transport management & theory practices (5)

Management of Transportation

Seventh Edition Coyle, Novack, Gibson & Bardi

© 2011 Cengage Learning

Chapter 5The 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.

© 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.

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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


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Industry OverviewMeasures 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


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Industry OverviewTypes 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


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Industry OverviewNumber 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


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Industry OverviewTypes 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


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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


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Industry OverviewCompetition 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


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Operating and Service CharacteristicsEquipment

• 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


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Operating and Service CharacteristicsTypes 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


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Operating and Service CharacteristicsTypes 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


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Operating and Service CharacteristicsTerminals

• 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


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Operating and Service CharacteristicsTerminals

• 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


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Operating and Service CharacteristicsTerminal 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


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Cost StructureFixed 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

Cost StructureLabor Costs

• Principal variable cost categories – Labor – Fuel – Maintenance– Highway user charges

• Note: these are the principal costs associated with daily operations


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• 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


• 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


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• 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

Cost StructureFuel 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


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Cost StructureEconomies 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


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Cost StructureFunding

• 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?


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Current IssuesSafety

• 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

Current IssuesSafety

• 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.

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Current IssuesTechnology

• 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

Current IssuesLTL 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


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Current IssuesFinancial 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

transport management & theory practices (5)

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industry overview competition

national ltl market

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national ltl segment