
 Direct service
▪ Direct origin-destination (one country to another
country shipment), no interim stops-offs
▪ Typically between bordering countries
▪ Single mode of transport, typically motor carrier
 Indirect service
▪ Typically, shipment requires multiple modes, i.e.
intermodal transportation
▪ Multiple interim stops required to transfer freight
between carriers or modes
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Figure 4-2

5.  Definition:Two or more modes used to move
shipment from origin-destination
 Facilitates global trade by combining
inherent advantages of each mode
 Greater accessibility is created for ocean or air line
haul transport by combining with truck or rail
 Overall cost efficiency can be achieved without
sacrificing service quality or accessibility
 Flexibility to suit the shipment situation
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5

6.  Model combination options – most
frequently used combinations are:
 Carrier, rather than shipper typically makes
determination of which combination to use
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6
Pick up Linehaul Delivery
Truck Air Truck
Truck or rail Ocean Truck or rail
Truck Rail Truck

7.  Primary freight types
 Containerized freight
▪ Freight loaded into/onto a container or pallet that is
shipped to destination with no interim handling of freight
▪ Containers are efficient way to handle and ship freight
▪ Standard height and width specifications
▪ Ships and landside loading/unloading facilities designed to
efficiently handle and store standard sized containers
▪ Five common container lengths
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7

8.  Containerized freight (continued)
▪ Container capacity expressed in twenty-foot
equivalent units (TEU).
▪ TEU is a measure of containerized cargo capacity equal to
one standard 20 ft. (length) by 8 ft. width container
▪ Accounts for 90% of non-bulk cargo worldwide
▪ Continued growth due to:
▪ Application of info. systems to track containers
▪ Development of intermodal terminals for efficient transfers
of containers between modes
▪ New generation of ships, railcars and trucks specifically
designed for containerized freight© 2011 Cengage Learning. All Rights Reserved. May not be
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Figure 4-5

10.  Trans load freight
▪ Goods (shipments) handled individually, not put in
containers or on pallets
▪ Typically consists of bulk raw materials that must be
scooped, pumped, lifted, or conveyed when transferring
between modes
▪ Due to weight and volume of typical shipment, air
transport rarely used for linehaul
▪ Ocean, rail, and pipeline are primary modes used
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10

11.  Intermodal routing alternatives to all-water
routing
 Land bridge: movement from one seaport to
another substituting rail for portion of ocean trip
▪ Two primary land bridge routes
▪ Asia-America-Europe
 Rail substitutes for Panama Canal portion of trip
 Shorter total transit time, larger ships may be used
▪ Asia (Japan, Southeast Asia)-Europe
 SubstitutesTrans-Siberian rail across Russia for voyage
around Cape of Good Hope or through Suez Canal
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12.  Mini-bridge
▪ A port is the origin or destination, rail and ocean
transport are used for line haul
▪ Example: Seattle to Baltimore via rail coupled with ocean
voyage from Baltimore to Rotterdam (called an ocean
focused mini-bridge)
 Micro-bridge
▪ Similar to mini-bridge except origin or destination is
an inland port
▪ Example: St. Louis to Baltimore via rail coupled with ocean
voyage from Baltimore to Rotterdam
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13
Figure 4-6

14.  Intermodal challenges
 Landside congestion
▪ U.S. seaport capacity, particularly Pacific coast ports
▪ Road and rail congestion on port access routes
 Intermodal rail equipment shortages
 Labor issues
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15.  Principal activities
 Packing the freight to prevent damage
▪ Four potential in-transit problems to protect against
▪ Breakage
▪ Moisture
▪ Pilferage
▪ Excess weight
▪ Normally, air transport requires less protective
packaging than ocean transport
▪ Proper carton markings is critical consideration
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15

16.  Insuring the goods against key risks
▪ Risks to international cargo shipments higher than
for domestic shipments
▪ Typically, risk is managed by purchasing freightTypically, risk is managed by purchasing freight
insuranceinsurance
 Completing necessary documentation to
control shipment
▪ Four primary documents
▪ Invoices
▪ Export and import documents
▪ Transportation documents
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16

17.  As in domestic transport, safety, security,
and environmental impacts have high
priority
 Primary security-focused legislation
▪ MaritimeTransportation Security Act of 2002MaritimeTransportation Security Act of 2002
▪ Container Security InitiativeContainer Security Initiative
▪ Advanced Manifest RulesAdvanced Manifest Rules
▪ Has been enhanced by the Importer Security Filing regulation,
commonly known as the “10+2” rule
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17

18.  All modes, including pipelines, involved in
global transport market
 Most freight moving between continents
(intercontinental) is shipped by ocean or air
 Ocean carriers transport 98% of containerized
trade volume and 60% of trade value
 Most intra-continental freight moves by
truck
 The focus of this section is on
intercontinental ocean and air transport
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18

19.  Service options
 Liner service
▪ Ships sail on published, regular schedules
> Kapal belayar di diterbitkan, jadual tetap
▪ Sail over fixed trade routes with pre-determined
ports of call. Example route:
▪ Trans-Pacific between Asia and N. America
▪ Some may sail on “around the world” schedules
▪ Different types and sizes of ships used
▪ Ships assigned to routes based on capacity, draft and cargo
handling capabilities
▪ May carry containers or break-bulk freight
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19

20.  Charter service
▪ Ships hired for specific voyage or period of time
▪ Ship owner leases (charters) vessel to customer
(charterer)
▪ Four common types of charters
▪ Each varies on the basis for charging rates and on the degree of
vessel control assumed by charterer
▪ Voyage and time charters, bareboat charter, demise charter
 Private service
▪ Ship owed or leased on long-term basis by firm owning
the goods transported
▪ Example: Chiquita Brands International’s fleet of refrigerated ships
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20

21.  Ship registry
 Each ship operating in commercial service is
registered in a country
 Registration requirements vary by country
 Most ships registered in “flags of convenience”
nations rather than owner’s country of
citizenship
▪ Offer advantageous fees and few regulations
▪ Most popular countries are: Panama, Liberia, China,
Malta, and the Bahamas© 2011 Cengage Learning. All Rights Reserved. May not be
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21

22.  Equipment (vessel) types
 Containerships
▪ High capital cost but designed for quick unloading/loading
▪ Port turnaround time: 12 hours vs. days for break-bulk ships
▪ Enables higher ship utilization and return on investment
▪ Lower labor costs – lifting/moving done mechanically by dockside
cranes, but, limited to ports with such crane systems
▪ Dominant vessel for packaged goods ocean shipping
▪ Number and size of vessels increasing
 Largest Panamax ships carry 5,000TEUs
 Post-Panamax ships introduced in 1996, 6,400TEU capacity
 Newest post-Panamax vessel carries 13,800TEUs
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Table 4-1

24.  Break-bulk ships
▪ Versatile, multi-purpose vessels
▪ Capable of carrying varied and unusual sizes of freight
▪ On-board crane systems increase flexibility – not limited to ports
with dockside crane systems
▪ Smaller capacity but lower capital cost than containerships
▪ Varied sizes of freight increase loading/unloading labor
intensity and greatly slow port turnaround times
▪ Declining share of international trade
 RORO ships
▪ Specialized design enables wheeled vehicles to be driven
on and off ship
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24

25.  Bulk carriers (vessels)
▪ Varied vessel types dedicated to specific type of bulk
product
▪ Crude carriers (tankers) move petroleum products
 Extremely large vessels, limited to deep water ports
▪ Dry-bulk carriers move grains, coal, ores, etc.
▪ Gas carriers move compressed gases like LNG
 Combination ships
▪ Small but very flexible vessels with on-board cranes
▪ Capable of handling containers, break-bulk cargo, and
wheeled vehicles on same vessel
▪ Thrive in serving smaller or developing markets
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25

26.  Rate structure – liner operations
 Total cost (capital + operating) structure is
largely fixed and common
▪ 80-90% total cost is fixed
▪ Large common costs associated with marketing,
management and business development
 Operating costs alone also largely fixed,
meaning they do not vary with volume hauled
▪ Principal variable costs are for fuel and for loading
and unloading operations
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27.  Due to high portion of fixed costs, liner services rely
on value of service pricing to maximize total revenue
earned per trip
▪ Rates may vary over a wide range depending upon the
traffic’s price elasticity of demand
 80% of liner cargo moves under negotiated contract
rates
▪ Ocean Shipping Reform Act (OSRA) of 1999
▪ Reduced influence of collective rate-making shipping conferences
▪ Fostered a more market-driven rate making environment, leading to
a much higher % of cargo moving under contract rates
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27

28.  Rate structure – charter operations
 Total costs are largely fixed
 Charter rates are negotiated
▪ Rates are heavily influenced by supply-demand
conditions that tend to be very fluid
▪ Negotiation process involves the ship owner and the
charterer (customer)
▪ Typically each party negotiates through their shipbroker
representative
▪ The product of the process is a charter party (contract)
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28

29.  Current issues
 Aligning supply with demand
▪ Demand can fluctuate relatively quickly while adding
capacity takes years and is capital intensive
▪ When demand rises, there tends to be periods of rising rates and
capacity shortages until additional ships are built
▪ When demand falls, there tends to be a capacity surplus and
rapidly falling rates
 Rapidly fluctuation fuel prices, rising port fees
 Environmental protection legislation
 Freight security© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
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29

30.  Significance in global freight transport
 Small % of tonnage traded internationally, but
accounts for 35% of value
 Air carriers focus on
▪ Small quantities of high value, low weight, semi-
finished and finished goods
▪ Computers, precision instruments, electronics
▪ Pharmaceuticals, perishable foods, periodicals, fashion
apparel
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31.  Service options – two primary types
 Air cargo carriers
▪ Exclusively carry freight (no passengers)
▪ Customers have scheduled or charter service options
▪ Charter or on-demand services tend to be used in special
circumstances, such as:
 Emergencies, e.g. prevent production line shutdown
 Oversize goods
 Locations not served by scheduled service carriers
 Customized services
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32.  Air cargo carriers (cont.)
▪ Integrated carriers - Examples: FedEx, UPS, DHL
▪ Provide door-to-door services focused on time-sensitive goods
▪ Offer consistent schedule of pick-up and delivery windows
▪ Offer high degree of shipment visibility
▪ Non-integrated carriers – Examples: Cargolux, Polar Air Cargo
▪ Provide airport-to-airport, unscheduled service
▪ Advantage: speed including potential for same day delivery
▪ Utilizes freight forwarders or customers for pick-up, delivery
 Combination carriers
▪ Move freight and passengers, often in same plane
▪ Largest air cargo carriers
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33
Table 4-2

34.  Equipment types
 Distinguished by configuration of plane
 Air freighters dedicated solely to carrying freight
▪ Capable of carrying freight on pallets or in containers
 Passenger planes - freight carried in plane belly
▪ Shipments tend to be smaller, not palletized or in
containers
 Combi aircraft
▪ Main deck can carry both people and freight
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35.  Rate structure
 High proportion of variable costs
▪ Fixed costs relatively low as carriers do not have to
invest in rights-of-way or airport terminals
 Rates based on combination of value and cost
of service pricing principles
 Rate setting must be very sensitive to cargo
density
▪ Carriers calculate dimensional weight (dim weight)
▪ Low density cargo rates based on dim weight
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35

36.  International air freight pricing
▪ Governed in part by International AirTransport
Association (IATA) via the Air CargoTariff (TACT)
▪ Provides general guidelines for rate setting
▪ Carriers not required to use guidelines, major carriers do not
▪ TACT includes three types of rates
▪ General cargo rates, class rates, commodity rates
▪ Container rates
▪ Cost-based rate
▪ Rate applies to a minimum weight in the container
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36

37.  Current issues
 Aligning supply with demand
▪ During economic downturn, many planes grounded,
routes cut, and service frequencies reduced
 Fluctuating price of jet-fuel
 Cost of security mandates
▪ Homeland security fees and cargo screening costs
▪ Security personnel training costs and salaries
 Overall profitability of air cargo industry
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37

38.  Trucking
 Primary mode for intra-continental shipments
 Inhibited by varying domestic regulations
▪ Truck dimension limits vary from country to country
▪ Safety regulations - speed limits, driver hours-of-
service, inspection requirements - also vary
▪ Limitations on operations during certain hours of day
 Rail and pipeline are principal other modes
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38

39.  International freight forwarders
 Primary role: help shippers reduce transport costs
▪ Primary approach: shipment consolidation
 Other roles
▪ Help shippers navigate complexity of global transport
▪ Expertise in freight documentation, customs clearance
 NonVessel-owning Common Carriers
 Specialists in less-than-container load consolidation
 Export packers
 Experts in export cargo packing and marking© 2011 Cengage Learning. All Rights Reserved. May not be
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39

40.  Most intercontinental trade moves through
seaports or airports
 Most are owned by governments
 Most are managed by port authorities
▪ Governmental or quasi-governmental public agencies
▪ Port authorities are financially self-supporting
▪ Port authorities have power to develop infrastructure, set
user fees, and in some cases, levy taxes
▪ Examples: Port Authority of NewYork and New Jersey
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40

41.  Thousands of seaports globally
 Most freight moves through relatively small
number of major ports
 Port infrastructure dictates port capabilities
 Cargo handling equipment
 Water depth and water basin width
 Number and size of ship berths
 Size of marshalling yards and warehouses
 Landside mode accessibility
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42
Table 4-3

43.  Current issues
 Increasing size of containerships
 Security: challenge of maintaining compliance
with dynamic government initiatives.
▪ In U. S., these initiatives include
▪ Container Security Initiative
▪ Security and Accountability for Every Port Act (SAFE)
 Preparation for future growth or changing
trade flows
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43

44.  Most intercontinental air freight moves
through airports serving passengers and
cargo
 A few new all-cargo airports are emerging
▪ Less congested and lower operating costs than multi-
purpose airports
 Infrastructure
 Runway length and number determine capacity
 Cargo handling equipment
 Terminal and warehouse facilities© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
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44

45.  Current issues
 Adapting capacity to fluctuating demand
conditions
 Preparing for future growth
 New security regulations require
▪ Better airport access control
▪ Better cargo screening facilities and equipment
 Ground safety and air traffic control systems
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45

46.  Can be very complex
 Customs brokers provide expertise
 In U.S., customs clearance is a six step
process
 Entry filing (document filing)
 Goods arrival
 Goods examination
 Classification for charging of import duties
 Taxation
 Release of goods for domestic delivery
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46