6.1 Research Paper (2)
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6.1 Assignment – Considerations for Transportation Modes
Clinton Roberts
Supply Chain, Transportation and Logistics Management, Bellevue University
SCLM466-861N: Supply Chain Management Financial, Economics, Capital, Cash, and Legal Consideration
Professor Gary Lawson
12/15/2023
6.1 Assignment – Considerations for Transportation Modes
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Abstract
This paper explores the role of various transportation modes in our current supply chain
environment. As the global supply chain becomes more dynamic, so does our need for air, ocean,
over-the-road trucking, and rail transportation. We will review the different considerations when
selecting a transportation mode, including geographical considerations relating to service, cost,
capital, and cash considerations. By examining these individual and transportation modes, this
essay should provide valuable insight into how these transportation modes are integrated into the
supply chain and are utilized to drive efficiency throughout the supply chain.
6.1 Assignment – Considerations for Transportation Modes
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Table of Contents
1.
Introduction
2.
Air Freight & Aviation Transportation
3.
Ocean Transportation
4.
Over the Road Transportation
5.
Rail Transportation
6.
Off-Road & Pipelines
7.
Conclusion
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Introduction
As consumer demand rapidly evolves, so does the need for efficiency in global
commerce. The efficiency and effectiveness created by supply chain management have become
critical in determining the success of any organization. A key component of an already complex
network is a long list of various transportation modes that facilitate the movement of goods
throughout the supply chain. This discussion aims to provide greater detail on the various modes
of transportation and dig further into the key qualities of each transportation mode. This paper
should provide greater insight into the dynamics and cost of the various transportation modes. It
should allow the supply chain operator to make an informed decision one selecting the best form
of transportation from an efficiency and cost standpoint.
Air Freight / Aviation Transportation
In the fast-paced world of global trade, air freight, and aviation transportation play a
critical role in ensuring the quick and efficient movement of goods across borders. Air freight
service is usually based on its speed, reliability, and global reach. The primary advantage of
using aviation transportation of goods is to significantly reduce the lead times compared to the
other forms of transportation. Air freight is commonly utilized in industries where the product is
time-sensitive or has a short shelf life, like perishable goods, pharmaceuticals, or high-tech
electronics. Key considerations when scheduling air freight would include frequency of delivery
in the reliability of the flight schedule. Transit times, cargo handling procedures, and network
coverage are additional key details that the shipper will need to consider when making a
6.1 Assignment – Considerations for Transportation Modes
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transportation decision. Even though air freight can be costly, cargo carriers invest significant
capital in tracking technologies to give customers up-to-date information on their cargo. Because air freight moves at unparalleled speed, shipping through an air freight carrier is
often a higher cost than traditional transportation modes. Other pricing factors that could impact
the cost structure for air freight are fuel prices and the operating expenses of the aircraft.
Understanding the required security measures associated with the air freight process is brought
on by a heightened global focus on safety and counter-terrorism programs. Background checks
are required for all personnel, along with the implementation of new technology to help support
those operating in the industry. Additional fees that need to be considered are airport fees,
handling fees, and storage costs. (Company, 2023)
To break into the aviation industry requires a substantial capital investment to become
competitive in the market. Not only would the operator be focused on the acquisition of aircrafts
but they would need to consider environmental impacts and maintenance standards required for
the aircraft. These things will contribute to the overall financial strategy associated with aviation
transportation. Ocean Transportation
Ocean transportation is the cornerstone of global trade and facilitates the movement of
goods connecting markets worldwide. By utilizing ocean vessel transportation, suppliers can
efficiently move a large amount of cargo in and out of many international markets. Ocean
transportation has reliable transit times, flexible routing, and can be utilized for various types of
cargo. Transit times depend on the shipping route, the distance between the origin and the
6.1 Assignment – Considerations for Transportation Modes
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destination, and the type of service expected. Even though ocean transportation cannot match the
speed found utilizing air freight, ocean transportation excels in moving large amounts of cargo,
making it a preferred choice for suppliers who can navigate through the longer lead times. Fuel prices, vessel operating expenses, container leasing, port fees, and compliance with
environmental regulations drive cost considerations. Expenses related to vessel operation include
crew wages, vessel maintenance, insurance, and administrative costs. Container ownership is
another factor that must be considered when establishing ocean transportation. It may be more
cost-efficient to lease containers rather than owning the container outright. Container releasing
provides a certain level of flexibility compared to container ownership, which should provide a
return on investment over the life of a container. Ocean transportation requires a significant capital investment to establish, maintain, and
expand an organization's vessel fleet. Complying with environmental health and safety standards
is also associated with a cost. As the industry evolves rapidly, so does the need for advanced
technology. This will need to be factored in when it is established in capital investments.
Integrating new technology should help enhance route optimization and increase fuel efficiency,
providing more visibility to the supply chain and helping reduce costs. Having working capital available is crucial for the financial health of an ocean
transportation operation. By optimizing service levels and streamlining accounting processes, it
will allow the organization the resources required to make responsible business decisions. A
significant amount of risk is associated with the ocean transportation industry, which goes
beyond the financial risk. The risks associated with accidents, piracy, geopolitical opportunities,
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and natural disasters are additional factors that business operators must consider when
establishing operations. All these things considered, ocean transportation is an essential function
of the global supply chain and helps connect economies and markets worldwide. Understanding
the risk and having working capital available will play a role in the overall health of the ocean
transportation operation. Navigating through these risks takes this strategic approach that can
balance service along with cost-effective decision-making. (LEE & SONG, 2016)
Over the Road Trucking
Over-the-road trucking is probably the transportation mode that most Americans are
familiar with as we pass tractors and trailers when driving on city streets or on interstates. Over-
the-road tracking provides a flexible mode of freight transportation, which provides door-to-door
service. Service considerations related to over-the-road trucking include transit times, equipment
reliability, tracking capabilities, and adaptability of the trucking industry.
From a cost standpoint, over-the-road trucking can be a very expensive industry to break
into. The investment for a new semi-truck with a sleeper cab can range from $70,000 to
$200,000, which could be a difficult financial commitment for a new operator. (How Much Will
Semi-Truck Financing Cost?, 2023) A new dry van trailer could cost between $30,000 and
$60,000 respectively. (Harris, 2021) In the past, operators could purchase a pre-owned truck that
a large trucking company or retailer used on the secondary market, but with changes to clean air
compliance and other environmental regulations, these options have become less available to
operators breaking into the industry.
6.1 Assignment – Considerations for Transportation Modes
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Looking beyond the cost related to procuring the equipment in over-the-road trucking.
Other key cost factors include fuel prices, labor expenses, maintenance, and insurance. Fuel
prices over the last few years have been extremely volatile, and with oil prices continuing to
fluctuate, that directly impacts the fuel expenses for over-the-road trucking companies. Some of
that cost is passed on to the customer through fuel surcharges found in freight rates, but they also
don't completely cover the entire operating expense. Labor expenses are substantial in the
trucking industry. In an extremely competitive labor market, transportation companies pay
extremely competitive wages to hire experienced drivers who will not create a safety risk for
their company. With the trucking industry facing the largest driver shortage in its history and
with significant turnover, companies are continuing to look for ways to be competitive with
compensation packages. Employee benefits and training are costs that need to be factored in
when calculating overall labor expenses. (The Truck Driver Shortage in the US Continues, 2023)
Over-the-road trucking provides flexible and reliable freight movement. Service
considerations Archer then by transit times and the reliability of equipment. However over-the-
road trucking is a crucial part of the industry and a necessity when meeting the customer's needs.
Operating in this industry requires a significant amount of capital in a clear strategy on how
drivers will be hired and retained since the driver labor shortage is still a real issue and impacting
the industry. Rail Transportation Utilizing rail transportation is probably the most cost-effective and environmentally
friendly mode of transportation within the supply chain. Like ocean transportation, movement
6.1 Assignment – Considerations for Transportation Modes
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over the rail allows customers to move large quantities of goods extremely large distances. Even
though rail is considered the most cost-effective option, transit times will need to be reviewed
regularly to ensure goods are arriving to the customer on time. Scheduling into certain regions
can impact lead times, which might make another transportation option, like over-the-road
trucking the best option. Rail operators often collaborate with other stakeholders to enhance last-
mile connectivity and provide door-to-door service. Capacity is a notable advantage in rail
transportation. Trains can carry vast quantities of cargo, making them particularly suitable for
industries dealing with heavy and bulk goods. The ability to transport large volumes of freight in
a single journey contributes to cost efficiency and reduces the overall environmental impact.
(Kamran Gholamizadeh et al., 2022)
One of the primary attractions of rail transportation is its cost-effectiveness, especially for
bulk shipments over long distances. Cost considerations in rail transportation encompass various
factors, including fuel efficiency, labor costs, infrastructure maintenance, and equipment
investments. Fuel efficiency is a notable advantage of rail transportation. With their high tonnage
capacity, trains can move a ton of freight more efficiently than trucks over long distances. This
results in lower fuel consumption per unit of cargo transported, contributing to cost savings and a
reduced carbon footprint. Labor costs in rail transportation are generally lower compared to other
modes, such as trucking. The efficiency of rail operations, combined with the ability to move
large volumes of cargo with relatively fewer operators.
Capital investments are pivotal in maintaining and expanding the rail infrastructure,
ensuring its competitiveness and sustainability. Key areas of capital investment in rail
transportation include track and infrastructure development, technology upgrades, and safety
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enhancements. Track and infrastructure development involves expanding existing rail networks
and building new lines to connect strategic locations. These investments are essential for
improving connectivity, reducing transit times, and accommodating the growing demand for rail
transportation. Safety enhancements are paramount in rail transportation. Capital investments in
safety technologies, training programs, and infrastructure improvements are essential for
mitigating risks and ensuring compliance with stringent safety standards. These investments not
only protect valuable cargo but also contribute to the overall resilience of the rail transportation
system.
Rail transportation is a fundamental pillar of the modern supply chain, providing a
reliable, cost-effective, and environmentally sustainable mode of freight movement. Cost
implications, including fuel efficiency, labor costs, infrastructure maintenance, and equipment
investments, contribute to the overall competitiveness of rail transportation. Capital investments
in track and infrastructure development, technology upgrades, and safety enhancements are
essential for ensuring the industry's long-term viability and efficiency.
Off-Road & Pipeline
Off-road transportation plays a critical role where conventional road infrastructure does
not exist. Examples of industries that would be off-road would include mining or construction.
Specialized equipment is typically required, and machinery is often customized to meet the
industry's specific needs. Cost implications in off-road transportation include equipment
maintenance, fuel expenses, labor costs, and terrain-related wear and tear. Capital investments
involve acquiring and upgrading specialized off-road vehicles, while cash considerations
6.1 Assignment – Considerations for Transportation Modes
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encompass working capital management and risk mitigation in industries where operations are
contingent on unpredictable environmental factors.
Pipelines are a vital mode of transportation for moving liquids and gas in the energy
sector. Reliability is crucial for the pipeline industry when dealing with high-volume industries
like oil and gas. Cost implications in pipeline transportation include initial construction costs,
maintenance expenses, energy consumption, and safety and environmental regulations
compliance. Capital investments involve constructing and expanding pipeline networks, while
cash considerations include working capital management and contingency planning for potential
environmental incidents.
Conclusion
In conclusion, reviewing and analyzing each mode of transportation reveals the specific
instances where each mode presents a unique set of advantages and challenges in terms of cost,
capital, and cash considerations. Air freight, even though moving at unprecedented speed and
global reach, demands a substantial amount of initial capital and maintains a high operational
cost. Rail transportation, known for its efficiencies in moving large volumes across land, requires
significant capital for infrastructure, development, and maintenance. Over the road trucking
provides much flexibility and is widely accessible. Compared to the other transportation modes,
the capital investment is lower but has the possibility of incurring high operational expenses
related to fuel and maintenance. Ocean transportation, which is a very cost-effective option for moving bulk cargo over
long distances, requires substantial capital for vessels and port infrastructure. Pipelines require a
6.1 Assignment – Considerations for Transportation Modes
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considerable amount of upfront investment to transport liquids and gas and have a lower
operational cost once the infrastructure is established. Off-road transportation is critical where
infrastructure is not in place and requires capital investment for specialized equipment. Considering all these things, the operators making key decisions must carefully weigh out
the specific needs of the transportation requirements to understand the financial impact of each
mode. Each decision needs to be made strategically. Understanding the costs associated with the
movement of cargo and the challenges that each transportation mode would present.
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References
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Company, I. (2023, May 25). Exploring the World of Air Freight Logistics and its Significance in Global Trade
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Harris, S. (2021, November 23). How Much Is a Dry Van Trailer (Buy Or Rent?). FreightWaves Ratings. https://ratings.freightwaves.com/how-much-is-a-dry-van-trailer/
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LEE, C.-Y., & SONG, D.-P. (2016). Ocean Container Transport in Global Supply Chains: Overview and Research Opportunities
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