Transportation Management. 5 types of carriers; ships, planes, trains, pipe lines, trucks.

1. Expense Categories
For The
Five Major Types of Carriers
TMGT 7300 - Transportation Management
by
John Beasley

2. Five Types of Carriers
Ship – Water Carrier
Trains
Airplanes
Trucks – Motor Carriers
Pipelines

3. Defining Terms
Economies of Scale
Economies of scale applies to industries where variable costs do
not rise in proportion to volume. Economies of scale results in
decreasing unit costs with additional volume. These industries
tend to have large sunk costs, or front loaded investments,
such as pipelines and railroads. It can apply to ships when the
size is doubled and the cargo area of tankers is cubed.

4. Accounting Costs
Accounting costs are money costs or cash outlays or operating
costs of both variable and fixes costs.
Economic Costs, the costs relative to what else might have been
produced with that money for the benefit of society. It also
applies to an approach to doing business.
Social Costs are typically the impact the business has on the
community, environment, and society.

5. Marginal Costs
Marginal Costs may be defined as the change in total cost
resulting from a one unit change in output, or as additions to
aggregate cost for given additions to output.

6. Fixed Costs
Fixed Costs are costs that do not fluctuate with the volume of
business in the short term. Fixed costs tend not to rise in
relation to the company’s volume of business. High fixed costs
require a large volume, and continue to experience expenses
even if they do not conduct business. Companies with high
fixed operating expenses experience non-linear or
multiplicative increases in profit relative to an increase in
volume. p. 315

7. Payback
Payback, evaluating yields on a constant dollar basis.
Payback is the time horizon over which an investment of capital is
paid back, or capitalized. There are a number of issues relating
to payback periods. A dollar received at a future date is worth
less, or has less earning potential, than a dollar received in the
present. For this reason all future income streams need to
reflect this loss of utility. Future income must be discounted to
constant dollars, or to its nominal value. This is called the Net
Present Value (NPV) of the income stream.

8. IRR
If one evaluates the entire investment in relation to the NPV of the
cash flows this is often called the Internal Rate of Return, (IRR).
The investment, or buy in cost is related to the sum of the
future cash flows discounted to constant dollars. The average
rate of return over the life of the investment is called the
Internal Rate of Return on the investment.
Discounting Cash flows to the present (accounting for time, risk)
Discount rate = risk free rate + a percentage for risk or future
receipt of the money. The question often asked to obtain the
discount rate, what is a fair rate of return in the current market
for a risk free or near risk free investment. This is often used as
the discount rate.

9. Ships – Water Carriers
High cost of entry into the business
High variable costs that tend to be fuel, labor, port charges
and other expenses that are directly related to operations (
50 to 70%)
Economies of scale apply to some degree
SIC
Financial statement

10. 10

11. 11

12. 12

13. 13

14. Trains
Extremely high entry costs into the business
High fixed costs (50 to 70%). Fixed costs; land, track, gates,
hubs, stations, rolling stock, engines.
variable costs; fuel, labor,
Economies of scale apply
SIC
Financial statement or example

15. 15

16. 16

19. Airlines
In the commercial sector - extremely high entry cost into the
business
High variable costs ( 70 %)
fixed costs; jets and equipment
variable costs; fuel, labor, leases, landing fees
economies of scale not as much of a factor
SIC
Financial statement or example

20. 20

21. 21

22. 22

23. 23

24. Horizontal Integration
Own a stake in the entire supply chain

25. Trucks – Motor Carriers
Low entry cost into the transport industry -
High variable costs (90 %) of total costs
truck and trailer costs low. variable costs fuel, labor, repairs,
fees.
economies of scale not much of a factor
SIC
financial statement or example

26. 26

27. 27

28. 28

29. Pipelines
Extremely high entry costs into the business
High fixed costs (50 to 70 %)
land costs, land clearing and prep., pipe and installation
variable costs, pumps, maintenance, electricity, labor.
Economies of scale apply

31. Bibliography
Coyle, John J., Bardi, Edward J., Novack, Robert A., Transportation,
West Publishing Company, St. Paul, MN. 1994
HP Quality Department, HP-12C Owner’s Handbook and Problem-Solving
Guide, Hewlett-Packard Co., Corvallis, OR. 1982
Stevens, Robert E. and Sherwood, Philip K., How to Prepare a Feasibility
Study, A Spectrum Book, Prentince-Hall Inc., Englewood Cliffs, N.J., 1982
Ronstadt, Robert, The Art Of Case Analysis, Lord Publishing, Dover Mass.,
1980
Coffin, Chris, An Easy Course In Financial Calculations, Grapevine
Productions, Corvallis, OR. 1990
D&B (Formerly Dunn & Bradstreet), Industry Ratios by SIC, NY., NY., 2008
(printed annually)
Financial Statements
Truck Costing Model for Transportation Managers
Mark Berwick
Mohammad Farooq
Upper Great Plains Transportation Institute