Intermodal Freight Transportation

s.a.

Preface

Eddy Van de Voorde, Department of Transport and Regional Economics (TPR), University of Antwerp, Antwerp, Belgium

When dealing with transport supply, a traditional handbook on transport economics analyses at which cost price, at which speed, and on which terms the sector supplies transportation services. One of the typical issues in supply behavior concerns the heterogeneity of transport supply. That’s a bit of contrast with the fact that most transport comparisons are based on one, perhaps two (aggregate) measures of output, viz. the tonnage and the number of ton-kilometers. However, the output of a particular mode has much more characteristics.

That means that insight is required into the heterogeneity of the supply of transport services, reflected in the number of available modes or transportation techniques, the various types of transport within a single mode, and the companies that supply transport services. The issue of heterogeneity is related directly to the organization of the transport market.

The book in question clearly responds to this. The authors concentrate on an important but not always well-known submarket, particularly intermodal freight transportation. This is a form of multimodal transport, where goods are transported with multiple modes. In addition, the goods are not individually loaded, but they are measured using a loading unit. This concerns transport of goods in (sea) containers, swap bodies, and semitrailers. There are a large number of different forms of intermodal transport. A distinction can be made between the different types of loading units and the way in which they are transported.

The authors clearly drilled a gap in the market with this book. Intermodal freight transportation is often included in the general transport literature, but is treated much less as a separate study object, let alone devoted to a book. This book is also constructed in a clever way. In a first group of chapters, the authors discuss the understanding of the freight transport sector and the concepts of transport chains. This is followed by an analysis of the barriers and challenges in the production of intermodal freight transportation, linked to aspects of performance. A final block deals with building intermodal freight transport services, followed by experiments for modal validations. All in all an original approach to deal with a difficult research theme.

To conclude, this book clearly fills a scientific and policy gap. I consider it a must have for everyone interested in transport economics and the transportation business!

Chapter 1

Forces shaping the freight transport sector

Abstract

The literature is populated with definitions of logistics and supply chain management. It is important to note from the outset that one of the activities of supply chain management is logistics. The Council of Supply Chain Management Professionals (2014) states that logistics is that part of the Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between point of origin and point of consumption in order to meet customers’ requirements.

Christopher (2011) defines logistics as the process of strategically managing the procurement, movement and storage of goods. Within the supply chain, any decision of one activity will inevitably spread up and downstream, and the interaction among activities is not always positive. In fact, gains in one activity may result in loss in another one.

This chapter provides a global overview of the forces that influence freight transport sector. The discussion of key drivers and trends in logistics and supply chain management will follow the STEEP approach. The STEEP approach is a known technique used in marketing and business analysis to evaluate various external factors that impact an organization or sector.

Keywords

Supply chain management; Logistics; Drivers; Trends; Freight

Chapter outline

1.1Positioning the freight transport sector

1.2Drivers and trends in logistics and supply chain management

References

Further reading

1.1 Positioning the freight transport sector

Production and distribution management techniques have evolved greatly in Western Europe in recent decades (Fig. 1.1). Up to the 1960s, the various activities that make up the process of producing and distributing goods were largely carried out independent of each other, with few interactions between them. At the time, trade was subject to heavy regulation and the international transport of goods was lengthy and costly (Bayly, 2004). Manufacturers applied mass production techniques with the aim of minimizing unit production costs. Accordingly, products tended to be very similar, and there was very little scope in terms of product or process flexibility. New product development was slow and relied mostly on in-house technology and capacity. Customers’ needs were seldom taken into consideration when new products had to be developed.

Fig. 1.1 Evolution of management techniques. (Adapted from Hesse, M., Rodrigue, J.-P., 2004. The transport geography of logistics and freight distribution. J. Transp. Geogr. 12(3), 171–184. doi:10.1016/j.jtrangeo.2003.12.004.)

Production and distribution were based on large inventories that shielded companies against any fluctuation, be it in supply or unpredictable bottlenecks in delivery. Naturally, companies invested substantial amounts of working capital in work in process inventories. The various activities associated with production and distribution were managed independently, largely without any kind of co-ordination and exchange of information between the various areas within the manufacturing companies. The 1970s saw the start of intense global competition, which has forced companies to reduce costs and offer higher quality and more reliable products. Manufacturing Resource Planning was introduced in manufacturing firms, with managers realizing the major drawbacks (in terms of cost, quality, new product delivery, and delivery lead time) of having huge process inventories. Moreover, they acknowledged the importance of new materials management concepts in the improvement of firms’ performance levels.

Just in Time and other similar management techniques began to be used in order to improve manufacturing efficiency and decrease cycle time. These techniques have reduced the amount of products kept in inventory. It was through the reduction in inventory levels, accompanied by reductions in terms of unexpected changes in supplying and scheduling problems, that manufacturing companies began to realize the potential benefits and importance of a strategic and cooperative buyer-supplier relationship (Tan, 2001). This led to the emergence of the Supply Chain Management concept—a strategic partnership between agents involved in the production of a service or goods. Progressively, the strategic partnership was expanded by adding the functions of physical distribution and transport to the production and distribution functions (e.g., transport and warehousing). New operators offering bundled services, which had hitherto been offered separately, such as transport, storage, invoicing, and billing, or the return of defected products, emerged in the market. These operators became known as Logistic Operators and the services they offer are designated as integrated logistics services.

In the 1990s, continuous evolution followed, with companies further expanding their uses and practices and including strategic supplier products (this has had major benefits; for example, it was possible put an end to product inspection, as suppliers began to certify product quality). Furthermore, there was increased exploitation of suppliers’ strengths and joint efforts in the development of new products. Finally, in some supply chains, the seamless integration of retailers’ physical distribution with transport partners was achieved. Meanwhile, the focus of the supply chain moved closer toward customers. Customers’ needs and expectations now drove all changes throughout the firms’ internal and external linkages.

The 1990s were also characterized by profound and rapid technological developments, of which the Internet is undoubtedly the most important. The Internet, which had taken its first steps in the previous decades, now began its rapid worldwide growth. Specific protocols of communication and electronic data interchange were developed and implemented, resulting in the complete electronic integration of the supply chains. The consequences were immediate and immense. Sales, stocks, transport, and production rhythms became visible almost instantaneously. Production and distribution could be adjusted to actual consumer demands and did not need to be forecast. Stocks could be further streamlined, as the actual patterns of consumption and transport were known. Inefficiencies could be spotted and corrected.

The 2010s marked the beginning of the so-called 4th Industrial Revolution, which is characterized by significant technological developments, which began to blur the lines between the physical, digital, and biological domains—collectively these are referred to as cyber-physical systems. Several technological breakthroughs have been achieved, such as robotics, artificial intelligence, nanotechnology, quantum computing, biotechnology, the Internet of Things, blockchain, fifth-generation wireless technologies (5G), additive manufacturing, 3D printing, and or fully autonomous vehicles. Parallel to this, the progressive digitalization of societies and economies is leading to new trends in automation and data exchange, with the development of new business and market opportunities, such as e-commerce and the shared economy.

Today, the production processes in industry involve a multiplicity of firms located in different countries (and continents), all committed to the production and sale of the final product. Goods are transported successively between these actors, from the source (the raw material) to the finished product; at each level, value is added to the product. The establishment of these relationships among all partners of a logistics chain has led to the development of the concept of Supply Chain Management (Fig. 1.1). Supply Chain Management encompasses all firms as a unified virtual business entity.

Despite the importance of Supply Chain Management in today’s industrial sector, no single definition of Supply Chain Management has yet been established. Mentzer and his colleagues (2001) have defined Supply Chain Management as the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.

One may, hence, consider that Supply Chain Management refers to the management of all actors involved in the production and distribution of a given product, having the aims of optimization of the system and maximization of the benefits for the overall Supply Chain—even if this means that some actors do not see maximization of their benefits. The concept of Supply Chain Management has been used to describe three different purposes: (1) the purchasing and supply activities of manufacturers; (2) transport and logistics functions of the merchants and retailers; and (3) all value-adding activities (from the raw materials extractors to the end users, including recycling).

Supply Chain Management is a complex activity (Fig. 1.2). It includes a wide array of activities, such as marketing, sales, research and development, forecasting, planning, production, assembly, purchasing, logistics, information systems, finance, and customer service. A considerable set of flows move up and downstream in terms of the agents in the supply chain, including products, services, information, financial resources, demand, or forecasts (Tan, 2001). The goals of Supply Chain Management include to achieve customer satisfaction by providing greater value for money, in order to secure a competitive advantage over other supply chains.

Fig. 1.2 Activities of Supply Chain Management. (Adapted from Mentzer, J.T., DeWitt, W., Keebler, J.S., Min, S., Nix, N.W., Smith, C.D., Zacharia, Z.G., 2001. Defining supply chain management. J. Bus. Logist. 22(2), 1–25. doi:10.1002/j.2158-1592.2001.tb00001.x.)

It is important to note that one of the activities of Supply Chain Management is logistics. Again the literature is populated with definitions. Accordingly to the Council of Supply Chain Management Professionals (2014), logistics is that part of the Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between point of origin and point of consumption in order to meet customers’ requirements. Christopher (2011) defines logistics as the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organisation and its marketing channels in such a way that current and future profitability are maximised through the cost-effective fulfilment of orders. Logistics thus has to do with the efficient movement of goods between agents of the supply chain, i.e., making the right products available in the right amount and conditions at the right time and at the right location. Logistics embraces a set of activities that are all related with the movement and storage of goods, such as customer services, demand analysis, communication systems, inventory control and warehousing, handling, bundling and packaging, spare parts and after-sale support, and transport.

A hierarchical relationship between transport, logistics, and supply chain management can now be established (Fig. 1.3): transport is one of several activities within the larger concept of supply chain management. The behavior of the freight transport sector is thus the outcome of decisions taken at different levels and moments and considering the interplay with the other logistics and supply chain activities.

Fig. 1.3 Hierarchical location of transport. (Adapted from Rodrigue, J.-P., 2012. Supply chain management, logistics changes and the concept of friction. In: Hall, P., Hesse, M. (Eds.), Cities, Regions and Flows, vol. 270. Routledge, Oxon.)

A supply chain is thus a complex web of interconnected activities. Any decision on one activity will inevitably spread up and downstream, perhaps with unknown or undesirable effects (e.g., the bullwhip effect). The interactions among activities are not always or necessarily positive. Indeed, gains in efficiency or costs in one activity may lead to losses in others (e.g., a reduction of stocks will lead to an increased consumption of transport services, roll cages facilitate material handling but reduce a vehicle’s loading factor, or adjusting production to sales results in uncertain freight flows, making it difficult to use some transport configurations). The best configuration of a supply chain will necessarily entail the production of activities running at different levels of efficiency and costs. It will depend on the actual level of contribution of each one to the overall level of efficiency and cost structure.

Considering that transport activity is one of many activities in a chain, one may conclude that optimization of the transport activities will not always be the case. Indeed, it is likely to be the exception, as freight transport accounts for a small parcel of sales revenue, averaging around 2%–3% (Technical University of Berlin, 2002).

The minor role of transport in firms’ decisions can be attributed to a number of factors:

●Many firms do not explicitly perform modal tradeoffs between logistical cost elements, and as a consequence of this, decision making is based on limited knowledge of the relevant cost functions. This situation is one of the main causes of market failure (Technical University of Berlin, 2002);

●Transport companies do not bear the full costs of transport activities, since some are paid by society as a whole—the so-called externalities (e.g., environmental damage or congestion delays). Accordingly, transport costs are below real values, which automatically result in overconsumption. This is particularly acute in the area of road transporta (Janic, 2007). The internalization of those external costs would alter the economic importance of the transport activity, giving companies incentives to use more effective transport operations;

●Transport management typically occupies a low position in the corporate hierarchy and wields much less bargaining power than functions such as production, marketing, or finance;

●There is a long-term downward trend as far as freight transport costs are concerned. Several drivers underlie this trend; firstly, the ongoing technological developments; and secondly, the continuous increase in value of the goods conveyed and decline in the ratio of weight to volume (this is directly related with the changes in the logistics systems that emerged with Globalization);

●There is a widespread belief that transport is seldom a core competence or major source of competitive advantage. Accordingly, transport is not regarded as an added value, but rather as additional costs, and even seen in terms of cost, it usually accounts for a small portion of a manufacturing company’s total overheads. Fig. 1.4 presents the main five levels of decisions that impact transport: product market decisions, investment decisions, location decisions, logistics decisions, and transport decisions. The decisions that have the most relevance to transport are those that only take transport issues into limited consideration.

Fig. 1.4 Corporate decision making and transport.

Transport thus ranks lower in terms of firms’ decision-making factors. Only in very specific cases does transport activity enter into the decision equation (e.g., natural barriers). The utilization of transport activity at a nonefficient level does not necessarily signify irrational behavior on the part of the agents, but is simply the consequence of the lower importance level of this activity.

1.2 Drivers and trends in logistics and supply chain management

The discussion of key drivers and trends in logistics and supply chain management will follow the STEEP approach. The STEEP approach is a known technique used in marketing and business analysis to evaluate various external factors that impact an organization or sector. It is commonly used to gain insight into past, current, and future developments in the respective business context. STEEP is an acronym that stands for Society, Technology, Economy, Environment, and Policy. Discussion of each dimension goes beyond the scope of this book. Even so, a brief description of each dimension can be provided here:

●Social drivers—relates to developments and changes in demographics, lifestyles, social and cultural values, and consumer behavior. Key trends include the growing urbanization of populations worldwide (e.g., in the 1950s, the global urban population was around 30% of the total; today is already more than 50%, and the United Nations expects it to reach around 65% by 2050); changes in the work culture, with fewer working hours and more flexible work schedules; or the progressive digitalization of society, enabled by the widespread of portable devices and enhancement of wireless communication, giving people access to the Internet anywhere and at any time.

●Technological drivers—relates to recent technological development. As mentioned earlier, the ongoing 4th Industrial Revolution is fundamentally changing how industries manufacture and distribute products. By way of example, the Internet of Things is a network of connected devices, including packages, pallets, containers, and vehicles, which interact and exchange data, enabling full visibility of the supply chain. Another example is the blockchain technology, which has been used to track and trace goods, along the tens or hundreds of suppliers within a supply chain, in a reliable and secure way. Key trends include automation of vehicles in all modes of transport (e.g., drones); high-capacity communication systems (e.g., 5G); standardization of loading units (i.e., containers and swap bodies) for transport operations, which is fundamental for ensuring and enhancing transport efficiency—not only does it result in the acceleration of transhipping procedures (requiring less labor and less time), but it also better protects goods against adverse weather conditions or illicit acts; increase of capacities in intercontinental transport, through the development of larger ships; automation of warehouses and in-house transport, through the increasing utilization of robots and autonomous vehicles.

●Economic drivers—relates to the development of world and regional economies and the increasing sophistication of economic and financial markets worldwide. Key trends include growth in the economic well-being of world regions; the increasing dependence of international and national trade patterns on intergovernmental agreements; the emergence of economic mega hubs (i.e., the high concentration and specialization of industries and services) in certain regions around the world; and the progressive replacement of humans by machines and robots in certain manufacturing industries.

●Environmental drivers—relates to the growing awareness for environmental protection and sustainable development. Albeit at different paces and levels of commitment, governments worldwide are gradually acknowledging the negative impact of human activity on our planet, including depletion of natural resources, emission of greenhouse gases, and changes in weather patterns. The European Union, in particular, has adopted very clear and ambitious strategic objectives regarding environmental protection. By way of example, for 2020, the European Union has set three key targets: a 20% cut in greenhouse gas emissions (from 1990 levels), achieving 20% of EU energy from renewables, and a 20% improvement in energy efficiency. This must be further improved upon by 2030 as follows: at least a 40% reduction in greenhouse gas emissions (from 1990 levels), at least a 27% share for renewable energy, and at least a 27% improvement in energy efficiency. Despite the targets, at the European Union level, emissions continue to grow; between 1990 and 2016, the emissions generated by the transportation sector chapter increased by 18%, while international aviation and international navigation grew 113% and 22%, respectively.

●Political drivers—relates to the changes in the regulatory and political environment both at national and international levels. Traditionally, governments have regulated their national transport chapter tightly, as it was regarded essential to economic development and social cohesion, and a cornerstone of independence and sovereignty. That tradition is still very visible in international aviation and shipping, which are largely dependent on bilateral and multilateral agreements. A major political trend has been the gradual liberalization or relaxation of international trade and transport barriers, largely fueled by the Globalization phenomenon that emerged in the 1970s. The European Union’s common transport policy is the most prominent and an exemplary success in this area. However, recent years have seen a certain degree of reversal, with some nations either pulling out from international agreements or reintroducing certain trade barriers. Several reasons can be given for this trend, such as political unrest in certain regions, an increase in terrorist activities and other security problems, and the emergence of nationalist political forces in favor of higher protection. The result has been growing heterogeneity and complexity of the international transport markets, with some regions benefiting from open and free markets (such as the European Union—Canada comprehensive economic and trade agreement), while others are subject to strict bilateral international