LOGISTICS: Transportation

Introduction
Transportation plays a key role in economic success by allowing for the safe and efficient
distribution of goods and services throughout the supply chain.

Transportation links the various integrated logistics activities. Without transportation, the
integrated logistics system breaks down. Some view transportation as the glue that holds the entire
system together. Without the transportation link raw material cannot flow into the warehouses and plants,
nor can be finished product flow out of the plant to field warehouses and finally to the customer.

If a product is not available at the precise time it is needed, there may be expensive repercussions,
such as lost sales, customer dissatisfaction, and production downtime, when the product is being used in
the manufacturing process.

Definition
Any device used to move an item from one location to another. Common forms of transportation include
planes, trains, automobiles, and other two-wheel devices such as bikes or motorcycles.

Transportation Functionality
Transportation is the most visible of all functions of logistics and high contributor to logistics
cost. We can see trucks, containers and wagon loads of material being moved from place to place as an
activity directly associated with trade and business. We should also appreciate that this is an activity that
adds highest amount of cost to the activity of making inputs and outputs available to consumers.
Transportation function moves the products to meet customer expectations at minimum cost.

A) PRODUCT MOVEMENT :

What is moved?
Raw material, semi finished items, WIP, finished goods, packaging material, rejected material movement
is required up or down the supply chain.

How is this done? What resources are used?

Resources used by transportation:
a) Temporal -- product is locked up during transit, hence inaccessible. We have to spend a positive
amount of time in transporting material. Time is a resource [temporal resource] that is expended in
transportation. During the time the product is locked up costs are incurred in proportion to the time.
b) Financial -- several cost elements like administration costs, salaries, maintenance costs are
expended. Loss on account of product loss and damage also needs to be accounted for.
c) Environmental -- Fuel consumed is a big cost in transportation. This activity is a fuel guzzler,
eats up natural fuels like oil, directly and indirectly. 67% of all domestic fuel usage in the US is by
transportation activity. Creates congestion, air pollution and noise pollution. Environmental cost is
tangible and sustainability intangible. As transportation utilizes temporal, financial and
environmental resources items must be moved only when product value is enhanced.

B) PRODUCT STORAGE :

Temporary storage in stationery vehicles kept moving on a circuitous route. Product storage is expensive
in a transport vehicle. But some times keeping overall cost in mind this is adopted.
a. When unloading and loading is more expensive than storage.
b. When storage space is limited. [situation when inventory levels are very high]

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 Modes of Transportation

There are five major modes of freight transportation, airlines, motor carries, pipelines, railroads and water
carriers. Each of these modes has distinct characteristics that give them advantage over the others. Which
mode is the best depends on the freight hauled cost, speed, reliability, capacity, length of haul and
flexibility.

Rail Network

Rail network is fully owned and operated by government of India. This major step for facilitating
movement of goods throughout the country at a very low cost for promoting trade and business in the
country. Rail network stands for maximum tonne kilometers moved in India now, thereby being an
important mode of transport in the country. Rail network accounts for 226 billion tonne kilometers and
55.8% of total tonne kilometers moved in 1982 in India.

Rail network needs a high capital investment due to the right of way, switching yards, terminals but it
operates with low running costs. To capitalize on this basic advantage, railways focus on specific
products rather than on broad range. In the US, inter modal transport by railways through alliances and
acquisition is practiced to provide hassle free service to customers. We can see an example of this
practice in their courier business. Various modes of transport are used for taking the parcel to the
addressee by this business.

Advantages of Rail Transport

• Capability to efficiently transport large tonnage over long distances.

• Speed of operation.
• Useful for heavy and bulk products.
• Intermodal operations have also expanded through alliances. Rail roads are even concentrating on
development of special equipment. There are unit trains where the entire train carrying the same
commodity, which are bulk products such as coal or food grains. Unit trains are faster, less expensive
to operate and quick as it can bypass rail yards and go direct to the products destination.
• There are also various types such as articulated cars for extended rail chassis, double stack
railcars, having two levels of containers, thereby doubling the capacity of each car.

Disadvantages of Rail Transport

• Not effective for small loads and short distances.

• Less flexible. Moves only on specific routes.
• Secondary transportation is needed.
• In India, certain items are moved on priority – particular items might not be on priority list. (food,
oil, coal, steel etc. are on priority list)

Cost in Rail Transport

• Railroad operations incur high fixed costs because of expensive equipments, right of way.
(Railroads must maintain their own track), switching yards and terminals.
• Rail experiences relatively low operating costs. The replacement of steam by diesel power
reduces the railroads variable costs.
• Electrification offers potential for more reductions. New labour agreements have reduced work
force requirements, further decreasing variable costs.

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Road Transport

Road transport is rapidly pulling the carpet from under the feet of railways, as we saw earlier, post world
war. Its popularity is growing everyday. In India, 179.2 billion tonne kilometers were moved by
roadways in 1982. This is 44.2% of total tonne kilometers moved by all modes as against 55.8% by
railways.

Important features of this mode of transport are discussed below:-

• High flexibility and speed: - this is the strength of roadways. No other mode can connect any
given pair shipper consignee as roadways. Neither any other mode can handle the variety as roadways
do. As there is no need for shunting and waiting for as in railways, road transport reaches the goods to
the consignee very fast.

• Ultimate mode transport: - irrespective of the mode chosen ultimately the consignment reaches
the doorsteps of the customer by road.

• Low capital costs as compared to railways: - railways obviously need huge amount of capital
for setting up the infrastructure in view of the need of rails for movement. This feature along with
flexibility forms the formidable strength of this mode.

• Operating costs are higher: due to fuel requirement and higher labor requirement. This feature
makes roadways ideal for small shipments over short distances.

• Occasional fuel shortages: as the fuel is not available in full measure in the country internally
scarcity is experienced once in a while.

• Disputes with government: on account of conflicting interests between the parties to

transportation decision. We have experience transportation contractors or carriers going on strikes to
project their problems with the government.

• Vehicle availability: limited availability trucks pose a constraint to this business. Now as more
and more truck manufactures have come into business this facility is likely to be short lived.

• Maintenance and spares costs and availability of service facilities: as the road networks quite
extended and reaches deep in the rural India non availability of such services is a problem.

• Octroi: is along standing grouse of carriers. Octroi posts are notorious for delays and harassment
of carriers.

• Old motor vehicles act: the legislation that controls movement of vehicles on the roads is an
important law for this business. There is a feeling that this law is now outdated and new legislation
should made to tackle the challenge of current business environment.

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 • Bad and unsafe road conditions: pathetic condition of our roads a major stumbling block for
business which causes delays, accidents and damage.

• Restrictive permits: carriers resent restrictive regime of permits and licenses imposed by the
government all over the country.

Problems faced by Road Transport

• Pathetic road conditions

• Shortage of quality fuels (adulteration problem).

• Increasing cost of accessories and components.

• Wastage of time at octroi check post in doing formalities.

• Restriction of movement of vehicles on all India basis.

• Requirement of specific road permits.

• Non availability of professional persons.

• Non recognition from industry.

Advantage of Road Transport

• Door to door service to customer which neither rail nor sea nor air transport can offer.

• Very flexible as they can operate on all types of roads.

• Transport is quite speedy.

• Highest availability since they can drive directly from origin to destination.

• Highly suitable for short distances.

Disadvantages of Road Transport

• Delays in transit time due to bad road condition and climatic hazards

• Unsuitable for very heavy and large size loads.

• Unsuitable for very long distance.

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 • More chance of accidents and damages to goods.

Costs in Road Transport

• In companies to railroads, motor carriers have relatively small fixed investment in terminal
facilities and operate on publicly maintained highways. Although the cost of license fees, user fees,
and tolls are considerable, these expenses are directly related to the number of units and miles
operated. (On per unit basis, the cost of making a road is 1/6th that of laying a railway line.)

• Capital investment in case of roadways is much less than railways designed to carry equivalent
quantum of traffic.

• The variable cost per mile for motor carriers is high because a separate power unit and driver are
required for each trailer or combination of tandem tailors.

Water Transport

This mode is the link between countries separated by water. Business is known to have existed between
far off lands for long time in the past. Sailing vessels existed since that far away times.

Example: Mechanized water transport came into being in the form of steam ships since 1800; diesel
driven ships came into existence since 1920.

Water transport is classified into deep water transportation and navigable inland water transportation or
domestic water transportation on lakes, rivers or canals. Main advantage of water transportation is its
capacity to move extremely large shipment at a very low cost. Inland water transport is not used to its full
potential in India although we have used mechanized Inland Water Transport [IWT] since early 1800.
Lack of clarity in thinking receding water levels in rivers and tough competition offered by other modes
of transport appear to the hurdles.

Main features of water transport are the following:

• Low capital costs and low operating costs.

• Low speed.
• Capacity to carry huge bulk.
• Limitation due to availability of harbor.
• Maneuverability is low due to size.

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 • Deep water ships designed for ocean and lakes are limited to deepwater ports.
• Shallow water vessels like diesels towed barges are flexible but are limited by their range of
operations and speed.

Advantages of Water Transport

• The main advantage of water transportation is the capacity to move extremely large shipments.
• Suitable for long distances and large volume shipments.
• The capability to carry very high cargo at an extremely low variable cost places this mode of
transport in demand when low freight rates are desired and speed of transit is secondary
consideration.
• Regularity in sailing.

Disadvantages of Water Transport

• The main disadvantage of water transport is the limited range of operation and low speed.
• Unless the port and destination are adjacent, supplementary haul by rail or truck is required.
• Labor restrictions on loading and unloading at docks create operational problems and tend to
reduce the potential range of available traffic.

Costs in Water Transport

• Water transport ranks between rail and motor carrier in the fixed cost aspect. Although water
carriers must developed and operate their own terminals, the right –of – way is developed and
maintained by the government and results in moderate fixed costs as compared to railways and
highways.
• Though operating costs are high, it is spread over large volumes and hence the cost per unit is
low.

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Air Transport

Generally, this transport mode is used in emergency rather than in normal times.

Main features of this mode of transport

• Speed of transport is highest.

• Fixed costs are lower than rail or road or pipeline. But operating costs are highest.
• Air transport brings distant market closer perishables market in gulf countries.
• Overcomes the hassle and cost of setting up depots and service centers overseas.
• Full potential of peak seasonal demand can be exploited moving entire facility to meet peak
demand.
• Test marketing is easy. Product can be shipped directly from the factory as time of high
importance.

Advantages of Air Transport

• Brings distant and new market within the reach

• Extends export market
• Meets seasonal demand at fastest rate
• Reduces time of delivery for urgent needs
• Flexibility in carrying goods of varied nature
• Minimum handling of cargo and hence less damages
• Low insurance premium due to less transit time
• Helps in meeting committed delivery time.
• Minimum handling of cargo & hence less damages

• Low insurance premium due to less transit time

• Helps in meeting committed delivery times.

Disadvantages of Air Transport

• Comparatively costly mode of transport

• Caters on primary transport [airport to airport only]

• Certain categories of items are not allowed to be transported [hazardous goods as specified by
IATA]

• Facilities not available through out the country

• Shipping space available is limited.

Cost in Air Transport

• The air transport costs are highest

• The fixed cost of air transport is low as compared to rails, water & pipeline. In fact Air transport
ranks second only to highway with respect to low fixed cost. Airways & airports are maintained
by governments [airport authority]. Thus fixed costs of airfreight are associated with aircraft
purchase & requirement for specialized handling systems and cargo containers.

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 • The variable cost, however is extremely high as a result of fuel maintenance & lab our intensity of
both in flight and ground crews.

Pipeline Transport

 Pipelines

What is transported in a pipeline? Generally liquids like oils, crude, petroleum products are transported in
a pipeline. In India pipelines are extensively used for transporting crude and petroleum products. More
than 5000km of pipeline exists in India for crude and petroleum products. In addition to the products
above slurries, gases, vapors and solids in powder form are also transported in pipelines.

Slurries-coal slurry, iron-ore, lime, huge quantity of water is necessary which a concern is for an
environment is. In India pipeline is used for transporting iron ore.
Gases and vapors- natural gas, LPG, in India LPG pipeline in existence.

Main Features of this Mode of Transport

Reliable all weather means of transport

• Low energy consumption
Pipeline being under ground space occupation in minimal
Pipeline operates all the time except when it is shut down for maintenance
No empty container or wagon to be brought back
• Highest fixed costs, due to right of way and laying of pipeline, and lowest operating
costs [ not labor intensive]
• Not flexible by nature. Pipelines are stationery
• Physical state of the commodity to be transported is limitation.
• This mode of transport can release capacity of other modes for transport for essential
commodities.

Advantages of Pipeline Transport

• Reliable & Continuous Mode

All Seasons- All Whether Mode of Transport
Low Energy Consumption & hence Low Cost
Lower Operating & Maintenance Cost
Under Ground hence No Additional Space Required
Can Reach To Remote & Distant Places
Transit Losses Are Minimum
Cheapest Mode Of Transport

Disadvantages of Pipeline Transport

Ideal only For Continuous Operations (Bulk Products)

Only For Bulk Liquid & Gas Transportation
So Far Restricted To Very Few Route
National Consensuses Are Required
Continuous Vigilance Is Required

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Costs in Pipeline Transport

Pipelines have highest fixed cost and lowest variable cost among transport modes
• High fixed costs results from right- of – way, construction and requirements for
control stations, and pumping capacity.
• Since pipelines are not labor intensive, the variable operating cost is extremely low
once the pipeline has been constructed.
Rope Ways Transport

Used for transporting materials in hilly and otherwise inaccessible area. Fruits produced in hilly area are
brought to low land for further transportation to consumption centers. This mode is good when gradients
are steep as road or rail would take a very long route to negotiate the gradient. Ropeways cause minimum
ecological imbalance. Ropeways connect point of supply & demand by shortest route.

Advantages of rope ways transport

• Transports bulk materials over short distance

• Lower capital costs

• Ideal for Hilly areas

Disadvantages of rope ways transport

• Limited scope of operations

• Slowest mode of transport