Companies can choose to ship their goods and products via a variety of transportation modes. How should a company balance its choice of transportation modes as determined by cost, speed, safety, environment impact, and so on?

Contents Page

1.0 Executive Summary 2

2.0 Introduction 3

2.1 Trade-off between Responsiveness and Efficiency 52.2 Transportation as ‘Four Vs’ of Processes 72.3 Performance Objectives 8

3.0 Aims and Objectives 8

3.1 Methodology 9

4.0 Literature Review, Analysis and Discussion 9

4.1 Impact of Transportation 94.2 Transportation Modes 14

4.2.1 Air Freight 154.2.2 Road Transportation 174.2.3 Rail Transportation 194.2.4 Water Transportation 204.2.5 Pipeline Transportation 214.2.6 Electronic Transportation 224.2.7 Intermodal Transportation 22

4.3 Determinants of Transportation Modes Selection 234.3.1 Cost as a Determinant 244.3.2 Speed as a Determinant 264.3.3 Safety as a Determinant 274.3.4 Environmental Impact as a Determinant 294.3.5 Inventory & Facility Location as a Determinant 31

5.0 Conclusion & Recommendation 33

6.0 References 36

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1.0 Executive Summary

For many years transportation has played a key role in our daily lives, but in recent

years where technology is well advanced and trading among countries are becoming

more and more liberalised, most companies have recognised transportation as one

of the most vital activities (Jayaraman, 1998), that enables businesses to survive or

achieve competitive advantage in any global market (Aronsson and Brodin, 2006). It

is widely accepted that the world is becoming more of a global village; improved

technology and increased knowledge among consumers, coupled with international

trade opportunities have influenced consumer behaviour so drastically to such an

extent that, distance and speed are increasingly becoming less of a barrier to many

products or services a consumer may want to solicit, irrespective of where they are

located in the world. The challenge for companies these days is to make

transportation decisions that ensure the effective and efficient movement of products

from various locations across the globe to the consumer in the most feasible and

cost effective way, whilst maintaining or creating value for the customer.

Companies rely on variety of transportation modes to move goods and services from

one location to the other within any supply chain, all of which, like any other activity

have their respective pros and cons. Chopra and Meindl (2004) believe that

understanding all the pros and cons relating to the various transportation modes in

terms of attributes such as speed, cost, reliability, safety and the environment, is

essential for the designing, planning and balancing of transportation mode choices

by contemporary logistics managers. In markets where good customer service is

paramount, (Jayaraman, 1998) agrees that a transport mode that is fast and reliable

would be required, but there are so many facets of attributes that transportation can

either be seen to add value to a particular product or service, or in certain cases,

companies may be left with no choice than to settle for the only available

transportation mode. Factors that may cause this to happen could range from and

include factors such as the size of the company, facility location, type and volume of

product it deals with, all the way to the available carriers accessible to the company.

This report will therefore seek to discuss, evaluate and analyse the attributes of

various transportation modes and organisational objectives and strategies, and show

how the existing trade-off among these attributes influence the decisions companies

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make when choosing or balancing its transportation modes selection. The report will

rely on specific company examples where relevant, to demonstrate how these

companies use various operational techniques and concepts like Just-in-time (JIT),

Vendor-Managed-Inventory (VMI), et cetera to justify their transportation choice

decisions. The first part of the report is an introduction to transportation in general

and how it enables companies to achieve their performance objectives. The

objectives of this report is set in the next section which highlights the various

elements involved in shipping goods and products, how competition and increasing

consumer demand are forcing companies to finding innovating ways of transporting

products to consumers, and how the attributes of the different transportation modes

influence their decisions on balancing their transportation mode choice. The third

section is the literature review and analysis section, which relies on academic

material from a variety of reputable scholarly sources to discuss, evaluate and

analyse in depth, under various sub-headings, the different transport modes and the

key determinants of transportation choices such as speed, cost, environmental

impact, safety, and so forth. Specific company examples are presented in this

section to illustrate relevant concepts, techniques and innovative ideas used by

companies to balance the choice of different transportation modes, and the

accompanying trade-offs they have to consider. This is followed by the fourth

section, the conclusion, which summarises the key issues raised in this report and

concludes with how companies can strike a balance between their transportation

needs, corporate and social responsibility and their quest to remain profitable.

Appropriate recommendations where relevant, and also highlighted in the last

section of the report.

2.0 Introduction

There is increasingly evidence around us which confirms the rise in trade among

countries and between businesses (B2B) across the globe, the impact of which may

be seen today than it had ever been. Citing from the World Economic Outlook

(Murphy and Wood, 2008) believe the world trade saw an increase of over 65

percent for the period 2001 and 2005 alone, an estimated increase from $7.6 trillion

to approximately $12.6 trillion, with no signs of abating in the coming years. It is

therefore not a coincidence that countries such as the UK, in the current global

economic uncertainties, begin to panic when some EU countries show signs of

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cracks within their own economic markets. Although this may be attributed to

improvement in trade regularisation across borders and rise in living standards

(Stank and Goldsby, 2000) it would be reasonable to say that logistics had played

key facilitating role in the whole process. An essential component of logistics which

ensures the efficient and effective movements of products from the point of

production to the point of consumption is transportation. Stank and Goldsby (2000)

demonstrate the crucial role transportation plays in any supply chain by portraying

the components of a given supply chain as inter-dependent “gears” (fig.1), with each

gear relying on the performance of the previous gear for the entire machine to

function. Consequently the entire machine would grind to a halt if one of the gears

fails, and in this respect, managing transportation in isolation of the value-added by

the various elements of a supply chain could potentially result in a system failure.

Therefore it is essential that transportation decisions are made to incorporate most of

the value-added activities that can be potentially generated from the elements within

the supply chain, such as customer service, transit time, carrier capability and

transport cost (Beresford et al, 2011).

Fig. 1 Transportation Value Contribution

Source: Adapted from Stank and Goldsby (2000), pg. 72

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Product/Information Flows

Supplier Manufacturer Customer

Inbound Outbound

Information/Return Goods Flows

The role of transportation in a supply chain in any given economy cannot be

overstated; in the United States alone freight transportation costs account for almost

6 percent of the GDP (Chopra & Meindl, 2004). Similar trend had been observed in

the European Union (EU) where the increase in transportation demand has risen

dramatically over the past decades (Ribbink et al, 2005). The increase demand in

transportation to sustain our dynamic lifestyle comes with its own detriments such as

rise in pollution and congestion on our town and city road networks, especially from

our increased reliance on road transportation (Wu and Dunn, 1995; Witlox and

Vandaele, 2005). This now presents a major challenge for policy makers, companies

and consumers as a whole, to look for innovative ways of drawing the right balance

between the benefits and detrimental impact of transportation. However, due to the

vital contribution from transportation to the success of any economy, governments

and companies are actively finding ways through various schemes to compensate

for the negative impact of transportation. In some cases however, the desire for

companies to rely on their transportation mode choice as a catalyst to provide good

service to customers at lower cost sometimes overshadows the negative impact of

transportation. That is why most companies, especially powerful ones like Wal-Mart

rely tremendously on logistics as a vital element of their corporate strategies to

reduce its overall costs through the implementation of a responsive transportation

system (Chopra & Meindl, 2004; Murphy & Wood, 2008).

2.1 Trade-off between Responsiveness and Efficiency

Transportation involves the movement of everything from material required to make

a product to the finished product, from one location to the other through to the end

user in any supply chain (Stank and Goldsby, 2000). There are six basic types of

transportation modes that companies, irrespective of their size can opt for: air, road,

rail, water, pipeline, intermodal (combination of more than one these modes) and in

recent years, electronic transportation. Each of these modes vary in characteristics

in terms of the cost involved in using a particular mode to move product within a

supply chain(i.e. its efficiency) and how quickly the product can be moved between

locations (i.e. responsiveness).The trade-off between these two characteristics is

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fundamental to companies’ choice of transport mode (Chopra & Miendl,2004).

Companies come in various sizes, ranging from the small family business which may

be located on a remote island somewhere in the universe to very large multi-national

organisations with outlets scattered across the globe, but what they all have in

common is the challenge of deciding on the transportation modes for their products

that are efficient and responsive to their customers’ needs. With the different

transportation modes having their respective pros and cons, Hugos (2003) points out

that the choice of transport mode reflects the trade-offs between responsiveness and

efficiency. For example, transporting products by air is very fast and thus responsive,

but at the same time most costly, whereas, transporting by sea is slow and thus not

as responsive but can be very cost efficient. Jayaraman (1998) also supports the

claim that the selection of transport mode by companies is often based on cost and

transit times or speed. Other determinants are; safety, environmental impact - a key

global issue in recent times, reliability, organisational strategy, et cetera

(Vannieuwenhuyse et al, 2003). Fig.2 shows the relative importance of these

determinants in deciding transportation mode choices.

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Fig. 2 Criterion Weights

Source: Vannieuwenhuyse et al (2003), An online decision support system for transport mode choice.pg. 128

2.2 Transportation as ‘four Vs’ of processes

As cost tends to be a key determinant in transportation choice decision, the issue of

transportation in any organisation is seen as an operational function consisting of

processes, the management of which is influenced to a great extent by the four Vs

(4Vs) of operations principle (Slack et al, 2009); volume, variety, variation and

visibility. The 4Vs are very important as they give indication of cost, for example,

companies like IKEA, a well known Swedish furniture retailer, rely on these elements

of operations principle to keep their transportation cost low and thus able to offer

their worldwide customers good quality furniture at affordable prices. Transporting

large volume (flat pack) of standardised goods with low variety and variation (in

terms of the packaging) and low visibility (tracking by customers) enables IKEA to

keep its transportation cost down.

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2.3 Performance Objectives

The performance objectives of an organisation also impact on the transportation

mode choice they employ to meet their customers’ requirements and expectations.

Transportation as an operations strategy may be viewed under five key aspects of

operations performance; Quality, Speed, Dependability, Flexibility and Cost, all of

which to some extent (Slack et al, 2009) believe have impact on satisfying customers

and business competitiveness. The level of these operations performance elements

may vary from one transportation mode to the other, and companies would have to

balance their modal choice properly in order to provide an efficient service for their

customers. In general, customers are usually happy to pay extra for the transport

service of their goods that is fast, reliable (in terms of keeping to delivery times),

flexible and ensures the protection of quality of goods they have ordered. In the

same respect, there are other customers who the price of goods is of a major

concern and may be unwilling to pay extra for any added value that a responsive

transport service may offer. Once more, this reflects the trade-off between

responsiveness and efficiency, whereby companies using transportation as a

competitive strategy, such as most internet shops like Amazon are faced with striking

the balance between offering goods to customers at affordable prices by using the

cheapest transportation mode where delivery is slower and offering goods at

premium prices with a first class fast delivery service that is undoubtedly usually

expensive. Whichever way, there are always going to be customers that are willing

to pay extra for the additional value that an excellent transportation system creates,

and vice versa.

3.0 Aims and Objectives

This report aims to rely on extensive secondary data from reliable academic sources

to provide an overview, evaluate and analyse a variety of transportation modes that

companies choose to ship their goods and products as they strive to meet the ever

dynamic nature of customer’s expectations. The report also attempts to seek better

understanding of how and why companies select one or more transportation modes

over the others. In the process, the report also presents recent company examples

or other key events to demonstrate how companies should balance their choice of

transportation modes as influenced by cost, speed, safety, facility locations, the

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environment and any other relevant factors. Where relevant, the report has

highlighted key environmentally responsible measures put in place by some

companies, and has attempted to use these examples to increase the awareness of

the environmental impact of transportation. Modern operations concepts such as

Lean production, Just-in-Time (JIT) et cetera have been used to argue the trade-offs

between certain companies’ transportation cost reduction strategies and their

respective corporate environmental commitments and responsibilities.

3.1 Methodology

To capture broad view knowledge on the subject, an initial brainstorming session

involving seven logistics students was held over a period of two days where ideas on

the topic were exchanged. The extensive collections of journals used in this report

were access via the university digital library using keywords such as transportation,

environment and cost. Lecture notes, reputable newspapers, company magazines

and newsletters and a collection of logistics and supply chain text books from the

local library were also used to gather most of the information contained in the report.

However, some of the ideas or examples contained in the report may have been as

a result of personal observations made during an internship work at Oxfam GB’s

Southern Distribution Centre in Milton Keynes.

4.0 Literature Review, Analysis and Discussion

4.1 Impact of Transportation

Tremendous amount of research and literature on transportation mode selection and

the current challenges it poses to the logistics industry and transport decision-

makers has been published over the past 20 years, but (Meixell and Norbis, 2008)

suggest that several key determining factors to do with the environment, security,

international intensification and role of emerging information technologies, and the

internet have been under-represented. There is, however, increasingly strong

evidence around us which confirms the fact that our dependence on transportation in

recent decades has been escalating, and the situation has in fact not been helped by

increased globalisation and international trade opportunities; likewise the continuous

improvement in technology which has resulted in easy access to products located in

most parts of the world and at the same time improving the safety of various

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transportation modes (Wu and Dunn, 1995; Vannieuwenhuyse et al, 2003).

Transportation has always been very vital to man’s existence on this planet and in

any supply chain the appropriate use of transportation has always been closely

linked to the success of that supply chain (Chopra and Meindl, 2004). Aronsson and

Brodin (2006) speculate that in most industrialised countries the rate of growth in

transportation is such that it even surpasses the general growth of their GNP.

Jayaraman (1998) also agrees that, one of the most important activities in the

physical distribution function which has been recognised for many years is

transportation. Customers are increasingly becoming more knowledgeable and thus

customers’ expectations are changing at a rapid speed. Supply chain for products

are becoming more extended through increased globalisation. Logistics managers

now find themselves under tremendous pressure to move products in a responsive

and cost efficient way in order to meet their customers’ expectations.

Stank and Goldsby (2000) believe that the operational concept of transportation

which emphasised strongly on cost reduction or high service provision has changed

in recent years to that of a strategic one, where companies are now expected to be

able to simultaneously meet a much higher service provision at an increasingly lower

cost. To achieve this, the choice of a particular transportation mode or a combination

of modes becomes very crucial. However, (Witlox and Vandeale, 2005) take this

further and draw attention to the fact that it is now a common knowledge that the

pure economic attributes of transportation (i.e. cost and time) are no longer the only

criteria that impacts on a shipper’s modal choice, but also the qualitative factors such

as reliability, frequency, flexibility, environmental impact and the risk of loss or

damage, which companies sometimes struggle to put a monetary figure to.

In as much as companies worldwide continuously pursue their drive for competitive

edge (Aronsson and Brodin, 2006), and supply chains become increasingly

extensive and sometimes complex, as a result of the increased globalisation and

reduction in trade barriers; goods produced thousands of miles would still have to be

moved through series of handling operations, network of hubs and warehouses

before they reach their destination and thus the choice of transportation mode could

be what sets apart the economic and qualitative factors for most companies.

Companies differ in industry types, sizes and strategic policies, and hence may

balance these factors differently, but (Chopra & Meindl, 2004) assert that an overall

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lower cost of a supply chain may not necessarily be achieved through a mode of

transportation that returns the lowest cost. For example, cheaper mode of transport

such as sea freight is often slow with longer lead times and subject to larger

minimum shipment volumes resulting in higher inventory level and cost in the supply

chain. Fast mode of transport such as airfreight is expensive and companies may

use this mode to transport smaller quantities of valuable products, and thus lower

levels of inventory. This may be well suitable for companies who operate on a

strategy of carrying low levels of inventory, for example, Dell, well known for carrying

low inventories uses airfreight to transport most of its valuable components from Asia

to enhance its enviable record of having the ability to customise its customers’ orders

within a short period of time.

All the six basic mode of transportation have their respective pros and cons and

companies looking for a responsive and efficient transport system would

undoubtedly have to face a form of trade-off between the attributes of the different

transportation modes. A typical trade-off could be between transportation cost and

inventory cost; (Chopra and Meindl, 2004) believe that the performance of a supply

chain can suffer a great deal when transportation decisions made by companies do

not factor in inventory cost. The world’s largest super market, Wal-Mart is well known

for using a responsive transportation and effective inventory system to lower its

overall cost, whilst keeping the stock-out rate for its products to the very minimum

and providing customers with products at reasonable prices. As a result of its size

and power, Wal-Mart has developed an effective relationship with its suppliers where

Wal-Mart uses a concept of Vendor Management Inventory (VMI), a supply chain

technique where the supplier keeps most of the retailer’s stock on his site and thus

become responsible for large part of the inventory cost and in return the retailer

shares sales information with supplier to effectively manage the replenishment of

products on the retailer’s shelves. The implication of this is that Wal-Mart keeps low

level of inventory in its shops, and thus low inventory cost, therefore it relies on

frequent deliveries to replenish stock in its store, which on the face of it might seem

increased transport cost and detrimental to the environment, but Wal-Mart mitigate

this by consolidating products to different shops on the same suppliers’ trucks

delivering to a Wal-Mart store. Wal-Mart achieves this through a pioneering process

it operates in its distribution centre (DC) known as Cross-docking (Wu and Dunn,

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1995), a process where inbound goods to the DC are quickly sorted, with very little

or no inventory kept in the DC, the goods are then transferred into waiting lorries at

the outbound section of the DC so that deliveries to Wal-Mart stores will contain

stock from different suppliers. Wal-Mart transportation strategy is a classical example

of how transportation can be used to keep the overall cost of a supply chain low

whilst maintaining customer demand at an acceptable level (Chopra and Meindl,

2004).

One of the key qualitative factors that some companies consider when making

decisions on the selection of transportation mode, which is discussed in detail further

on in the report, is the issue of how transportation impacts on the environment.

Braithwaite (2011) in a white paper to encourage a debate on UK’s transport policy

recognises that although freight and logistics impacts heavily on the environment it

makes vital contribution to the success of the UK economy. With all but one of the

different transportation modes relying on fossil fuel (with air transport the biggest

culprit) to operate, and the burning of fossil fuel widely accepted to be a great

contributor to the depletion of the ozone layer, increased concerns have been raised

worldwide (Wu and Dunn, 1995) and logistics managers are increasingly expected

these days to make transport decisions that seek to preserve the environment

through greener initiates (e.g. investing in low emission vehicles), whilst at the same

time keeping transportation cost low and efficient (Stank and Goldsby, 2000). With

logistics activities across the globe showing no signs of reducing, one can only

assume that consequently the carbon footprint of logistics as a result of how far

products have to be transported before they reach the consumer may equally be on

the rise.

Logistics is known to have accounted for 5.5% of the world’s CO2 emissions, with

that contributed by freight transport alone believed to be on the rise (McKinnon,

2010). In 2004, the general consensus at the World Business Council for

Sustainable Development conference held in Geneva, according to McKinnon (2010)

was the prediction that the increase in production and consumption together with the

rise in freight intensity as a result of the increased average distance that goods now

have to be transported will cause freight tonnes-kms to rise at the rate of 2.3% each

year, through to 2050. In other words, the environmental impact of logistics related

CO2 emissions is predicted to rise, making it more necessary for logistics companies

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and other stakeholders to continuously seek a wide range of mitigating initiatives in

order to reduce their carbon footprint.

The different transport modes vary in the intensity of CO2 they emit into the

atmosphere, with airfreight seen as the highest contributor. Fig.3 shows the variation

in carbon intensity for various transport modes. A company’s choice of a transport

mode for its products or operations, together with its operational practices can reflect

on its commitment to the environment. For example the charity, Oxfam GB which is

very passionate about the environment, do not allow its company car users to lease

vehicles with CO2 emission above certain level. Also with the cost of fuel going

through the roof, it has become more necessary for companies to optimise their

transportation operations so as to reduce mileage. Third party logistics (3PL)

company, DPD UK ltd have made changes to how these manage their logistics

operation; through better routing of vehicles, right-first-time deliveries and invested in

double-deck trailers to reduce journey trips. Such changes offer both financial and

environmental benefits (Kohn and Brodin, 2008). Maintaining growth whilst

preserving the environment is now the priority for most governments and companies,

such that governments and regulatory bodies like the EU, in their roles of preserving

the environment act in various capacities; facilitators, regulators and buyers (Wu and

Dunn, 1995). Through their policies on the environment, taxation policies which aim

at the encouraging the use of resources in an efficient manner and incentives such

as assisting companies by way of financial relieves towards investing in fuel efficient

vehicles and green technologies, governments in most industrialised countries

ensure organisations work towards stringent carbon emission standard with sole aim

of reducing CO2 year on year.

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Fig. 3 Variations in the carbon intensity of freight transport modes

Source: Adapted from McKinnon 2010, p. 4.

4.2 Transportation Modes

The six basic transportation modes companies rely on transportation to move

products from one point to the other are; Air, Water, Road, Rail, Pipeline and

Electronic Transportation. A shipper’s decision to choose a particular mode of

transportation is influenced by a facet of factors, the range of which is so broad that

(Witlox and Vandaele, 2005) agree that all the varying elements cannot be integrated

into a single transportation mode. In the same way it is unlikely this report within its

scope will be able to cover all the factors in great details, the relative importance of

which may differ from one shipper to the other. Usually and in some cases the type

of industry could even depict the choice of transportation mode (Punakivi and

Hinkka, 2006). For example, an agricultural industry producing perishable or short

life cycle products may tend to use airfreight due to its speed, whereas a mining

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industry may rely on water transportation to move its bulky products. However, work

by (Evers et al, 1996) suggests that a shipper’s decision to use a transportation

mode could even be partially influenced by factors such as the mere perception of

service provided by that particular transportation mode. McGinnis (1979) agrees that

the process of transportation mode selection by shippers is affected by several

variables, which differs from one organisation to the other.

Murphy and Wood (2008) believe that the advantages of the attributes provided by

one transportation mode over each other is what had sustained their existence till

now, and thus in general, attributes that will cause a particular transportation to be

attractive to a company would consist of; cost, speed, reliability, capability and

flexibility (Witlox and Vandaele, 2005) offered by the transportation mode. However,

it is important to bear in mind that, a common goal that is paramount to every

shipper’s decision is to select a transportation mode that is capable of achieving

responsiveness to customers whilst keeping the total cost of getting the goods to the

customer to a minimum (Chopra and Meindl, 2004). All the different transportation

modes, to a large extent, vary in terms of cost of usage and performance, and most

of the times it is inevitable for logistics managers to avoid the trade-offs between the

varying costs and performances in order to reach an economical and reasonable

transportation decision.

4.2.1 Air Freight

Air freight is the fastest mode of transportation, in terms of line-haul, that is,

transporting goods or products from one terminal to the other (Murphy and Wood,

2008). However, due to its high fixed running cost in terms of specialised

infrastructure and equipment, highly skilled labour requirement, et cetera, it also the

most expensive, considering what it costs to transport a shipment (Chopra and

Meindl, 2004). Again, Murphy and Wood (2008) see the expensive nature of the line-

haul of air transport freight service as the main disadvantage of this particular mode,

and argue that many companies just do not have the financial resource to use this

mode to move their products from one location to the other. Unlike road or truck

transportation the location of an airport which airfreight relies on can be highly

hampered by the topography of an area, therefore cannot be located just anywhere,

and thus impacting on its flexibility. Not only that, but its usage may also be limited

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by the lack of suitable airport facilities. Not all companies can be located within the

vicinity of airport and thus have no choice than to use other form of transportation to

trunk their products to the originating airport and repeat the same process at the

destination airport (a form of intermodal transportation). In so doing, the transit time,

transport costs due to the use of additional transportation mode and handling costs

all tend to increase.

Apart from specially designed cargo planes, the undercarriage compartment of most

passenger airlines are used to transport air freight from one location to the other ( a

type of freight service known as belly freight), and depending on the type and size of

the airplane, the capacity of a particular airplane to transport certain products could

be limited. Considering the cost, transit time, low flexibility and capacity restrictions

of air transportation, it is widely accepted that the appropriate use of airfreight is for

transporting over a long distance, time-sensitive, high value, lower-volume product

which may be perishable and thus delivery times would be crucial. Goods likely to be

transported by air are usually products such as computer components, fruit,

vegetables and flowers, photographic equipments and machinery parts, et cetera.

Punakivi and Hinkka (2006) researching on selected Finnish industries found that

companies dealing in high value products (high price/kg ratio), products with short

life cycles and had to source from a worldwide market selected the fastest modes of

transportation, and although the fastest mode tend to be the most expensive

transportation mode, the high value of product causes the proportional cost of

transporting the product to remain low. In the same domain, it makes sense and

business prudence for computer giant Dell to rely on air transport to move computer

and electronic components from China to its assembling plants across US and

Europe.

The reliability of air transportation is highly weather dependent and with the dynamic

nature of the weather conditions such as snow, fog and storms can hinder the

reliability of airfreight transportation. A typical example is the ash cloud that resulted

from the eruption of a volcano in the Scandinavia region during 2010 which caused

most of the airspace across Europe to be shut for almost two weeks, the impact of

which was easily felt, as per the stock out of products on supermarkets shelves in

the UK, especially products such as fruits and vegetables. Also among all the

different transportation modes, air transportation is known to be the highest

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contributor of CO2 emission into the air atmosphere as such transporting goods

through this medium could have high carbon footprint (see fig.3).

4.2.2 Road Transportation

Road transportation is the most used form of freight transportation which relies on a

network of road infrastructure to move goods and persons from one point to the

other, purely because of the flexibility and shorter delivery capability it offers to

companies in achieving responsiveness to their customers (Punakivi and Hinkka,

2006). Compared to airfreight transportation, its fixed running cost is relatively low

and thus reflective in carrier charges. It is however more expensive than using rail

and sea or internal water transportation, but has the advantage of not requiring the

use of another transportation mode between the originating location of a product and

the destination location (Chopra and Meindl, 2004). The costs involved in using road

transportation and for that matter trucking, can be controlled in varying ways, and

usually affected by factors such as location, frequency of deliveries, type and

quantity of products to be transported.

Road transportation can be categorised into two major segments of truck carriers;

Truckload (TL) or Less-than-Truckload (LTL), each of which when not used

appropriately could impact significantly on transportation cost. TL is usually used for

carrying a wide range of freights; dry freights, liquids, refrigerated goods, foodstuff,

livestock etc, and charges are based on the full truck load, distance travelled and not

on the quantity shipped, but usually works out cheaper compared to LTL. Therefore

consolidating products to fill a truck load could save transportation cost, but this may

be offset by the cost of keeping large inventory. Hall (1985) argues that the least

expensive transportation mode which ensures a small supplier production rate is one

that consolidates freights over many origins and destinations, but for large

production rates transportation modes that do not consolidate (TL) are least

expensive. Although (Hall, 1985) makes a sound argument, (Caputo et al, 2005)

caution that where marginal customers are involved and LTL is used to service these

customers, it will be extremely essential to select an optimal carrier in order to keep

transportation cost low. However, TL is suited for large shipment moving directly

from the supplier to the retailer. For example in the US, Proctor and Gamble

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operates a TL shipping service to Costco Stores. On the other hand LTL is

appropriate for loads that would not fill a truck but cannot be moved from one point to

the other manually, and usually operated through a system of terminals. Unlike TL,

products that are hauled through a LTL may be limited, and likely to consist of

products scheduled for different locations, and thus longer delivery times and relative

higher cost compared to TL. The idea of inventory location directly impacting on

transportation cost can be clearly seen in road transportation, and more than often

influence carrier and/or transportation mode choice decisions. Jayaraman (1998)

supports the argument that understanding the simultaneous relationship between

these three elements; transportation, inventory and location are vital to the success

of any company. Wal-Mart’s success is believed to have stemmed from this

understanding or concept.

The flexibility and reliability of road transportation are the key advantages it has over

other transportation modes, but these attributes, like those pointed out for airfreight,

may be affected by severe weather conditions, increased congestion on road

networks from breakdowns, the shear rise in vehicles and the never ending road

works, especially on most UK roads. Logistics companies these days, rely on

intelligent transportation systems which uses technologies such as global positioning

system (GPS) to route their transport journey in the most efficient way, avoiding

congestions where practically possible, and thus are able to achieve savings on fuel

consumptions as well as provide them with the ability to allocate jobs within an entire

fleet in a fair and efficient manner. Other limitations include road restrictions as per

size and weight of truck, number of hours drivers can work together with stipulated

number of breaks. Under EU legislation in the UK for example, all commercial truck

drivers are assigned digital taco cards that specifically monitors the drivers’ hours of

driving and break periods for health and safety reasons. Despite these restrictions,

road transportation is by far seen to be the most flexible transportation mode among

the others, and its shear popularity among all economies is what makes it, besides

airfreight, the second highest contributor of CO2 emissions in the atmosphere, and it

is no surprise that governments and companies are always seeking ways of making

road transportation friendly to the environment. We simply cannot do without this

mode of transportation.

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4.2.3 Rail Transportation

Transporting goods by rail is less expensive than by air and road but usually more

expensive than water and pipeline. The same is true for its speed as well, that is the

travel time between loading goods on the train and delivery at destination, is slower

than air and road transportation but faster than water and pipeline transportation

(Murphy and Wood, 2008). Consequently it is primarily used for transporting low-

value, heavy and high volume bulky material such as coal, toxic waste, chemicals,

farm products et cetera, that are usually not time sensitive, over long distances,

resulting in low transportation cost. In terms of maximising its potential capacity, rail

transportation can be used for a broad range of products compared to air, road and

pipeline modes of transportation, but capacity in terms of volume that can be

transported per trip would be no match to water and pipeline transportation but better

than air and road transportation.

Apart from a handful of companies that rely solely on rail transportation due to the

uniqueness of products they deal in, such as coal or a chemical substance, and thus

may have their own internal rail lines connected to a national rail line network, in

most cases, rail lines would not link directly to the customer or companies doorstep,

and thus require another mode of transportation such as road transportation (which

creates an intermodal transportation system) to move goods from one point to the

other. In fact (Chopra and Meindl, 2004) believe that the surge in rail performance in

recent years has been enhanced by the growth of the intermodal sector. Compared

to road transportation, this impacts on its flexibility as can only reach up to where a

fully functioning rail line is in place, as such, less flexible than road transportation

when it comes to the delivering goods to customers, but on the whole more flexible

than water, air and pipeline transportation.

Like air and road transportation, rail transportation is also affected by severe weather

conditions such as snow, storms and extreme heat. In addition, another limitation

which is peculiar to rail transportation is the difference in rail line gauges (distance

between the rail lines) among some countries which depicts the type of carriages

that may be used on the rail lines. Therefore in global trade where goods have to be

transported across countries, the varying rail line gauges between adjacent

countries, prevents the continuous movement of goods using the same carriage, and

19

thus requiring a transferring medium between the varying carriage types, adding

additional handling cost and increase in transit time. On the issue of environmental

impact rail transportation relatively contributes less CO2 emission to the atmosphere

and could be regarded as greener than all the other transportation modes but

pipelines.

4.2.4 Water Transportation

Water transportation involves the use of water bodies; sea, rivers and lakes to move

goods or persons from one point to the other, and thus can be categorised under two

broad sections; sea freight transportation involving the use of ferries or large

shipping vessels and internal waterways or canals where barges are predominantly

used. It is by far the cheapest form of transportation, compared to the others, and is

suited for carrying large volume of items over long distances at a relatively lower

cost. The development of sea freight has in fact been known to be one of the drivers

of globalisation, especially in terms of trading among nations, and till date it remains

the most used form of transportation in global trade for shipping all different types of

commodities; heavy machinery and military equipments, all sorts of vehicles, grains,

petroleum products and a broad variety of containerised goods. Despite the

versatility of goods that can be transported via water transportation, it is the mode

with the longest transit time as a result of its slow average speed and delays at ports

as per handling activities and clearing custom formalities (Chopra and Meindl, 2004).

A major limitation of water transportation is that it can be used only to the point that

suitable waterways can be reached or found, and thus only countries and companies

with access to or within proximity of these waterways may find such transportation

mode beneficial. From this perspective, water transportation could be seen as

inflexible. Like most of the other forms of transportation, water transportation,

especially inland waterways, are prone to extreme weather conditions such as ice,

droughts and flooding, which impacts on its reliability during some times of the year.

It is therefore possible that companies that rely on water transportation to move their

goods may use different transportation mode during different times of the year for the

same product, or alternatively stock pile goods and only ship during when weather

conditions are conducive. For example, the shutting down of Missouri river in the US

as a result of severe drought conditions in 2006, and asphalt shipment which would

20

usually have been transported by barge were transported to their destinations using

tanker trucks (Murphy and Wood, 2008). Drought could also impact on the capacity

of barges and smaller vessels using internal waterways, as the reduction in water

level due to the drought would require barges to reduce their load to stay afloat. On

the issue of its impact on the environment, in terms of CO2 emissions into the

atmosphere, water transportation is somewhat in the middle of the six modes of

transportation (as mentioned in this report).

4.2.5 Pipeline Transportation

Pipeline transportation is the use of pipelines to move products of specific nature,

usually in liquid, gaseous or slurry form, from one point to the other. This unique way

of transporting products make it the most reliable mode of transportation as it

involves no form of vehicles, and thus not affected by all the factors pointed out

before that affected the vehicle-related forms of transportation, like adverse weather

conditions, road congestions, et cetera. However, unlike the other modes of

transportation, the absence of vehicles implies that pipeline transportation can only

be operated in a one direction thereby lacking the capability of front and back hauling

on the same pipeline. This also impacts on the transit times for pipelines, and thus

could be regarded as the slowest form of transportation for some products. For

example, in some slurry systems the product to be transported would have to be

transformed to a state that could flow within the pipelines, and then decanted to

extract the product once it arrives at its destination.

The construction of a pipeline usually requires a high capital outlay with high fixed

cost, but having said this, pipelines have very large capabilities in terms of the

volume of products it can transport, so often when used to its capacity the relative

unit cost for transporting the products translates into a low cost per unit. Although

known to be the most reliable form of transportation, its flexibility is very much

limited, due to the fact that, it may only be used to transport only a particular product

to customers who are connected to the pipeline. For example, gas pipelines to our

homes can only be used for the transportation of domestic gas. In actual fact, it is

widely known that pipelines are predominantly used within the oil and gas industries

and companies in other industries may not even consider this option when making

decisions on selecting a transportation mode.

21

4.2.6 Electronic Transportation

Hugos (2003) identifies a sixth mode of transportation which he refers to as

electronic transportation. With the increase in technology all around us and the

advent of communication media through smart phones, broadband and fibre optic

cabling, electronic transportation is increasingly being used to move products, most

of which may be intangible, from one point to the other. Products such as music files,

pictures, electricity energy and telephone call units, in recent times, are moved or

transported from companies to consumers using the electronic mode of

transportation. Hugos (2003) believes electronic transportation is the fastest mode of

transportation, which can be very flexible, convenient and efficient in terms of cost

savings. Although the range of products that can be transported this way may be

limited, its flexibility can be viewed in terms of the easy at which the different forms of

a particular product, for example, varying forms of electricity tariffs or music files can

be shipped directly to the customer as simple as swiping a charging card or pressing

few buttons on a mobile phone. Its initial set up cost may be high but maintenance

and running cost, when set up properly could be low, and thus able to offer

consumers relatively low prices for their commodities.

4.2.7 Intermodal Transportation

As highlighted, all the various forms of transportation, to some extent have some

form of limitation, and sometimes may be necessary and prudent to use more than

one mode of transportation to effectively and efficiently transport a product from its

origin to a point of consumption. The use of two or more modes of transportation to

transport a product which optimises the advantages of the different transportation

modes used whilst reducing their respective disadvantages is what (Murphy and

Wood, 2008) refer to as intermodal transportation. Examples of intermodal

transportation include; truck/rail combination, truck/water/rail combination, but

(Chopra and Meindl, 2004) believe that the development of containerised freight as a

result of the rise in global trade has facilitated the growth of intermodal

transportation, as using containers, makes it easier for the containerised goods to be

transferred from one mode of transportation to the other without touching the good,

thus less handling cost. Even in certain cases, an intermodal transportation system

may be cheaper than TL, and an intermodal such as rail/truck could offer better

22

transit times than using just rail transportation. Therefore to reach a decision on

transportation mode selection it would be prudent for a logistic/transport manager to

also consider amalgamating two or more transportation modes to see if a better

price/service benefit may be achieved than using just one mode of transportation to

move a product.

In general, intermodal transportation is usually effective, but as it is created from

combination of existing transportation mode, there are bound to be the occasional

limitations. A typical one within the intermodal industry is delay in the exchange of

information that is usually required to enable the smooth transfer of the goods from

one mode of transportation to the other.

4.3 Determinants of Transportation Modes selection

As established in this report so far, the criteria for selecting or deciding between the

various transportation modes vary in so many dimensions, the relative importance of

which may be seen differently by different companies, and even sometimes within

the same large global organisation. However, the focus on the cost of transportation

and speed tend to be the predominant key criteria determinants, but many other

important factors such as safety, environmental impact, reliability, flexibility et cetera

(Witlox and Vandaele, 2005), some of which may be easy or difficult to measure, can

all form part of a transportation selection criteria process, the importance of which

would vary in priority relative to different shippers (McGinnis, 1979). The nature of a

companies’ industrial sector, size of the company, type of product and variety its

offers to customers, customers’ expectations (Punakivi and Hinnkka, 2006),

operations concepts and even perceptions about certain forms of transportation

modes by some logistics managers (Evers et al, 1996) could influence the decision

on selecting a transportation mode. Research work by (Punakivi and Hinnkka, 2006)

illustrates the relative importance of some modal selection criteria among a selection

of industries in Finland (fig. 4)

23

Electronics Pharmaceutical

Machinery Construction

1. Criteria Quality Speed Price Price2. Criteria Speed Convenience Reliability Scheduling3. Criteria Price Safety Punctuality Punctuality4. Criteria Convenience Fluency Speed convenience

Fig. 4 Selection Criteria for Transportation Modes

Source: Adapted from Punakivi and Hinkka (2006), pg. 216

4.3.1 Cost as a determinant

Driving cost down in any aspect of business promotes efficiency, which eventually

translates into savings for the business and more often than not, lower prices for the

consumer. With transportation cost in general accountings for the chunk of product

value, (McKinnon and Piecyk, 2011) believe companies are under increased

pressure to maximise their modal choice utilisation, especially where road

transportation is involved and pricing structures act as incentives for full truck or

container loads. The location of an organisation’s plants, warehouses, outlets,

vendors and customers also have a direct impact on transportation cost (Murphy and

Wood, 2008). No doubt the cost of transportation forms a bigger chuck of any

logistics activities within a supply chain; and keeping on top of the transportation cost

could potentially be what gives a company the competitive edge over the other,

especially in this era of increased globalisation and competitive markets. The cost of

a transport service coupled with the value of product to be transported could

influence a company’s transportation mode choice decision, but whilst this may be

true, and as pointed out earlier on, (Chopra & Meindl, 2004) are of the view that

selecting a mode of transportation that returns the lowest cost may not necessarily

lower the overall cost of a supply chain. Other factors that may have been

compromised, such as transit time, reliability et cetera may all have the potential of

setting back the saving achieved by going for the cheapest transportation mode.

Cunningham (1982) agrees that a higher transportation costs which may be incurred

for using a particular transportation mode may be offset by savings in other areas.

For example, a logistics manager may be willing to go for a transportation mode with

increased transport cost if this will significantly lower the inventory cost or levels as a

24

result of the subsequent transportation service provisions (Stank and Goldsby,

2000).

Changes in consumers’ lifestyle and expectations, together with the surge in trading

concepts such as online shopping have all contributed to the need for high frequent

and fast and punctual deliveries (Vanniewenhuyse et al, 2003), in order to keep up

with customer responsiveness. Logically this increase in frequency of transportation

results in more transportation cost and increased environmental impact but

companies such as ASDA in the UK (owned by Wal-Mart) through their genius

operations concepts like cross-docking and VMI where inventory are rarely stored in

their warehouses, rely on the savings from reduced inventory cost to compensate for

the increased transport cost as result of the increased frequency. The environmental

CO2 emission impact as a result of the increased frequency of transportation is

mitigated by these companies investing and using fuel efficient vehicles and

technology, route optimisation techniques, better location planning and transit

measures (Batac and Lem, 2008). Finding the balance between reducing the

transportation cost and environmental reduction measures can be a key factor in a

shipper’s choice of transportation mode. Guo’s (2007) analysis of logistics company

mode and route choices revealed that companies can adapt intermodal

transportation, for example road/rail transportation, to balance their transportation

cost reduction objectives and pollution reduction responsibilities. The notion that

intermodal transportation has the benefit of reducing transportation cost is more

significant where companies are able to take advantage of their economies of scale.

Cunningham (1982), however, points out that, to ensure the optimal cost-minimising

allocation of resources in transportation would require companies to focus on the

costs related to the various competing transportation modes.

In general, transportation cost tends to have an indirect correlation with transit-time

or speed. The faster the transportation mode, such as airfreight, the higher the

transportation cost, so companies that deal in low value products, in most instances,

are more sensitive to transportation prices than speed, and thus lend more towards

the use of slower transportation modes such as water transportation to transport

products to their customers, especially on long haul journeys. Therefore for

25

companies in the machinery and construction industries, by the nature of how heavy

and bulky products they deal in, would naturally based their transportation mode

selection criteria on products’ low price/kg ratio as determined by the price of the

transportation mode (Punakivi and Hinkka, 2006). Products such as heavy lifting

equipments and bitumen are quite often transported by water transportation for this

reason, and especially where long distances are involved. However, where

accessibility is required and the product destination is not linked directly by a

waterway or to a port then the cost of transportation would have to be traded-off with

flexibility and accessibility, and thus may necessitate the selection of an alternate

transportation mode which may not necessarily be the cheapest mode (Cunningham,

1982).

4.3.2 Speed as a Determinant

In today’s competitive markets, logistics companies are coming under increased

pressure to ensure products are moved from a location within the supply chain to the

other in the most quickest and efficient way. Modern business operations concepts

like agile production, lean production and JIT, famously pioneered by Toyota, rely on

fast deliveries of products in the right quantities (Vannieuwenhuyse et al, 2003), just

at the right time and at the right place, and thus, in most cases would require a fast

and reliable transportation mode to function properly. How fast a product could be

delivered may be regarded by companies who operate under such modern concepts

as competitive priorities of responsiveness (Lysons and Farrington, 2006); and

especially where short life cycle or perishable products and premium services are

involved, the emphasis on speed as one of the important criteria for choosing a

particular transportation mode or carrier becomes more relevant. The growing

popularity of internet shopping in the last decade provides an example of how the

relative speed of a transportation mode could be used to support the level of

responsiveness required by customers. For example, Laura Ashley a premium

household shop in the UK and the US, whose customers are happy to pay a

premium for quality and fast service, places greater emphasis on how quickly

products ordered on their website could be delivered to their premium customers,

and thus strategically locate their warehouses closer to 3 rd Party Logistics

Companies (3PLs) like FedEx which operate a fast transportation mode; to enable

26

Laura Ashley to offer customers longer window to shop and order products online,

and still receive their goods the next day.

In the main and especially over long distances, air transportation is the fastest but

also the most expensive among the existing transportation modes. Where high value

products are involved and required to be moved quickly over longer distances, air

transportation would be an appropriate choice for a company, as the high value of

product could easily absorb the high transportation cost. Like transportation cost,

(Garcia-Menendez and Feo-Valero, 2009) point out that the increase in transit-time

or reduction in speed of a transportation mode reduces its attractiveness as an

alternative transportation mode choice. This may be true where speed as an attribute

is of high significance to either the company or the customer, since customers who

may be sensitive to price may be willing to settle for a slower mode of transportation

or carrier choice in order to pay an overall lower price for their products. Transit-time

or speed can be a decisive factor when deciding on which transportation mode to

select or the existing trade-offs among the attributes of available transportation

modes. Consider a hospital setting where a vital human organ is required to perform

a life-saving emergency operation; speed and not the cost of transporting the organ

would be paramount, and thus it would be reasonable to use faster mode of

transportation such as helicopter to transport the organ than the use of a car or

motor cycle.

With speed, and for that matter transit-time increasingly becoming important in

logistics services, especially as product variety is also on the rise (Punakivi and

Hinkka, 2006), 3PLs like DHL, UPS and FedEx are also investing in faster

transportation modes in their quest to tailor their express services to support the

responsiveness of their clients.

4.3.3 Safety as a Determinant

Safety is one of the most important attributes when it comes to the selection of

transportation mode, as it has the potential of impacting severely on the added value

or benefits associated with the various forms of transportation. Safety and security

issues in transportation can have significant effect on transportation cost, transit

time, efficiency, reliability, flexibility and so on, and in certain situation result in the

total loss or damage of goods being transported and even the loss of life. Witlox and

27

Vandaele (2005) share the view that the risk of loss or damage plays a vital role in

decisions relating to transportation mode selection because this has the capability of

easily translating into a tangible loss in value of the entire freight, and with freight

transportation consisting of many handling operation, the chances of loss, theft and

damages occurring could only be reasonably high. In fact, (Witlox and Vandaele,

2005) also believe the nature of goods involved in transportation and the

characteristics of the transportation mode employed make accidents involving freight

transportation quite substantial when compared to transportation involving

passengers. As safety in terms of loss, damage, theft and accidents has a potential

of impacting severely on the overall commercial value of a product or in some cases

the business as whole, establishing the right balance between the trade-off involving

cost and safety becomes more crucial when logistics managers are faced with modal

choice decisions, particularly for the first time.

Tragic events within the last decade such as 9/11 terrorist attack in the US, surge in

piracy activities around the Somalia region (Fu et al, 2010), planting explosive

devices in air freight cargoes are some of the examples that have contributed to

safety regulations being tightened at ports and gateways to most industrialised

countries, the consequence of which has resulted in problems and delays in some

supply chains (Punakivi and Hinkka, 2006). Besides its high cost, the attractiveness

of airfreight as the fastest mode of transportation is usually hampered by the

tightening of safety regulations; certain goods like ink cartridges when originating

from some countries are banned from being shipped as air cargo, and thus for

companies dealing in such products in these countries, air transportation would

certainly not be an option. Logistics managers finding themselves in this situation

would have no choice than to look for an alternative transportation mode, which may

increase journey times or incur additional handling charges.

With most of the world trade facilitated by water or sea freight and the sheer size and

capacity of modern ships, (Tzannatos, 2003) believes sea freight is a vulnerable

target for the opportunistic such as pirates, and some attempt to curb these risks

have included the use of alternative longer shipping routes which tend to be

uneconomical to both the shipper and carrier (Fu et al, 2010) and thus reducing the

attractiveness of sea freight as the cheapest mode of transportation. There are some

instances, however, where the size (variety, packaging etc), nature of product (liquid,

28

gas or solid) and toxicity level of the product being transported could prompt a level

of safety concern and therefore restrict the mode of transportation to a particular

transportation mode or even the choice of vehicle type within the same

transportation mode. For example, it may be safer to transport nuclear waste using

railroads which runs through remote areas under reduced public view and attention

than using road transportation in full visibility of the public, considering the

controversial issues surrounding this product.

4.3.4 Environmental Impact as a Determinant

It is now a widely accepted knowledge that the externalities of freight transportation

have a tremendous negative impact on our environment (Bauer et al, 2010;

McKinnon and Piecyk, 2011), and this issue in recent decades, has generated a lot

of global interest among policy makers, international advocacy groups, companies

and majority of consumers as a whole (Aronsson and Brodin, 2006). Many logistics

companies and other organisations in the UK and in most other industrialised

countries now have their commitment to the environment now enshrined in their

corporate social responsibility charters, and there is even evidence of cases where

some companies refuse to use or award contracts to suppliers or carriers who do not

share or demonstrate similar/same environmental commitment as that of the

proposed client. For example, Unilever UK requires all its logistics suppliers to have

in place an effective carbon management program which mirrors Unilever UK’s

objective of reducing the carbon footprint of its distributed products. In this respect, a

company’s vision or environmental commitment of its corporate social responsibility

could influence its decision on selecting a carrier or transportation mode, although

there would always be the possibility of the trade-off between the environmental

impact and financial cost involved.

All the different modes of transportation (in exception of pipeline), in one way or the

other impact on the environment in terms of the different intensity of emissions they

produce (Bauer et al, 2010; McKinnon, 2010), with 23% of the world’s energy related

greenhouse gas (GHG) attributed to the fossil fuel used by the various transportation

modes (Ribeiro et al, 2007). Therefore, a typical transport mode decision would

directly or indirectly cause some form of congestion or pollution in the environment

as it determines which transport option to use (Wu and Dunn, 1995). Fig. 3 shows

29

the carbon emission intensity for the various mode of transportation, which also

translate into or reflects their respective energy efficiency. For example, airfreight

transportation is the highest contributor of global GHG, with that from pipelines

making no significant contribution. Rail transportation however contributes relatively

less CO2 to the environment and uses energy more efficiently than road and air

transportation, and thus more environmentally friendly and better alternative to road

and air transportation; besides it is known to make better use of land and capable of

using renewable energy resources. For example, the German car (BMW)

manufacturer’s strategy of preserving the environment while reducing its transport

and packaging cost rely heavily on rail transportation to ship parts and fully assembly

cars to other parts of Europe.

Despite this knowledge, it is still difficult for transport managers to measure the

exact environmental impact of the different mode of transportation (Bauer et al,

2010), which have would put them in a better position to compare the environmental

impact of their decisions and the financial cost involved. This may be partly due to

the non-existence of a standard measuring and reporting procedure or formulae

endorsed by the Intergovernmental Panel on Climate Change (IPCC) which

companies around the world could use (McKinnon and Piecyk, 2011); but companies

rely on guidelines, recommendations and taxation schemes by governments, policy

makers and regulatory bodies to find innovative ways of mitigating transportation-

related environmental impact. Batac and Lem (2008) believe transportation planners

have strategic roles to play when it comes to reducing the impact of transportation on

the environment. For example, investing in and using low-carbon fuel alternative for

a company’s vehicle fleet or opting for a transportation efficiency system such as

intermodal freight, which provides companies with the opportunity of moving freight

from one mode to the other, together with the use of an appropriate scheduling and

routing of the freight, with the sole aim of minimizing the GHG emissions involved in

the transportation of the product (Bauer et al, 2010). Therefore, opting for the

appropriate combination of transportation modes to ship a commodity could

potentially result in the most efficient mode of freight transportation that mitigates the

impact of a transport-related environmental concern.

Incorporating environmental initiatives into any business usually comes with an initial

cost, which in itself may become a barrier for some companies, especially small

30

businesses, to invest in these measures, unless forced by government agencies or

regulatory bodies to do so; but (McKinnon, 2010) believe that most of these

initiatives, which he refers to as green logistics measures, such as investing in

improved vehicle technology, fuel efficient vehicle, low-carbon fuel alternative, driver

training programs, et cetera, are in actual fact a cost reduction tool which pays itself

off within the short to medium term. Besides the financial cost concerns that some

logistics managers may harbour,(Wu and Dunn, 1995) are of the opinion that

understanding the trade-off between the environmental impact and optimal supply

chain efficiency forms an essential part of introducing environmental management

principles and techniques into a logistics decision-making process, which would

apply to decisions on transportation mode selection as well.

4.3.5 Inventory and Facility Location as a Determinant

The location of facilities and the type or quantity of inventory level, more than often

impact on the transportation cost and consequently determine the type of

transportation mode choice. That is why Jayaraman (1998) supports the argument

that understanding the simultaneous relationship between transportation, inventory

and location are vital to the success of any company. Facility location would typically

have a direct impact on transportation cost; the further away facilities are located, the

more expensive it is, in terms of transportation cost to move products between the

facilities. That is why some companies or suppliers may strategically relocate, so as

to be closer to their big clients. In certain case, some companies like John Lewis in

Milton Keynes, would consolidate several of their smaller warehouses into a massive

distribution centre, and operate a JIT technique to keep on top of inventory levels in

their shops whilst optimizing their fleet to keep transportation cost low. The tradeoffs

between transportation cost and inventory levels can influence a company’s decision

in selecting a transportation mode. For example, a logistics manager may choose a

transport service that substantially lowers the inventory levels but consequently

results in increased transportation cost (Stank and Goldsby, 2000). The reverse can

also be true if the priority of the logistics manager was to minimise the transportation

cost by carrying high levels of inventories.

In Wal-Mart’s case, road transportation and facility location have been used as a

corporate strategy to keep control over inventory costs, enhancing their ability to

31

provide better value for money for their customers, and for that matter give them the

competitive edge over other retailers. It is clear that Inventory cost can influence a

transportation mode choice decision. The different modes of transportation vary in

different carriage capacities, therefore their appropriateness as an inventory control

tool would also vary, likewise their response time and hence how they impact

differently on the overall costs in a supply chain. Therefore when making a modal

choice it would be prudent to bear in mind the impact of the transportation mode on

inventories, so that an inventory costs element would be considered, as this can

easily result in an increase in the overall costs within a supply chain. However, there

are situations that inventory could also be used as strategy to take advantage of

reduced prices of goods, hedge towards commodity shortage and price rises and

also to reduce stock out on shelves. Whatever the situation may be, the logistics

manager or the company would have to establish the prevailing trade-offs and

balance its transportation mode choice to suit the situation. Fig. 5 shows how the

different transportation modes impact on inventories. They have been ranked from 1

to 6 with 1 being the lowest and 6 the highest.

Rail TL LTL Air WaterLot Size 5 4 3 1 6Safety Inventory 5 4 3 1 6In-Transit Inventory

5 4 3 1 6

Transportation Cost

2 3 4 6 1

Transportation Time

5 3 4 1 6

Fig. 5 Impact of Transportation Modes on Supply Chain Performance

Source: Adapted from (Chopra and Meindl, 2004), Supply Chain Management, pp.426

32

5.0 Conclusion & Recommendations

The improvement in trade regulations, increased globalisation, improved technology

and companies strategies of moving businesses around in search of cheaper labour

cost have all contributed to the rise in our dependency on the various modes of

transportation. The increased competition among businesses, customers becoming

more knowledgeable with high expectations means companies are increasing

seeking for innovative ways to keep cost down, and transportation is increasingly

becoming that aspect of the supply chain which when not controlled properly or if the

right decision is not made, in terms of choosing the appropriate mode of

transportation, could result in a significant impact on the entire supply chain.

Transportation therefore plays a vital role in any supply chain as illustrated by (Stank

and Goldsby, 2000) as inter-dependent “gears”, with each gear relying on the

performance of the previous gear for the entire machine to function, and as such

transportation decisions should not be made in isolation of the value-added activities

within the supply chain, so that the full benefit of a modal choice would be optimised.

Therefore the challenge for companies these days is to make transportation

decisions that ensure the effective and efficient movement of products from various

locations across the globe to the consumer in the most feasible and cost effective

way, whilst maintaining or creating value for the customer. Despite the numerous

benefits of transportation to any economy, it also impact severely on the

environment, in terms 0f increased congestion and pollution, and thus become a

major challenge for policy makers, companies and consumers as a whole, who then

are challenged to look for innovative ways of drawing the right balance between the

benefits and detrimental impact of transportation.

All the transportation modes mentioned in the report have their respective pros and

cons, in terms of the attributes they exhibit, and sometimes it may take the

combination of two or more transportation modes to reap the full benefit of a

transportation choice decision. However what is crucial to the initial stages of the

decision process is the understanding of how the highlighted pros and cons relating

to the various transportation modes in terms of attributes such as speed, cost,

reliability, safety and the environment, could essentially impact on the designing,

planning and balancing of transportation mode choices. There are multi-facets of

determinants that may influence a shipper’s decision on modal choice selection, but

33

the range of these factors is so broad that (Witlox and Vandaele, 2005) agree that all

the varying elements cannot be integrated into a single transportation mode. As

highlighted in the report, these may range from any of the elements contained in the

performance objective of a company (quality, flexibility, dependability, etc),

organisational cost indicators such as the 4Vs, through to the type and size of

company, location of facilities and inventory types, convenience, reliability and

frequency of carrier services, and so on. Also, corporate strategies and modern

techniques or concepts such as JIT, Lean production and VMI which aim at

removing waste in any operation system tend to influence the modal choice

selection. These are all relevant factors that may influence a company’s

transportation mode choice process, but the level of importance of these attributes

may vary or have different meaning for different companies. For example, quality of

service for one company could cover a broad spectrum of attributes such as

reliability, safety, damage susceptibility (Witlox and Vandaele, 2005); whereas for

another company it could mean punctuality (on-time delivery), convenience and

value for money. Despite the variance in how companies may see the importance of

these attributes or prioritise them in certain perspectives, it can be recommended

that the fundamental aim of balancing the choice of transportation modes should be

one that exhibit a combination of characteristics that promote operational

effectiveness whilst reducing cost and lead times at the same time (Aronsson and

Brodin, 2006), and creates the capacity to meet customers’ requirements and

expectations. In other words, the decision process should ultimately aim at the

customer, and thus a typical question expected of a logistics manager in reaching a

decision, would possibly be, whether a particular transportation mode or potential

carrier has the ability to provide the added value which ensures good customer

service (Liberatore and Tan, 1995).

As highlighted in the example involving Wal-Mart, transportation can be used as a

vital strategic tool which can add value to products and services within the supply

chain, but on the other hand, when not managed or thought through properly can

result in increased cost in any supply chain. The level of good customer service, just

like ‘quality’ may have different connotation to the shipper and transport carrier; but

despite the existence of numerous perspective differences between shippers and

carriers as per previous research work on carrier selection, (Murphy et al, 1997)

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believe that, where the relative importance of the transportation selection criteria is

concerned, a high degree of similarities exist between the shipper and the carrier,

but whatever the situation is, the ultimate is always to keep the customer in mind.

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