Transportation accounts for between one-third and two-thirds of total logistics costs; for most firms, it is the most important single element of logistics costs. Firms and their products’ markets are often separated geographically. Transportation increases the time and place utility of products by delivering them at the right time and to the right place where they are needed. By doing so, the customers’ level of satisfaction increases, which is a key factor for successful marketing. A comprehensive discussion of transportation is beyond the scope of this text, so we focus here on essential issues of transportation systems, which are more related to the physical flows of materials.
Transport Modes and Their Characteristics
Various options for moving products from one place to another are called transportation modes. Road, rail, air, water, and pipelines are considered the five basic modes of transportation by most sources. In addition, digital or electronic transport is referred to as the sixth mode of transportation in some texts. Any one or more of these six distinct modes could be selected to deliver products to customers (Figure 2.2). However, all transport modes may not be applicable or feasible options for all markets and products.
Road transport—also known as highway, truck, and motor carriage—steadily increased its share of transportation. Throughout the 1960s, road transport became the dominant form of freight transport in the United States, replacing rail carriage, and it now accounts for 39.8% of total cargo ton-miles, which is more than 68% of actual tonnage. The key advantages of road transport over other transportation modes are its flexibility and versatility. Trucks are flexible because they offer door-to-door services without any loading or unloading between origin and destination. Trucks’ versatility is made possible by having the widest range of vehicle types, enabling them to transport products of almost any size and weight over any distance.
Road transport also offers reliable and fast service to the customers. The loss and damage ratios for road transport are slightly higher than for the air shipment, but are too far lower than for the rail carriage. Road transport generally offers faster service than railroads, especially for small shipments (less than truckload, or LTL). For large shipments (truckload, or TL), they compete directly with each other on journeys longer than 500 miles. However, for shipments larger than 100,000 pounds, rail is the dominant mode. Also, as motor carriers are more efficient in terminal, pickup, and delivery operations, they compete with air carriers, for both TL and LTL shipments that are transported 500 miles or less. In regard to economic aspects, road transport has relatively small fixed cost, because it operates on publicly maintained networks of high-speed and often toll free roads. However, the variable cost per kilometer is high because of fuel, tires, maintenance, and, especially, labor costs (a separate driver and cleaner are required for each vehicle). Road transport is best suited for small shipments and high value products, moving short distances. Legislative control and driver fatigue are some problems of motor carriers’ long journeys.
Rail carriage accounts for 37.1% of total freight ton-miles (more than 14% of actual tonnage) in the United States, which places railroads after motor carriers as the second dominant mode of transportation. However, in some countries such as the People’s Republic of China, the countries of the former Yugoslavia, and Austria, rail remains the dominant transportation mode. Although rail service is available in almost every major city around the world, the railroad network is not as extensive as the road networks in most countries. Thus, rail system lacks the flexibility and versatility of the road transport. Indeed, rail carriers offer terminal-to-terminal service rather than the...