1. Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 11
Carrier Strategies
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duplicated, or posted to a publicly accessible website, in whole or in part.

2. 2
CBN Trucking
• Regional LTL facing strategic challenges
– Strengths: growing revenues, good customer
loyalty, adding new customers
– Weaknesses/challenges
• Falling profit margins
• Rising resource (supplier) costs
• IT systems incapable of meeting customer requirements
• Productivity steady but not improving
• Market encroachment from substitute services
• Traffic congestion impairing performance and market
reach
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duplicated, or posted to a publicly accessible website, in whole or in part.

3. 3
CBN Trucking, cont’d
• Recognize unique economic characteristics
of transportation
– Derived demand
– Services cannot be stored
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4. 4
Carrier Operating Conditions
• Introduction
– Operating conditions create the competitive
environment
– Carrier competitive strategies/tactics
• Constrained by operating conditions
• May be able to manipulate same conditions for
competitive advantage
– Operating conditions include
• Operating network
• Operations
• Labor
• Performance measures
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5. 5
Carrier Operating Conditions, cont’d
• Operating network
– Larger the geographic spread of the network, the
more difficult the operation is to manage
• Deployment of assets/equipment to distant locations
• Long empty backhauls
• May operations performed beyond scope of supervisors
• Network is interrelated, one part may affect another
1000s of mile away
• Greater exposure to weather conditions, hazards, traffic
congestion, theft, and calamities, all often beyond mgmt.
control
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duplicated, or posted to a publicly accessible website, in whole or in part.

6. 6
Carrier Operating Conditions, cont’d
• Operations
– Safety requires extensive operating rules/regulations
• Carrier and government issued
• Gov’t issued regulations by mode
– Ex: trucking, regulations cover
» Equipment, equipment operation, driving time
• Gov’t issued regulations by characteristic of commodity
– Ex: transport of hazardous materials, transport of large loads
• Regulations designed to protect
– Traveling and shipping public
– Public in general
– Transport operators
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duplicated, or posted to a publicly accessible website, in whole or in part.

7. 7
Carrier Operating Conditions, cont’d
• Labor
– Labor intensity varies by mode
– Transport has high degree of unionization
• Unions tend to be craft-based
• Multiple craft unions increases management
challenge, risk of shutdown from strikes
– Government tends to have a higher degree of
involvement in transport labor-mgmt. relations
• Justified by economic and safety significance of
transport
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duplicated, or posted to a publicly accessible website, in whole or in part.

8. 8
Carrier Operating Conditions, cont’d
• Performance measures
– Service-related measures
• Each measure impacts an aspect of shipper
inventory costs
• Examples
– Transit time length: pickup to delivery
» Cycle stocks
– Transit time consistency/reliability
» Safety stocks and stockout costs
– Freight damage
» Safety stock and stockout costs
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duplicated, or posted to a publicly accessible website, in whole or in part.

9. 9
Carrier Operating Conditions, cont’d
• Performance measures, cont’d
– Financial measures
• Profitability oriented measures
– Profit margin: Net income/Op. revenue
– Operating ratio: Op. expense/Op. revenue
– Return on assets: Net income/Total assets
– Return on equity: Net income/Total equity
• Liquidity measures: ability to meet current financial
obligations
– Current ratio: Cur. Assets/Cur. liabilities
– Acid test ratio: Cur. Assets-Inv./Cur. liabilities
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10. 10
Carrier Operating Conditions, cont’d
Financial Performance Measures, cont’d
• Liquidity measures, cont’d
– Working capital: Cur. assets – cur. liabilities
– Cash flow: Net inc. + Depreciation + Def. Taxes
• Solvency measures: considers ability to pay
principal and interest on long-term debt
– Debt ratio: Total liabilities/Total assets
– Debt-to-equity ratio: Total liabilities/Total equity
» High ratio means creditors have greater claim on than
owners due
• Examples
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11. 11
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duplicated, or posted to a publicly accessible website, in whole or in part.
Table 11-
1

12. 12
Operating Strategies
• Rule of efficiency: Most efficient to move
in continuous, straight line when possible
– Minimize circuitry, sporadic movement
– Ex. applications: unit trains
• Minimize intermediate handlings
– Ex: run-through trains, interlined trailers, use of
containers
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13. 13
Operating Strategies, cont’d
• Maximize capacity utilization on each run
– Once run is scheduled, more costs are fixed w/r
volume or weight carried
• Higher utilization lowers average costs
– Various means for improving capacity utilization
• Delaying vehicle dispatch
• Pricing incentives
• Consolidation, break-bulk
• Rerouting partially filled vehicles
• Investing in automated loading/unloading equipment
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duplicated, or posted to a publicly accessible website, in whole or in part.

14. 14
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duplicated, or posted to a publicly accessible website, in whole or in part.
Table
11-2

15. 15
Operating Strategies, cont’d
• Minimize empty mileage
– No revenue earned when empty, yet vehicle
operating costs change little, loaded or empty
– Much effort spent on finding return hauls
• Match availability and use of labor and
equipment with demand
– Responsibility of scheduling planners and
dispatchers
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16. 16
Technology and Equipment
• As vehicle capacity increases
– Vehicle capital costs rise, but at a slower rate
than vehicle capacity
• Example of economies of scale (falling average
costs as scale (capacity) increases
– Vehicle operating costs rise, but at a slower rate
than vehicle capacity
• Example of economies of utilization (falling average
costs as an existing capacity is more fully used)

17. 17
Technology and Equipment
• Route characteristics determine required
vehicle power, speed and maneuverability
– Lower horsepower tractors used for local delivery
• Match vehicle capacity to route demand and
required service frequency
Table 11-3
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18. 18
Technology and Equipment, cont’d
• Fastest speed not necessarily most efficient
– Relates closely to fuel consumption
Figure 11-1
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19. 19
Technology and Equipment, cont’d
• Minimize vehicle (tare) weight relative to
gross (tare plus freight) weight
– Gross vehicle weights constrained by
• Propulsion systems
• Infrastructure regulations
– Steps taken to reduce tare weight
• Materials used
• Minimize exterior paint on vehicle
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20. 20
Technology and Equipment, cont’d
• Maximize vehicle cubic capacity
– Vehicle cubic capacity a function of vehicle
dimensions - height, length and width
– Dimensions constrained by safety regulations
and infrastructure (way) limitations
– Vehicle dimensions have major financial
implications for transporters of low density
freight, such as household goods
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duplicated, or posted to a publicly accessible website, in whole or in part.

21. 21
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duplicated, or posted to a publicly accessible website, in whole or in part.
Table 11-4

22. 22
Technology and Equipment, cont’d
• Standardize equipment when possible
– Lowers operating and perhaps capital costs by
simplifying
• Planning, purchasing, crew training,
• Vehicle maintenance, spare parts inventories
• Market and commodity requirements may
warrant specialized equipment
– Requires careful assessment of tradeoffs with
advantages of standardized equipment
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duplicated, or posted to a publicly accessible website, in whole or in part.

23. 23
Hub-and-Spoke Route System
• Evolved in 1970s and 1980s
– Done to improve vehicle utilization on long
distance routes
– Assists in matching vehicle size to route
volume
– Can improve schedule frequency
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24. 24
Figure 11-2
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25. 25
Marketing
• Service marketing differs from product
marketing
– Services are intangible
– More of a focus on the service provider
– Services are labor intensive and thus subject to
more variability
– Simultaneous production and consumption of
services
– Services are perishable
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duplicated, or posted to a publicly accessible website, in whole or in part.

26. 26
Marketing, cont’d
• Market orientated carriers view themselves as
part of shippers logistics system
– Stress customer satisfaction, flexible operations
– Willingness to tailor services
– Taking on more value adding tasks
• Development of third-party (3PL) operations
– Carriers establish subsidiaries
– Customers outsource more logistics-related tasks
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duplicated, or posted to a publicly accessible website, in whole or in part.

27. 27
Coordination
• Marketing and operations can have
conflicting objectives
– Well-managed carrier ensures that:
• Marketing considers operational costs in its efforts
• Operations keeps constant eye on service
performance
• Accountability for profitability runs throughout the
organization
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duplicated, or posted to a publicly accessible website, in whole or in part.

28. 28
Challenges Affecting Carrier Mgmt.
• Operations are geographically dispersed
– Op. employees may receive minimum supervision
– Accountability gets lost on long shipments
– May require tight controls, decentralized management
structures, close communications
– Trends in leading carriers
• More sophisticated training for customer-facing employees
• Employee empowerment
• Performance measurement
• Adoption of wireless and satellite communication
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29. 29
Challenges Affecting Carrier Mgmt.
Cont’d
• Organizational structures
– Historically, strong vertical hierarchies by
functional area or skill
• Disadvantages of:
– Inflexible, resistant to change
– Hindrance to cross-functional communications at middle
and lower management levels
– Can develop goals inconsistent with corporate goals
• Difficult to determine costs
– Affected by many factors that vary from
situation to situation
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30. 30
The Terminal
• General nature
– Nodes in network where freight/passengers are
stopped for value-adding activities
• Consolidation or concentration
• Dispersion or break-bulk
• Shipment services
– Storage, billing (ticketing), routing
• Vehicle services
• Shipment process services
– Weighing, customs, claims processing, interchange
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duplicated, or posted to a publicly accessible website, in whole or in part.

31. 31
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duplicated, or posted to a publicly accessible website, in whole or in part.
Figure 11-3

32. 32
The Terminal, cont’d
• Terminal ownership
– Privately owned terminals
• Capital costs are assets on carrier’s balance sheet
• Once constructed, then capital costs are fixed
• Railroads, trucking, pipelines, air freight
– Publicly provided terminals
• Carriers charged fees for use
• Air and most post facilities
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33. 33
The Terminal, cont’d
• Types of terminals
– Rail
• Hump or marshalling yards
• Transloading terminals
– Water: harbors and ports
– Air: some variation in functions of freight and
passenger terminals
– Pipeline: storage facilities and pumping stations
– Motor carrier (truckload)
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34. 34
The Terminal, cont’d
• Types of terminals, cont’d
– Motor carrier (LTL)
• Pick-up and delivery terminals (PUD)
– Known as satellite or end-of-line terminal
– Interacts most directly with customers
– Served by peddle runs
– Functions include
» consolidation and dispersion, cross-docking
» Tracing, rating, billing, sales, claims
– Improved IT is enabling centralization of some traditional
PUD functions
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35. 35
The Terminal, cont’d
• Types of terminals, cont’d
– Motor carrier (LTL), cont’d
• Break-bulk terminal
– Consolidation and dispersion
– Little direct customer contact
– Over the road driver domiciles
• Relay terminal
– Service facilities for drivers and equipment
– Provide layovers for drivers on long runs between break-
bulks
– Do not handle freight
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36. 36
The Terminal, cont’d
• Terminal management decisions
– Number of terminals
• Most relevant for LTL carriers
• Decision depends upon
– Degree of desired market penetration
– Degree of required customer service
– “Fit” in network
» PUD terminals married to break-bulks, thus, break-
bulk capacity influences number of PUD terminals
– Total cost
• Trend has been to reduce number of terminals
– Speeds transit times, reduces capital requirements, reduces
handling of freight
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37. 37
The Terminal, cont’d
• Terminal management decisions, cont’d
– Locations of terminals
• Most relevant to LTL carriers
• Factors in decision
– Driver hours of service regulations
– For PUD’s, degree of backhauling to break-bulk
– Market penetration and potential
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38. 38
The Terminal, cont’d
• Terminal management decisions, cont’d
– Equipment selection and development
• Positioning is a critical operating decision
• Most modes have varying equipment types that
most constantly be positioned in appropriate
markets, terminals and routes
– When power units can be separated from freight carrying
unit, then positioning becomes more complex
– Some equipment is dedicated to particular customers,
further complicating positioning
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