6.1 Research Paper (2)

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1 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 2 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 3 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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6.1 Assignment – Considerations for Transportation Modes 4 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 5 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 6 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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6.1 Assignment – Considerations for Transportation Modes 7 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 8 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 9 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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6.1 Assignment – Considerations for Transportation Modes 10 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 11 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 12 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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6.1 Assignment – Considerations for Transportation Modes 13 References Banker, S. (2019, July 1). Pipelines: a mode of transportation that gets no respect. Forbes. https://www.forbes.com/sites/stevebanker/2019/07/01/pipelines-a-mode-of-transportation- that-gets-no-respect/?sh=2e23602e78a2 (2022). CRITICAL ISSUES IN THE TRUCKING INDUSTRY – 2022 [Review of CRITICAL ISSUES IN THE TRUCKING INDUSTRY – 2022]. In Trucking Research.org. The American Transportation Research Institute. https://truckingresearch.org/wp-content/uploads/2022/10/ATRI-Top-Industry-Issues- 2022.pdf Company, I. (2023, May 25). Exploring the World of Air Freight Logistics and its Significance in Global Trade . https://www.linkedin.com/pulse/exploring-world-air-freight-logistics- its-significance/ 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/ How much will semi-truck financing cost? (2023, April 24). Yahoo Finance. https://finance.yahoo.com/news/much-semi-truck-financing-cost- 175433650.html Kamran Gholamizadeh, Esmaeil Zarei, & Yazdi, M. (2022). Railway Transport and Its Role in the Supply Chains: Overview, Concerns, and Future Direction. Springer EBooks , 1–28. https://doi.org/10.1007/978-3-030-89822-9_95-1
6.1 Assignment – Considerations for Transportation Modes 14 LEE, C.-Y., & SONG, D.-P. (2016). Ocean Container Transport in Global Supply Chains: Overview and Research Opportunities [Research Paper Ocean Container Transport in Global Supply Chains: Overview and Research Opportunities ]. https://livrepository.liverpool.ac.uk/3001250/1/TRB_Lee_Song_accepted.pdf Pros & cons of air freight: cost, speed, shipment visibility and more . (n.d.). https://www.up.com/customers/track-record/tr090319-plane-pros-cons.htm The truck driver shortage in the US continues. (2023, August 3). AJOT.COM. https://www.ajot.com/news/the-truck-driver-shortage-in-the-us-continues#:~:text=The %20Shortage%20of%20Truck%20Drivers&text=According%20to%20a%20recent %20study,shortage%20of%20160%2C000%20truck%20drivers . Un-Noor, F., Wu, G., Perugu, H., Collier, S., Yoon, S., Barth, M., & Boriboonsomsin, K. (2022). Off-Road Construction and Agricultural Equipment Electrification: Review, Challenges, and Opportunities. Vehicles , 4 (3), 780–807. https://doi.org/10.3390/vehicles4030044