Summary - complete

Transport and distribution (Technische Universiteit Eindhoven)

Transport and Distribution
Class 1
Logistics: The work required to move and position inventory throughout the supply chain
which serves to link and synchronize the overall supply chain as a continuous process and is
essential for supply chain connectivity’

Supply chain management (SCM) is a set of approaches utilized to efficiently integrate

suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and
distributed at the right quantities, to the right locations, and at the right time, in order to
minimize system wide costs while satisfying service level requirements.
• Managing supply and demand, sourcing raw materials and parts, manufacturing
and assembly, warehousing and inventory tracking, order entry and order
management, distribution across all channels, and delivery to the customer.
• Design and administer systems to control movement and geographical
positioning of raw materials, work-in-progress and finished inventories at the
lowest total costs.
• Deals with the planning and control of material flows and related information in
organizations
• Private sector (inventory right place, right time, etc.) versus public sector
(garbage collection, winter gritting, etc.)

1 Physical flows, nodes and networks

2 A supply chain network

The Netherlands ranked fourth in Logistics
Performance Index
• Favorable geographic location
• Sound infrastructure
• Sophisticated logistics sector

Integrated logistics
Interrelationships are important, because it is
necessary to be at the right time on the right place
with the right quantity.
Cost minimization → Integrated logistics

We focus on:
• Transportation functions
Rail, air, water, or truck
• Distribution functions
Echelon, Direct or combined
• Warehousing functions

Three hierarchical steps:

Strategic level:
Network design
Number, locations and size of
manufacturing plants and
warehouses
Assignment of retail outlets to
warehouses
Major sourcing decisions
Typical planning horizon is a few
years

Tactical level:
Warehouse organization
Inventory management
o Identifying stocking points
 o MTS, MTO, etc.
Distribution channels
Node routing
o Multi-depot and inter-depot routing
o Time Windows
Arc routing: street cleaning, snow removal, mail delivery
Container location in ports

Operational level:
Real-time dispatching for rapid courier operations
Real-time vehicle location and relocation
Management of berthing operations in ports
Berthing = determine how many locations needed, at the port at what time? In that
way you could take a decision to replace plan or use the expected plan.

Network Design
Physical configuration and infrastructure of the supply chain.
A strategic decision with long-lasting effects on the firm.
Decisions relating to plant and warehouse location as well as distribution and sourcing
Relationship to location theory

Objective and Trade-Offs

Objective: Design or reconfigure the logistics network in order to minimize annual
system-wide cost subject to a variety of service level requirements
Increasing the number of warehouses typically yields:
o An improvement in service level due to the reduction in average travel time to
the customers
o An increase in inventory costs due to increased safety stocks required to
protect each warehouse against uncertainties in customer demands.
o An increase in overhead and setup costs
o A reduction in outbound transportation costs:
transportation costs from the warehouses to
the customers
o An increase in inbound transportation costs:
transportation costs from the suppliers and/or
manufacturers to the warehouses.

Location theory
Location of the facilities
o Determines the transportation, the facility costs, etc.
o E.g. Locating a DC in Italy versus Norway versus Moscow
o Exists of location (where) and allocation (which demand and which supplier).
Some issues to think about:
o When are location decisions needed?
o Location and allocation are related
o Location decisions may affect demand
Facility Location
The most important factor in real estate:
o Location
Facility location is the process of identifying the best geographic location for a service
or production facility

Regionalization = consolidation, supplying customers in different countries (regions) from one

DC. Lower inbound transportation and inventory costs, higher outbound transportation costs.

Problem formulation
Develop a methodology with flexible procedures that can be used for regionalization
projects around the world
o Define optimal location(s) for DCs
Hard (quantitative) logistics factors
Soft (qualitative) factors

Methodology overview

1. Preprocessing: do preparatory (home) work

- region under consideration
- possible locations for the distribution centers
- necessary data have to be gathered
2. Quantitative model: find cost-best solutions
3. Post-processing: apply qualitative factors to the solutions obtained quantitative model

3 Methodology: Preprocessing
 Figuur 4 Methodology: Quantitative Model

Labor and warehouse cost sub-models

Calculated for each location/DC combination

5 Labor and Warehouse cost sub-models

Transportation cost proportional to distance

LTL costs are generally cheaper per truck (not per shipment)

Quantitative model output:

Ranked list of all possible location/DC combinations, sorted in ascending order according to total cost.
Only the best assignment for each combination.
Post-Processing

Classification of location problems is done by defining the influence of transportation (direct

delivery to many customers or to one?). Also by defining retail location (competition).
 Class 2: Strategic Decisions in Transportation: Network Design

Figuur 6 The transportation chain

Customer Delivery Decoupling Point (CDDP) and Pickup Decoupling Pont (PDP)

The Terminal
General nature: Nodes in network where freight/passengers are stopped for value-
adding activities
Consolidation or concentration
Dispersion or break-bulk
Shipment services
Storage, billing (ticketing), routing
Vehicle services
Shipment process services
Weighing, customs, claims processing, interchange

Figuur 7 Overview of Terminals in Carrier Network

Terminal ownership
Privately owned terminals
Capital costs are assets on carrier’s balance sheet
Once constructed, then capital costs are fixed
Railroads, trucking, pipelines, air freight
Publicly provided terminals
Carriers charged fees for use
Air and most post facilities

Types of terminals
Rail
- Hump or marshalling yards
- Transloading terminals
Water: harbors and ports
Air: some variation in functions of freight and passenger terminals
Pipeline: storage facilities and pumping stations
Motor carrier (truckload)
Motor carrier (LTL)
- Pick-up and delivery terminals (PUD)
Known as satellite or end-of-line terminal
Interacts most directly with customers
Served by peddle runs
Functions include
consolidation and dispersion, cross-docking
Tracing, rating, billing, sales, claims
Improved IT is enabling centralization of some traditional PUD
functions
- Break-bulk terminal
Consolidation and dispersion
Little direct customer contact
Over the road driver domiciles
- Relay terminal
Service facilities for drivers and equipment
Provide layovers for drivers on long runs between break-bulks
Do not handle freight

Terminal management decisions

Number of terminals
- Most relevant for LTL carriers
- Decision depends upon
Degree of desired market penetration
Degree of required customer service
“Fit” in network
PUD terminals married to break-bulks, thus, break-bulk
capacity influences number of PUD terminals
Total cost
- Trend has been to reduce number of terminals
Speeds transit times, reduces capital requirements, reduces
 handling of freight
Locations of terminals
- Most relevant to LTL carriers
- Factors in decision
Driver hours of service regulations
For PUD’s, degree of backhauling to break-bulk
Market penetration and potential
Equipment selection and development
- Positioning is a critical operating decision
- Most modes have varying equipment types that most constantly be
positioned in appropriate markets, terminals and routes
When power units can be separated from freight carrying unit, then
positioning becomes more complex
Some equipment is dedicated to particular customers, further
complicating positioning

Economics of Transportation
Transportation
Pervasive element of daily life
Impacts citizens’
Economic well being
Safety
Social interaction
Quality of physical environment
Quality of daily life
Chapter focuses on the economic impact

The work of logistics

Order Processing
Inventory
Raw materials
Work in process
Finished goods
Supplies
Transport (see further)
Warehousing, Materials Handling and Packaging
Many types of warehousing
Traditional role has been to hold or store inventory but
o Today many value added activities occur in such environments,
operations focus on customisation, velocity and movement
Packaging serves to protect products during the logistics process
Materials handling involves receiving, moving, storing, sorting and
assembling.
Facility Network Design
A facility network is the number, size and geographical relationship of
facilities used to perform logistical operations.
Include manufacturing plants, warehouses, cross-docks, ports and retail
outlets.
 Facility network design determines the number and location of all types of
facilities used to perform logistics work
Facility networks are in a constant state of flux

Transport
These are the operations which geographically move and position inventory
Include road, rail, water, air and pipeline
Is the largest element of logistics costs
Reduces inventory, storage and materials handling
Transport’s role is becoming increasingly important in supply chains

Demand for Transportation

Regions or areas tend to specialize in certain economic activities
This specialization creates physical gap between markets and areas of production
for a given good
This gap creates a demand for transport
Fundamental economic role of transport is to bridge this supply-demand gap

Transport Measurement Units

Typical measurement units
Ton-miles (freight) and passenger-miles (people)
Caution: Both units are heterogeneous. Two units may have
Very different costs of production
Very different service requirements
Levels of measurement unit aggregation
Total transport output (freight or passenger)
Transport output by mode (mode share)
Transport output by carrier (market share)

Value of (Transport) Service

- Service Components of Freight Demand
Critical service characteristics and related supply chain cost impacts
Transit time
Volume and cost of holding inventory
Potential stockout and/or safety stock costs
Reliability or consistency of transit time
Safety stock and/or stockout costs
Accessibility: impacts transport cost and time
Capability: “special” service requirements
Security: safety stocks and/or stockout costs
- Location of Economic Activity
Historically, transportation influences location of cities, particularly ports
For firms, transport influences the location of manufacturing plants and distribution
facilities
Influences very pronounced for firms producing or marketing globally
Influences are dynamic
As economic activity locations shift, the pattern of transport demand also
shifts and vice versa
Global Trade Agreements
Trade stimulated by free trade agreements
Agreements between nations that lift most tariff, quota, and fee/tax limitations
on trade
Bi-lateral agreements are between two nations
− U.S. currently in 14 bi-lateral free trade agreements
Regional trade agreements involve 3+ nations
− U.S. currently involved in:
Free Trade Area of Americas
Middle East Free Trade and Enterprise for ASEAN Initiatives
North American Free Trade Agreement (NAFTA)
NAFTA includes U.S., Mexico, and Canada
Principles include:
o Unimpeded flow of goods
o Enhanced cross-border movement of
goods/services
Principles were to enable transport carriers to move
more easily between countries
o Today, Canadian carriers have same rights in
U.S. as U.S. carriers have in Canada
May transport domestic traffic when
incidental to return trip
o Same accessibility is not currently available
between U.S. and Mexico

Transportation Planning: Mode Selection

Decision must achieve best fit and balance between:
o Modal service capabilities
− Accessibility, capacity, transit time, reliability, safety
o Product characteristics – size, durability, value
o Supply chain requirements for speed, service, cost
Decision must also align with corporate strategy, control risk and provide required
level of customer service
Transportation Planning: Carrier Selection
Decision based on best fit and balance between:
o Geographic coverage
o Average transit time and reliability
o Reliability of on-time pickup and delivery
o Technical capabilities, ability to share information
o Equipment availability and capacity
o Product protection/carrier’s freight damage experience
o Carrier’s financial stability and freight rates
Service factors tend to outweigh cost
Carrier selection strategy
o Leverage transportation dollars by using a limited number of carriers
o Build relationships with service providers
o Monitor carrier performance, rates, and financial stability
o Have contingency plan with back-up carriers
Differs from mode selection decision
o Many more options to choose from
o Decision made more frequently but not for each move

Transportation Planning: Route Planning

Carriers primarily responsible for routing
 However, shippers should have input to ensure proper consideration given to:
o Customer satisfaction and supply chain performance
o Efficiency and product safety during transit
Routing decisions should be
o Coordinated with mode and carrier selection
o Aligned with global sourcing, inventory, demand fulfillment strategies

Global freight transportation

Global shipment execution is complex
o Involves multiple carriers from different modes
o Many border crossings and long distance shipments
Flawless transportation execution requires:
o Internal expertise and attention to detail
o Strong relationships with capable service providers
Chapter organization
o Global freight flows and key execution activities
o Key players in global transportation execution
o Customs clearance

Overview of Global Freight Flows

Global freight: two primary service options
o Direct service
Direct origin-destination (one country to another country shipment),
no interim stops-offs
Typically between bordering countries
Single mode of transport, typically motor carrier
o Indirect service
Typically, shipment requires multiple modes, i.e. intermodal
transportation
Multiple interim stops required to transfer freight between carriers or
modes
Overview of Global Freight Flows Intermodal Transportation
Definition: Two or more modes used to move shipment from origin-destination
Facilitates global trade by combining inherent advantages of each mode
o Greater accessibility is created for ocean or airline haul transport by combining with truck or
rail
o Overall cost efficiency can be achieved without sacrificing service quality or accessibility
o Flexibility to suit the shipment situation
Model combination options – most frequently used combinations are:
Pick up Linehaul Delivery
Truck Air Truck
Truck or rail Ocean Truck or rail
Truck Rail Truck
Carrier, rather than shipper typically makes determination of which combination to use

Operating Strategies
Rule of efficiency: Most efficient to move in continuous, straight line when possible
o Minimize circuitry, sporadic movement
o Ex. applications: unit trains
Minimize intermediate handlings
o Ex: run-through trains, interlined trailers, use of containers
Maximize capacity utilization on each run
o Once run is scheduled, more costs are fixed w/r volume or weight carried
Higher utilization lowers average costs
o Various means for improving capacity utilization
Delaying vehicle dispatch
Pricing incentives
Consolidation, break-bulk
Rerouting partially filled vehicles
Investing in automated loading/unloading equipment
Minimize empty mileage
o No revenue earned when empty, yet vehicle operating costs change little,
loaded or empty
o Much effort spent on finding return hauls
Match availability and use of labor and equipment with demand
o Responsibility of scheduling planners and dispatchers

Hub-and-Spoke Route System

Evolved in 1970s and 1980s
o Done to improve vehicle utilization on long distance routes
o Assists in matching vehicle size to route volume
 o Can improve schedule frequency

Hub = distribution centrum

Spoke = connections

Coordination
Marketing and operations can have conflicting objectives
Well-managed carrier ensures that:
o Marketing considers operational costs in its efforts
o Operations keeps constant eye on service performance
o Accountability for profitability runs throughout the organization

Challenges Affecting Carrier Management

Operations are geographically dispersed
o Operating employees may receive minimum supervision
o Accountability gets lost on long shipments
o May require tight controls, decentralized management structures, close
communications
o Trends in leading carriers
More sophisticated training for customer-facing employees
Employee empowerment
Performance measurement
Adoption of wireless and satellite communication
Organizational structures
o Historically, strong vertical hierarchies by functional area or skill. Disadvantages:
Inflexible, resistant to change
Hindrance to cross-functional communications at middle and lower
management levels
Can develop goals inconsistent with corporate goals
Difficult to determine costs
o Affected by many factors that vary from situation to situation
Logistics
Logistics is a subset of and occurs within the broader framework of supply chains.
Logistics activities occur within and between all companies active within supply chains.
The rise of logistics is driving restructuring across the whole transport sector
The ‘new’ logistics industry plays a vital role in the global economy.

Supply Chain Concept

Concept evolves in three phases
o 1960s: physical distribution concept
o 1980s: business logistics or integrated logistics
o 1990s: supply chain management concept
A systems approach to analysis and decision making is common to all three phases
Physical distribution concept
o Focuses on physical distribution system costs and tradeoffs
o Objective was to find lowest total physical distribution system cost
o Example: transportation mode or carrier selection
− Involves tradeoffs between transport, inventory, materials handling,
and packaging costs
Supply chain management concept
o Key underlying principles
Systems analysis and management
3 key flows: product, information, and cash
Integrated management of extended enterprise
Focus on ultimate consumer of end product
o Transport: most direct influence on product flow
Product flow is two way
Growing importance of reverse logistics systems

Supply Chain Concept: Flows (in both directions)

Information flow
o Sales trigger replenishment orders flowing upstream
 o Traditionally, replenishment orders used by upstream supply chain members
to forecast downstream demand
Long intervals between orders create demand uncertainty
Safety stocks used to buffer against uncertainty
Magnitude of uncertainty and safety stocks amplify upstream in a
phenomenon known as the bullwhip effect
o SC compression via improved two-way information flow reduces uncertainty
and cost impact of bullwhip effect
Transport carriers contribute to uncertainty reduction (reliable and
fast deliveries) and improved two-way info flow (advanced shipment
notices, bar codes, radio frequency tags)
Financial or cash flow
o Payments flowing upstream for goods ordered
o If order and replenishment cycles shorten (orders and product flow faster)
then cash flows faster
o Faster cash flow reduces working capital requirements for financing operations
and processes and contributes to improved profitability
− “free” cash flow cycle
o High transport service levels contribute to improved customer service and
faster cash flow
Products/services

Key Strategic Decisions in location theory

Determining the appropriate number of facilities such as plants and warehouses.
Determining the location of each facility.
Determining the size of each facility.
Allocating space for products in each facility.
Determining sourcing requirements.
Determining distribution strategies, i.e., the allocation of customers to warehouse

Reevaluation of infrastructure results in changes in:

Demand patterns
Product mix
Production processes
Sourcing strategies
Cost of running facilities
Mergers and acquisitions may mandate the integration of different logistics networks.

Classification of location problems

Time horizon
o Single-period
o Multi-period: sequence of changes
Facility Topology
o Single-type: e.g. Regional Distribution Centre (RDC) only
o Multi-type: Central Distribution Centre (CDC), RDC, etc
Material flows
o Single-commodity: homogeneous product
o Multi-commodity
 Interaction among facilities
o Transshipments
Dominant material flows
o Single-echelon: inbound or outbound only
o Multiple-echelon: both inbound and outbound important
Demand divisibility
o One-to-one
o One-to-many
Influence of transportation on location decisions

Single-Echelon Single-Commodity Location Models (SESC)

Location models stands for taking into account transportation and facility costs. SESC assumptions:
Homogeneous facilities
Either the material flow inbound or outbound is neglible
Material flows are homogeneous
Transportation cost is linear or piecewise linear and concave
Facility operation cost is piecewise linear and concave
Decision variables:
ui: implicitly defines a location decision, i.e. only open if ui is strictly positive
sij: allocation decisions
Constraints
Capacity constraints
Customer constraints
Flow conservation constraints

This is a general model. Some variants can be modelled as MIP problems (NP-hard) and solved with branch-
and-bound:
Linear transportation costs and fixed facility operating costs
Linear transportation costs and piecewise linear and concave facility operating costs

Transportation costs are linear:

Facility costs: fixed costs fi and constant

marginal cost gi:

Effect on the general model:

Introduce a new binary variable yi.
Assume marginal cost gi is neglible:

Original constraints

Allowing for fractional demand: xij : fraction of

demand satisfied by facility i

Maximum number of facilities is equal to p

MIP formulation of the SESC

Obtaining solutions for the SESC problem

Heuristics
Langrangian relaxation techniques together with subgradient algorithms
o Upper bound
o Lower bound

Two-Echelon Multi-Commodity Locations Models (TEMC)

TEMC assumptions
p DCs to be installed
demand is not divisible
operations costs DC j:
- Fixed cost fj
- Marginal cost gj
 Figuur 9: TEMC Variables

Figuur 8: TEMC Model formulation

Solution approaches
Langrangian heuristics
o Relaxing constraints
Benders decomposition procedure
o Decompose the original MIP problem into several MIP problems with a single
continuous variable and several LP problems
Logistics facility location in public sectors
How to locate public facilities? Firefighting, ambulance dispatching, etc. Trade-off between low logistical cost
and adequate service level to all users

Classes of Facility Location Problems

Customers are on network nodes
Distances implicitly given by network
Network = tree or general network
Types of models:
- p-Centre model: service time for the most disadvantaged user needs to be minimized (minimax
principle)
- Location-covering model: least cost set of facilities such that each user can be reached within a
given maximum travel time (each customer is within 2 hours of a warehouse)
- p-Median model (~ minisum principle): Locating p facilities relative to a set of customers such that
the sum of the shortest distances is minimized

p-Median model
Locating p facilities relative to a set of N customers such that the sum of the shortest distances is
minimized.
Finding the location of p facilities to serve demand nodes so that the transportation cost is minimized
Complexity:

If n=20 and p=5, there are 15,504 solutions

If n=50 and p=10, the problem has more than 1010 possible solutions
If you could evaluate 1 million solutions per second, it will take you 3 hours for total
enumeration
A specific case of the SESC Location Models:
Fixed costs fi the same for each i
dj = 1 for each j
qi = |V2| for each i
p-Centre models
Locate p facilities on a graph such that the maximum travel time from a user to the closet
facility is minimized.
o Equity serving customers.
Directed, undirected or mixed graphs G(V,A,E).

V Vertices Nodes User sites and intersections

A Arcs Directions involved Road connections between the sites
E Edges No direction Road connections between the sites

Direct graph = optimal solution: every facility location is a vertex

Undirected (A=Ø)/mixed graph = optimal location could be internal point of an edge

Location-covering model
Least cost set of facilities such that each user can be reached within a given maximum travel
time. E.g. : each customer is within 2 hours of a warehouse

Data aggregation
Demand aggregation
Product aggregation

Class 3: Multimodal transportation

Role of transportation in supply chain:
Get raw materials, intermediate products, and finished goods from their respective
origins to their destinations
It is the glue of the supply chain
Up to 30% of the total cost of logistics operations

Market globalization
Reach markets in each continent (mainly when having low-cost production sites)
Many border crossings and long distance shipments

Competition and cost efficiency

Use the right combination of transport modes
Using different transport modes for one shipment is also called multimodal
transportation

A third party logistics (3PL) company is one that works with shippers in order to manage another company’s logistics
operations department. 3PL is the action of outsourcing activities that are related to logistics and distribution.
Among the services 3PLs provide are transportation, warehousing, cross-docking, inventory management,
packaging, and freight forwarding. Advantages of a 3PL:
Cost and time savings
Low capital commitment
Focus
Flexibility/Scalability
Disadvantages of a 3PL:
 Loss of control
IT
The concept of a 4PL provider is an integrator that accumulates resources, capabilities and technologies to run
complete supply chain solutions. Functions provided by a 4PL company: procurement, storage, distribution and
processes. A 4PL company takes over the logistics section of a business. This could be the entire process, or a side
business that’s imperative to have as part of the main business. An example here would be a bicycle importer. The
main function is to import bicycles however, they need to have spare parts for these unique bikes. A 4PL would
manage the total logistic operations for the spare parts business.
Main Difference between 3PLs and 4PLs
The 3PL targets a single function, whereas the 4PL manages the entire process. A 4PL may manage the 3PL.

Different Operators
Shippers: company, institution or person who needs to transport their goods
Carriers: own transportation resources (e.g., trucks, ships, ..)
3rd Party Logistics service providers (3PL) manage and monitor the transportation
process (warehousing, packaging)

Industry Overview: Types of Carriers

Legal form of carriers
For-hire vs private
- For-hire: services the public. It charges fee for the service
Common operator: on demand service for the general public
Contract operator: only services contracted shippers
- Private: services an industry/company. It incurs cost.
Exempt for-hire: sell remaining capacity.
For example Albert Heijn (for-hire) versus Jumbo (private)
Local versus intercity/international operators
Local operators are active in small areas like Holland. Intercity/internal operators services in big
areas (long distances).
Truckload (TL) versus Less-than-truckload (LTL)
- Truckload: full truck, one stop
- Less-than-truckload: consolidation and break-bulk at terminals
 • Heavy LTL (no break-bulk)
Classification by type of commodity hauled

Overview of Global Freight Flows

Direct service
- Direct origin-destination (one country to another country shipment), no interim
stops- offs
- Typically between bordering countries
- Single mode of transport, typically motor carrier
Indirect service
- Typically, shipment requires multiple modes, i.e. intermodal transportation
- Multiple interim stops required to transfer freight between carriers of modes
Multimodal transportation can only be indirect service

Multimodal transportation refers to the transport of an item with more than one mode of transport
usually operated by one carrier. A combination of truck, train, airplane or ship is used in succession to
each other. Modes of transportation:
Road (truck)
Rail (train)
Air (airplane)
Water (ship)
Pipeline
Multimodal operation (running on single contract) versus intermodal operation (running on several
independent contracts)

Intermodal – is the movement of cargo from origin to destination by several modes of

transport where each of these modes have a different transport provider or entity responsible,
each with its own independent contract. Multiple carriers during a single journey.
Multimodal – is the movement of cargo from origin to destination by several modes of
transport where each of these modes have a different transport provider or entity responsible,
but under a single contract.

Advantages of multimodal transportation

Facilitates global trade
− Air transportation allows perishable goods to flow quickly between countries
− Large volume shipments between continents at relatively low per unit costs
A great accessibility is created
− Without the combination with trucks, not many places can be reached by
air/ship/train
Cost-efficiency can be achieved
− It enables the supply chains to utilize the advantages of the different modes
− Economies of scale

In the Netherlands/ Europe intermodal transportation is used mostly for international transport.
National transport mostly with trucks.
In the US intermodal transportation is used for both international and national transport. Rough
estimate: truck fastest mode for trips under 800 miles

Passenger transport
Commuters
Direct single mode trip (car, bike, walk)
Indirect multimodal trip (mostly public transport)
- First mile (walk, bike, car)
- Long distance (train, bus, metro, tram)
- Last mile (walk, bike, bus, metro, tram)
Holiday
Direct single mode trip (car)
Indirect multimodal trip
- First miles (car, taxi, public transport)
- Long distance (airplane, train)
- Last mile (walk, taxi, public transport)
Compared with the main leg Main leg of a shipment, the first and last miles involve only small distances that
must be covered. But they cause disproportionately high costs.

The most frequently used mode combination options are:

Synchromodal transport enables carriers to operate more sustainably, at lower costs and at higher quality
This requires information systems, infrastructures, smart coordination mechanisms, policies, and legal
possibilities to be able to use different transportation modes flexibly to deliver maximum to the shipper or
end customer. The best possible combination of transport modes is selected dynamically for each incoming
order, based on aspects like costs, duration, reliability, and sustainability.

Big difference with passenger transport is that passengers want to determine their own route/mode.
Passengers do not want to wait or switch mode of transport many times.

Land-Air-Land
A combination of air carriage with truck transport is a frequent method of multimodal
service. Airlines:
o Create trucking hubs (for road based feeder operations)
o Provide road services to cities without airport (or scheduled flight)
Similarities with passenger transport
o Car/Public transport – Flight – Car/Public Transport
o Some operators also offer combinations with train tickets
KLM -> Amsterdam – Brussels
Lufthansa -> Frankfurt - Cologne
The total duration depends on timetable of the flights. If there is one flight per day in best case duration is 10
hours, but in worst case duration is 34 hours. In general this Land-Air-Land combination is fast for long
distances. Planning is important!

Land-Sea-Land
An example: Johore to Chicago
An empty container is picked up from the line’s container yard in Singapore and trucked to shipper’s
factory in Johore (Malaysia) for stuffing, thereafter the FCL (Full Container Load) is trucked back to
Singapore.
-> Ocean transportation from Singapore to New York
-> Truck from vessel to rail-head New York
-> Rail from New York to rail-head Chicago
-> Truck from Chicago rail-head to consignee’s warehouse

Sea-Land-Sea
Intermodal routing alternative to all-water routing
Land bridge = movement from one seaport to another substituting for rail for portion of ocean trip
Two primary land bridge routes
o Asia-America-Europe
Rail substitutes for Panama Canal portion of trip Shorter total transit
time, larger ships may be used
o Asia (Japan, Southeast Asia)-Europe
Substitutes Trans-Siberian rail across Russia for voyage around Cape of
Good Hope or through Suez Canal

Mini-bridge = A port is the origin or destination, rail and ocean transport are used for line haul. An
example: Seattle to Baltimore via rail coupled with ocean voyage from Baltimore to Rotterdam (called
an ocean focused mini-bridge)

Micro-bridge = Similar to mini-bridge except origin or destination is an inland port

Example: St. Louis to Baltimore via rail coupled with ocean voyage from Baltimore to Rotterdam
Land (truck) – Land (rail) – Land (truck)
Combination of transport by road and rail
It combines the speed and reliability of rail on long hauls with the door-to-door flexibility of road
transport for collection and delivery. It is popular in US and becomes more popular in Latin American
and European countries. However investments in new rail infra is expensive (Betuwelijn).
Some industrial areas/manufacturers have their own railway lines on the site (no
first/last mile with trucks)
Piggyback A rail-truck service. Transportation refers to the transportation of goods
where one transportation unit is carried on the back of something else. It is a
specialized form of intermodal transport.

It is important to efficiently (fast and against low cost) change modes. Two options:
containerized freight or transload freight. Primary freight types:

Containerized freight
Freight loaded into/onto a container or pallet that is shipped to destination with no interim handling of
freight
Containers are efficient way to handle and ship freight
- Typically made of weathering steel
- Can be loaded and unloaded, stacked, transported efficiently over long distances, and transferred
from one mode of transport to another without being opened
- Reduces congestion in ports, significantly shortened shipping time and reduced losses from
damage and theft.
- Ships and landside loading/unloading facilities designed to efficiently handle and store standard
sized containers
- Five common container lengths
- Standard height and width specifications
- Container capacity expressed in twenty-foot equivalent units (TEU)
TEU is a measure of containerized cargo capacity equal to one standard
 Accounts for 90% of non-bulk cargo worldwide
Continued growth due to:
- Application of information systems to track containers
- Development of intermodal terminals for efficient transfers of containers between modes
- New generation of ships, railcars and trucks specifically designed for containerized freight

Transload freight
Goods (shipments) handled individually, not put in containers or on pallets
Typically consists of bulk raw materials that must be scooped, pumped, lifted, or conveyed when
transferring between modes
Due to weight and volume of typical shipment, air transport rarely used for linehaul
Water, rail, and pipeline are primary modes used

Intermodal challenges
Landside congestion
- US seaport capacity, particularly Pacific coast ports
- Road and rail congestion on port access routes
Intermodal equipment shortages (balance between directions)
International railway compatibility
Labor issues
Environmental issues
Organized multimodal transport
Minimizes time loss at trans-shipment points
o Multimodal transport operator maintains his own communication links and coordinates
interchange and onward carriage smoothly at trans-shipment points.
Provides faster transit of goods
o The faster transit of goods made possible under multimodal transport reduces the
disadvantages of distance from markets and the tying-up of capital.
Reduces burden of documentation and formalities
o The burden of issuing multiple documentation and other formalities connected with each
segmented of the transport chain is reduced to a minimum.

Transportation Planning: Mode selection

Decision must achieve best fit and balance between
Modal service capabilities: accessibility, capacity, transit time, reliability, safety
Product characteristics: size, durability, value
Supply chain requirements for speed, service, cost
Decision must align with corporate strategy, control risk and provide required level of customer service.
Transportation versus inventory
Two modes: fast and slow

Carrier Selection
Carrier selection strategy
- Using a limited number of
carriers
- Build relationships with service
providers
- Monitor carrier performance,
rates, and financial stability
- Have contingency plan with
back-up carriers
Differs from mode selection decision
- Many more options to choose from
- Decision made frequently but not for each move
Decision based on best fit and balance between:
- Geographic coverage
- Average transit time and reliability
- Reliability of on-time pickup and delivery
- Technical capabilities, ability to share information
- Equipment availability and capacity
- Product protection/carrier’s freight damage experience
- Carrier’s financial stability and freight rates
Service factors tend to outweigh cost

Route planning is very complicated.

Carriers and 3PLs primarily are responsible for routing
However, shippers should have input to ensure proper consideration given to:
Customer satisfaction and supply chain performance
Efficiency and product safety during transit
Routing decisions should be
Coordinated with mode and carrier selection
Aligned with global sourcing, inventory, demand fulfillment strategies

Summary
We defined the term multimodal transportation and the different transportation modes
Touched on the advantage of multimodal transportation
Introduced the main operators involved in multimodal transportation
Introduced the main types of commodities hauled
Compared the different transportation modes
Gained some insights in decision make in in multimodal transportation

Class 4: Planning in long-haul transportation: Service Network Design

Decision-making in Freight Transportation and Logistics

Transport (or Transportation): The movement of people and goods from one location to another
Passenger versus Freight
Urban versus Interurban versus Regional/National
Modal versus Multimodal/Intermodal

Freight carries
Ownership
- Private fleets: Producers who own and operate their own fleets
- For-hire carriers
Distance and Time
- Long-haul (intercity): Relatively long distances, few points visited
- Distribution (local): Pickup and delivery routes serving several customers, within a day
Freight carriers – Service type
Customized (door-to-door)
- The vehicle is dedicated to the demand of one customer
- Full-truck motor carriers, for-hire ships
 Consolidation transportation
- The loads of several customers are grouped consolidated, into the same shipment and
move together on the same vehicle

Means of transportation:
Road – Fastest, most reliable and most visible
Rail – Fast, reliable and visible
Water – Slower, less reliable and less visible
Air
Pipeline

Intermodal container freight transportation is the

carriage of freight from one of transport to another,
commonly taking place at a terminal. (Containerization of
freight)

Service Network Design Problem

Design of the network of transportation services
Tactical decisions and Operations decisions
Relevant to consolidation based carriers
Given a set of terminal. Determine the routes, the traffic assignment on these routes, the
operating rules at each terminal and relocation of empty containers/vehicles
Minimization of operating costs and managing customer's expectations

A network problem is one that can be represented by nodes and arcs.

Network (or graph) G = (N, A)
N : Node Set = {1, 2, 3, 4, 5, 6, 7}
A : Arc Set = {(1, 2), (1, 3), (2, 3), (2, 4), (3, 6), (4, 5), (4, 7), (5, 2), (5, 3), (5, 7), (6, 7)}
Directed and undirected graphs

SND Problem
A given network
 o Nodes, arcs, attributes: costs, capacities, etc.
o Transportation demand
o Certain arcs (nodes) are only potential
Selection costs
o Select from among potential arcs to
Minimize total cost=
Design of the network + flow routing (while satisfying demand)
Capacitated multi-commodity fixed cost
Decision on adding
o Nodes: Location
o Arc: Network design
o Capacity: Network loading
Cost structure
o Fixed costs (to install/open/offer/use)
o Variable costs (to operate)
Single or multi-commodity
o Capacitated or uncapacitated

Discrete-Time Representation Space-Time Matrix Representation

Fixed-charge network design models

Generalization of Network Flow models
Fixed cost fij has to be paid using arc (i,j)
Objective:
o Which arcs to use ?
o How to transport commodities on the selected arcs?
FCND model: formulation

Easy solution
Fixed charge, uncapacitated undirected arcs, linear costs, network
o If fixed costs = 0 and complete demand pattern
The optimal solution is a shortest path for each commodity
Fixed charge, uncapacitatedarcs, linear costs, directed network, routing costs = 0 and
complete demand pattern
No reduction to a simple case

Complexity of the Network Design Problems

SND problems are, in general, very difficult problems.
The complexity increases with
the number of services,
the number of locations, and
the number of commodities (orders)
Solution techniques
Mathematical optimization techniques:
o Exact algorithms: Find optimal solution
o Heuristics: Find “good” solutions, not necessarily optimal
Simulation models: Provide a mechanism to evaluate specified design alternatives
created by the planner.

In economics, an externality, negative or positive, is the cost or benefit that affects a party
who did not choose to incur that cost or benefit.
In general, two types of negative impacts of transport noise can be distinguished:
Costs of annoyance: transport noise imposes undesired social disturbances, which
result in social and economic costs like any restrictions on enjoyment of desired leisure
activities, discomfort or inconvenience (pain suffering), etc.
Health costs: transport noise can also cause physical health damages. Hearing damage
can be caused by noise levels above 85 dB(A), while lower levels (above 60 dB(A) may
result in nervous stress reactions, such as change of heart beat frequency, increase of
blood pressure and hormonal changes.

Transport Management System (TMS)

Transportation Management System refers to a category of software that deals with the
planning and execution of the transportation of products along supply chain. Components:
i) Planning and optimization
Load consolidation
Mode and carrier selection
Route planning and scheduling
ii) Execution
Freight audit and payment
Freight procurement
Multi-modal transportation
iii) Visibility and performance management
Shipment tracking and trace
Visibility and event management
Analytics

Several dimensions of current TMS software:

Vehicle routing and scheduling
Online/offline planning
 Optimization algorithms
Multi-objective optimization
Inter-modal trip planning
Green logistics
Congestion/time dependency
Synchromodal trip planning
Event handling
Message processing/integration (telematics)

Class 5: Short-Haul Transportation

Short-Haul Transportation
Pick-up and delivery of goods in a smaller area (e.g. city) using a fleet of trucks
Fast moving consumer goods
Service is crucial
Single depot (Facility Location Problem FLP)
Vehicle tours:
o in a single work shift
o include several pick-up and delivery points

Decision Levels
Strategic level
o Warehouse location
Tactical level
o Fleet sizing
o Fleet mix
o Fleet location
Operational level
 o Vehicle Routing Problems (VRP)
Traveling Salesman Problem (TSP)
Capacitated Vehicle Routing Problems (CVRP)
VRP with Time Windows (VRPTW)

Linear Programming
A problem formulation has the following steps:
o Identifying the decision variables
o Writing the objective function
o Writing the constraints
o Writing the variable domains
A linear programming has
o A linear objective function
o Linear constraints

Facility Location Problems (FLP)

Multi-Item FLP
A set of customer C = {1, 2, …, n}
A set of products P = {1, 2, …, p}
Each customer i has an order oi= (qi1, qi2, …, qip),qik > 0 for product k
P(i) set of products included in the order of customer i
A set of facilities F = {1, 2, …, m} from where we can serve customers in C
Each facility j has capacity Sjk for product k
Not all facilities are active (open). Cost for opening facility j is fj
All customer demand must be fulfilled
Customer order (and order lines) can be split
It costs cij to serve all demand of customer i from facility j
Solution:
For each customer i and facility j, we need to decide on the fraction xij of customer’s i
demand delivered from facility j
For each facility j, we need to decide whether to open it or close it.
For each customer i, we need to decide on the serving facility j (on product level)
The total operations cost (transportation + operating facility) must be minimized
A facility can’t deliver more than its capacity (on a product level).
This is the most complex variant. Characteristics giving a different FLP:
Single Item or Multi-Item
Customer demand fulfilled
o Not: first constraint is not needed, price has to be added in the objective (e.g. price/unit is b
euros)
All facilities opened or not. Binary variable yj
o Fixed cost for opening facility in the objective function
Demand can be split
o Divisible: 0 ≤ xij ≤ 1
o Not divisible: xij ϵ {0,1}

Traveling Salesman Problem (TSP)

Given a number of cities and the costs of traveling from on to the other, what is the
cheapest round trip route that visits each city exactly once and then returns to the
starting city?
Minimize the total distance such that
o Start at the first customer/depot
o Visis each customer exactly once
o Return to the first customer/depot
NP-Complete problem, with no known polynomial-time solution
Only exact solution known is of the type “generate all permutations on N elements". Complete
enumeration has a computational complexity O(N!)

For example:
15 German cities How many options?
Take one city. Take all possible orders of the other 14 cities. Divide by two as direction is not important.
14!/2 = (n-1)!/2 = 43,589,145,600 combinations

Inputs
 o n = numbers of customers including the depot
o cij = cost of traveling from customer i to j
Decision variable:

Model formulation:

Constraints (1) and (2) ensure that each customer is visited exactly once
For any subset of cities S, the tour must enter and exit that set (subtour elimination):

Type of algorithms
Exact Algorithms: provide the best possible solution (the optimal solution). Not practical as they cannot
consistently solve large problems in reasonable computation time
Approximation algorithms: provide an approximate solution with some error we can control
somehow. Might be able to solve medium to large problems
Heuristics: provide a feasible solution. We can’t claim anything about the quality of the solution.
Practical running time and can solve large problems

Traveling Salesman Problem: Two-Exchange Heuristics (2-Opt)

Starting with any tour, we consider the effect
of removing any two arcs in the tour and
replacing them with the unique set of two
arcs that form a different tour.
If we find a tour with a lower cost than the
current tour, then we use it as the new tour.
When no possible exchange can produce a
tour that is better than the current tour, we
stop.
This is not necessarily the optimal solution!

Vehicle Routing Problems (VRP)

VRP definition: “The vehicle routing problem involves finding a set of trips, one for each
vehicle, to deliver known quantities of goods to a set of customers. The objective is to minimize
the travel costs of all trips combined, while not violating capacity constraints.”
 Designing optimal delivery or collection from the depot to a set of geographically scattered customers.
Possible constraints:
o Vehicle capacity
o Route length
o Time windows
o Precedence relationships
o Demand uncertainty
o And much more
Includes the TSP as a special case (one vehicle)
Main components:
o Road Network (Shortest Path): Generally problems are defined with symmetric
cost matrix
o Customers
o Depots
o Vehicles
o Operational constraints
o Optimization objective(s)
Cost components:
o Distance
o Travel time
o Cost of driver and cost of driving

Vehicle Routing Problems Inputs:

- n = number of customers
- K = number of vehicles available
- cij = cost of traveling from customer i to j
- qi= demand of customer i
- Q = capacity of each vehicle

Each customer must be visited by a

vehicle
The demand assigned to vehicle k
must not exceed its capacity
The tour for vehicle k begins at the depot, visits all its customers and returns to the
depot.

Vehicle Routing Problems: Heuristic Procedures

Cluster first, route second
Route first, cluster second
Savings algorithm
Tabu Search heuristics

Cluster first, route second

Cluster first:
o Visual
o Formal methods
Route second:
o TSP on the subsets
Route first, cluster second
Route first:
o TSP
Cluster second:
o Partition the TSP into feasible routes
o Visual checks
o Formal methods

Class 6: Short-Haul Transportation II

Capacitated Vehicle Routing Problem (CVRP): Two Index Formulation

Decision variables
- To use an arc or not to use an arc, that is the question!

Symmetric case (SCVRP), undirected edges to reduce the number of variables

Only one of the two variables xij or xji is needed (i<j)
Takes 1 if (i,j) is traversed

Takes 2 if j is a single customer in a tour SCVRP

SCVRP: Two index formulation

 CVRP – Two Index Formulation (Asymmetric Distances)
In real life instances distances may not be symmetric.
Directed edges -> arcs

ACVRP: Two index formulation

Clark and Wright Savings Heuristic (no guarantee on a feasible solution!)

An example:
A chain of convenience stores has seven locations in one city. Each week goods must be delivered from a
central warehouse to the stores. Items are packaged in standard-sized containers. The following table gives
the number of containers that must be delivered for one week and the one-way travel times in minute
between each pair of customers. 7 vehicles are available an each delivery vehicle has a capacity for 80
containers. The company would like to make all deliveries within an 8- hour shift on a single day of the week.
When each customer is serviced individually from the depot, the total travel time

The next largest savings is s37=103. If we try combine customer 3 with customer 7 (who is
already combined with customer 4), the total demand on the route would be 93, which
exceeds the vehicle capacity.
Continue the procedure. The final solution will be:

Vehicle Routing Problems: Tabu Search Heuristic

Tabu – socially or culturally proscribed: forbidden to be used, mentioned, or approached because
of social or cultural rather than legal prohibitions.
Tabu search is based on introducing flexible memory structures in conjunction with
strategic restrictions and aspiration levels as a means for exploiting search spaces.
Meta-heuristic that guides a local heuristic search procedure to explore the solution space
beyond local optimum by use of a Tabu list.

Components for Tabu Search:

 A neighborhood is constructed to identify adjacent solutions that can be reached from current solution
o For example, swap at maximum one customer per route
A Tabu list records forbidden moves in the neighborhood, which are referred to as Tabu moves
o For example, it is not allowed to swap customer 2 and 3
To prevent getting stuck in local optima

2 main strategies:
Forbidding strategy: control what enters the Tabu list
Freeing strategy: control what exits the Tabu list and when

Parameters of Tabu Search

Local search procedure
Neighbourhood structure
Aspiration conditions
Form of Tabu moves
Maximum size of Tabu list
Stopping rule

Pros of the Tabu Search

Allows non-improving solution to be accepted in order to escape from a local optimum
The use of a Tabu list
Can be applied to both discrete and continuous solution spaces
For larger and more difficult problems (scheduling, quadratic assignment and vehicle
routing), Tabu search obtains solutions that rival and often surpass the best solutions
previously found by other approaches.
o Not for all instances in practice the optimal solution is known!

Cons of the Tabu Search

Too many parameters to be determined
Number of iterations could be very large
Global optimum may not be found, depends on parameter settings

Exact algorithms
 Dynamic programming
Branch and Bound (BB)
Cutting planes (CP)
Branch and Cut (BC): Combines BB and CP
Branch and Price (BP): state of the art
BP combined with CP results in a Branch and Cut and Price (BCP)

Vehicle Routing Problems with Time Windows (VRPTW)

VRPTW is an extension of the CVRP.
Service at each customer must start within an associated time window :
o Soft time windows can be violated at a cost.
o Hard time windows do not allow for a vehicle to arrive after the window.

Given
A set of customers and their associated demand and time window
A depot and a set of vehicles with finite capacity
Traveling time and cost from one location to another
Objective
Design feasible routes that minimize traveling cost

Soft Time Windows

Delivery is possible outside the specified Time Windows with penalties (VRPSTW)

Hard Time Windows

Delivery is not possible outside the specified Time Windows (VRPHTW)

In exact solution techniques, waiting is allowed at no cost in Hard Time windows. Similarly allowing
waiting without cost in Soft Time Windows results in: Semi Soft Time Windows (SSTW)

VRPSSTW (in comparison to VRPHTW):

 Often fewer routes
More possibilities/subproblems => more computation time
Lower costs
Larger percentage delivery time, smaller percentage waiting time
Lower emissions

VRPTW: Notation
The depot is represented by two nodes 0 (depot at start) and n+1 (depot at end).
For each node i=0,…,n+1 a time window [ai ,bi] is given.
The scheduling horizon is denoted by [a0 , b0] = [an+1 , bn+1].
For each node i=0,…..,n+1 a service time is given.
For each arc (i,j), we associate a cost cij and a time tij, which may include the service
time at customer i.
The time vehicle k starts servicing at customer i is denoted by sik.

Three Index Formulation:

Class X: Extra material

Road Transportation
Brief history
Important role in development of 20th century U.S. economy
o Industry emerged at time of WW I
o Industry greatly benefited by rapid development of highway system, particularly the Interstate
system
o Rapid growth of economy following WWII corresponds with rapid growth of trucking industry
Dominant mode of freight transport today

Industry Overview
Measures of industry significance
Expenditures for trucking services
o $645.6B or 83.8% of total expenditures in U.S. for freight transportation in 2006
Truck share of freight transport
o About 31% of total ton-miles
Approx. 8.7M people employed in trucking industry

Types of Carriers: Several classification schemes

Legal form of carriage
o For-hire vs. private
For-hire: services the public. It charges fee for the service
Private: services an industry/company. The service provider incurs cost
o Common, contract or exempt for-hire
Local vs. intercity operators
Truckload (TL) vs. Less-than-truckload (LTL)
o Heavy LTL
Classification by type of commodity hauled

Large number of relatively small carriers

o 0.6M operators, most with 6 or fewer vehicles
o Numbers vary significantly by sector
Very large number of TL carriers
Low capital requirements for entry into TL
Much smaller number of LTL carriers
High capital requirements for LTL due to terminal network and
pick-up and delivery fleet

Types of Commodities Hauled

Dominates transport of high-value manufactures
o Food and manufactured products, consumer and industrial goods
o Most transported relatively short distances (less than one day driving time)
Dominates transport of live animals
o These shipments move very short distances
Moves substantial quantities of bulk materials
o These shipments move very short distances
Competition and Market Structure
Intense rivalry within trucking sectors and from private carriers
o Few capital or other constraints on entry
Exception at national LTL level
Partial exception for specialty commodities carriers
o Despite capital constraints on entry, national LTL segment faces intense competition from
other transport segments

Operating and Service Characteristics

General service characteristics
Trucking has an advantage on most service-related characteristics
Accessibility
o Door-to-door service
Speed (transit time)
o Enables lower inventory levels
Connections to other modes: universal connector
Smaller carrying capacity – inventory advantage
Lower damage rates than rail

Equipment
Equipment-related advantages
o Technical features enable service advantages
o Flexibility, smoothness, small capacity
o Rapid loading/unloading capability
Principal equipment decisions
o Type of tractor (power)
o Type of trailer (length and type)
o Where and when to position equipment

Types of Vehicles
Line-haul vehicles
o Used for long distance transport
o Typically tractor-trailer combination with 3+ axles
Typical trailer lengths are 45, 48, or 53 feet
o Maximum length and weight can vary by state
Fed. max. gross vehicle weight is 80,000 lbs.
Some states have grandfathered rights to allow more
Some loads may be more under permit
o Carrying capacity: function of vehicle dimensions and density of cargo

Terminals
Pickup and delivery terminals (satellite or end-of-run
terminals) in LTL operations
o Peddle run networks
Peddle time and stem time
o Shipment consolidation and distribution
operations
 o Vehicle dispatch operations
o Other services
Break-bulk terminals in LTL operations
o Consolidate and re-sort shipments
Designed to facilitate higher
utilization of vehicle capacity
Disadvantage: slows
transport time, adds
handling, reduces reliability
o Driver domicile
Relay terminals
o Necessitated by hours-of-service
regulations (rest for driver)
o “Slip seat” and sleeper team alternatives

Operating and Service Characteristics

Terminal Management Decisions
Number of terminals
Desired degree of market penetration
Trade-offs with length of peddle runs and
with level of customer service
Trend has been to reduce number of
terminals
Locations of terminals
Influenced by hours-of-service regulations
Consideration of backhauls between
terminals
Allocation of customers to terminals

Cost Structure
Fixed vs. Variable Cost Components
Cost structure: mix of fixed and variable costs
o Varies depending on the type of trucking
operation
o For long-distance, tractor-trailer
operation
70-90% of total costs are variable
Fixed costs relatively low % of
total costs
Public investment in highway system
Small increments of capacity can be added
Few terminals needed
o For LTL operation, fixed costs are higher due to terminal system
Principal variable cost categories
o Labor
o Fuel
o Maintenance
o Highway user charges
 Note: these are the principal costs associated with daily operations

Labor Costs
For a long-distance, tractor-trailer operation
o Mileage rate for distance traveled (local delivery drivers paid an hourly rate)
o Hourly rate for loading/unloading, operating delays
o Total labor costs consume approximately 55% of each dollar of revenue
Driving time regulations
o Federal limits on the maximum hours an individual may drive or do “on-duty” work
Qualified driver shortage
o Major impact on TL carriers
o Contributing factors
Federally imposed commercial driver’s license (CDL) requirements
Imposed nationally in 1992
Stringent rules on drug and alcohol abuse
Demanding, unattractive life-style
o Industry efforts to attract drivers

Trucks transport high quality products, trains transport low quality products

Railroad Transportation
Rail: dominant mode from 1850s to WW II
o Superior in both price and service quality to road transport for most of this period
o Superior in service quality to water transport
Development facilitated by standardization of track gauge and rolling stock
Pivotal role in U.S. economic development
o Great expansion in track mileage, post-1870s
o Financed by private capital
o Too much track mileage relative to demand
Domination begins to wane after 1920. Some reasons for relative decline:
o Large-scale government construction programs for roads and inland waterways
o Private financed construction for oil pipelines
o Government also helped develop air transport that provided superior service for passengers and
mail
o Economy and shipper service-related needs change
Note: total rail ton-miles continue to grow
Railroads remain vital part of U.S. economy

Industry Overview
Number of Carriers
Industry structure
o Concentrated: Small number (565) dominated by a few large (Class I) carriers
7 Class I railroads
Rest are regional or local (short line) carriers
Reasons for decline in total rail system mileage: competition, mergers

Competition
Intensity changed during 2nd half of 20th century
 Intramodal (between railroads) competition
o Current industry structure is a differentiated oligopoly
Small number of large carriers
Few places served by multiple railroads
o Number of carriers is small in part due to
Large financial barriers to entry
Financial attractiveness of mergers and consolidations
Intermodal (between modes) competition
o Very intense for non-bulk traffic
Some modes offer service advantages over railroads
Other modes offer price advantages over railroads
o Staggers Rail Act
Helped railroads to become more price competitive
Helped railroads to develop more customized responses to customers’ level of service
needs
Mergers
o Large number over time, trend accelerated in 1980s following Staggers Act
o Motivation
Early mergers made to expand capacity
Side-by-side mergers done to strengthen financial position and reduce duplication
End-to-end mergers done to improve competitive position, first vs. other RRs, then vs.
other modes, and service levels via fewer interchanges between railroads
o Consequence - small number of carriers own majority of track and carry majority of rail freight
Abandonment of rail lines
o Context: early over expansion followed by increased competition between modes
o Most abandonments involve duplicate track or track serving small markets with little rail
freight
o Some track taken over by smaller railroads
o Alternative uses for land
Rails-to-Trails Conservancy
Rail-banking program

Operating and Service Characteristics

General Service Characteristics
Characteristics of principal commodities
o Railroads carry wide variety of products
But, most rail car loadings concentrated in low-value-to-weight (bulk) products
Principal commodities hauled
o Bulk products: coal, farm products, chemicals, food and kindred products, nonmetallic minerals
o Non-bulk: Transportation equipment, intermodal mixed freight
Traffic shifts: Growth of intermodal traffic

Constraints and Strengths

Constraints on railroads
o Fixed rights-of-way impedes door-to-door service
o Other service level limitations
Strengths of railroads
o Large carrying capacity (few size or weight constraints) enable low average cost operations
 o Capable of handling almost any type of cargo
o Railroads assume liability for loss and damage
Railroads tend to have higher damage claims
o Recent emphasis on equipment, technology innovations, and quality programs
Improved suspension, end-of-car cushioning devices, and in-car force instrumentation
packages
Quality certification program (M-1003)
o Intermodal services
Double-stack services – greatly improve productivity
Terminal improvements, equipment redesign, and right of-way improvements
designed to reduce in-transit delays
o Microprocessors for communications and signaling

Equipment
Carload: basic unit of measure
o Car loadings declining due to increasing average car size, improving carload productivity
Composition of rail car fleet has changed over time to meet changing shipper requirements
o Historically, standard box car was most numerous car in fleet – used for hauling general mfg.
goods
o Today, fleet contains many specialized rail car types
Cars custom designed to accommodate different types of bulk products or shipper
need
More than 85% of car fleet designed for transport of bulk products and raw materials

Service Innovations
Piggyback service: intermodal service directed to non-bulk, manufactured products
o Includes both container-on-flatcar (COFC) and trailer-on-flatcar (TOFC) services
Definitions, basic differences between COFC and TOFC
o Accounts for second highest number of car loadings
o Competes directly with truckload (TL) service
However, some TL carriers are also major customers of piggyback
service
o Competitive advantage piggyback service
Combines cost-efficiency of RR long haul with flexibility of truck pick-up and delivery
o Principal disadvantage of piggyback service
Transit time and on-time delivery performance
o To counter service disadvantage
RRs create dedicated intermodal trains
Trains run on regularly scheduled departures and priority operating schedules
Public benefits of piggyback vs. TL services
o Reduced fuel consumption
o Reduced road congestion and road damage
o Lower emissions
COFC: component of international trade
o Land-bridge operations
Substitutes rail for portion of ocean voyage
o Double-stack container trains
Greatly improves rail equipment and train productivity
 Unit trains: specialized, one commodity trains
o Direct origin to destination movement
Run on priority service schedules
No stops in-transit
o Used frequently for coal and grain shipments
o Shippers often own rail cars
o Disadvantage: empty backhauls
Computer and communication systems
o Management control and shipment monitoring
o Car tracing, ordering and billing simplified

Cost Structure
Fixed Costs
Railroads have high % of indirect fixed costs in short run
o Short run: means that capacity remains constant
o Estimated 30% of costs do not vary with volume due to high % of long-lived (durable) assets
RRs own and maintain networks (rights-of-way) and terminals (freight yards)
Geographically fixed, impedes responsiveness to changes in demand
o Equipment: locomotives and rolling stock
o $ billions in annual capital expenditures

Semi-Variable and Variable Costs

Semi-variable costs: over 40% of total costs
o Includes maintenance of rights-of-way, structures and equipment
o Often deferred during financially difficult periods
Variable costs
o Labor: Largest component of variable costs
Unionized work force, 14 craft unions
Work rules: productivity challenges and issues
o Fuel: 2nd largest component of variable costs
Locomotives: increasingly productive and fuel efficient
 Air Transportation
Types of Carriers
Private Carriers
Definition:
o A firm that transports company personnel or freight in planes to support its primary business
Preponderance of use is for transport of personnel
Subject to federal safety regulations administered by the Federal Aviation Adm. (FAA)

For-Hire Carriers
Several different classification schemes
o Classified by annual operating revenues
Majors (revenues of >$1 billion)
Nationals ($100 million - $1 billion)
Regionals (revenues of <$100 million)
o Classified by type of service
All-cargo
Commuter
Charter
International

Market Structure
Number of Carriers
Relatively small number of for-hire carriers
o Most revenues earned by small number of majors
o Several cycles of increasing, then decreasing number of airlines after 1978
deregulation
Private air transport
o Over 500 corporations own/operate aircraft
o About 60,000 corporate-owned planes exist
o Thousands of private aircraft used for personal, recreational, and instructional
purposes

Competition
Intermodal and Intramodal
Very limited intermodal competition for long distance (500+ miles) trips
o Air has decided advantage in transport speed
o Freight: rising competition from time-definite motor carrier service
o Passengers: some limited competition from personal automobile travel, rail, and bus service
Intense intramodal competition
o Creates cycles of new entrants, excess capacity, reduced fares, carriers exiting markets
Intermodal: using different transportation modes: train, truck, air, water, pipeline
Intramodal: using different companies within one mode: e.g. DHL and PostNL (truck carriers)

Service Competition
Nature of passenger service competition
 o Flight frequency on given route
o Timing of flights
o Meals, in-flight communications, other services
o No-frills alternatives intensify competition
o Advertising used to differentiate carriers
Nature of competition for cargo, express traffic
o Published schedules and rates
o Door-to-door, time-definite service

Operating and Service Characteristics

General
Due to value of time, air dominates for-hire, long distance passenger market
When importance of speed outweighs cost, then air is attractive for freight
o Emergency shipments
o Typical commodities
Mail, fashion clothing, communications products, fresh flowers,
racehorses, jewelry
o Air freight cost vs. inventory cost tradeoff

Speed of Service
Speed, travel time advantage can be off-set by
o Low flight frequency, schedule timing
o Smaller communities have experienced reduced frequencies
o In-direct routing due to hub and spoke networks
o Legacy majors moved to hub and spoke networks following
deregulation to improve load-factors
o Air traffic and ground congestion, security measures
o Most relevant at major airports
o Adds uncertainty to total travel time

Accessibility and Dependability

Air travel is generally highly reliable
o Weather and congestion are the principal causes of schedule disruptions
o Sophisticated navigation systems facilitate operation in poor weather
conditions
Limited airport accessibility adds travel time and cost to air travel
o Limited accessibility is the principal service disadvantage of air travel

Equipment and Facilities

Types of vehicles (aircraft)
o Many aircraft types
Wide range of seating capacity, cargo payload, speed, fuel consumption, operating
costs/hour
Key is to match operating characteristics to demand needs of route
Terminals (airports)
o Airports financed by government
Federal construction assistance programs
State and local governments operate and maintain
 o Air carriers and users pay for use

Cost Structure
Fixed vs. Variable Cost Components
High variable costs (80% of total operation costs)
o About 38% attributable to flight operations
o About 10% for maintenance
o About 14% for aircraft and traffic servicing
Low fixed costs
o Due to government investment in terminals and operating infrastructure
Increasing price competition creates pressure to reduce labor costs, increase productivity

Fuel and Labor Costs

Fuel costs: rising fuel costs have major impact on total operating costs
o Airlines turn to more fuel efficient aircraft and smaller planes on low-density routes
Labor costs
o Variety of job skills required by an airline
Pilots, flight engineers, attendants, communications personnel, mechanics, ground
crew, administrative
o Pilot wages vary depending upon the plane they are rated to fly and union affiliation

Rates, Pricing
Many passenger fare variations
o Price of same seat on flight may vary depending on restrictions at time of
purchase
Advance purchase, time of day, competition
o Yield management used to increase revenues and improve capacity utilization
Load factors average about 79.9% in 2007
Cargo pricing
o Based mainly on weight or cubic dimensions
o Over-dimensional charge for < 8 cu ft. density

Water Transportation
Significance of Water Transport
A primary transporter of
o dry bulk commodities
o bulk petroleum, petroleum products and chemicals
13% of intercity freight ton-miles in 2005
Market share decline since 1980s due to
o Economy changing from manufacturing to service based
o Supply chain orientation emphasizes faster modes

Types of Carriers
Classification by legal form of carriage
o Private carriers
Own the freight transported
Own or lease the vessels
May transport exempt commodities on a for-hire basis
 Excluded from federal economic regulation
Three or fewer commodities transported in the same barge unit also exempt from
economic regulation
o For-hire water carriers are carriers that charge a fee for services. Includes
Exempt carriers
Excluded from federal econ. regulation adm. by STB
Carriers are exempt when transporting dry or liquid bulk commodities
Most goods transported by water are bulk commodities, thus most for-hire
carriers are exempt from economic regulations
Regulated common carriers
Common carriers
Contract carriers
Classification by waterway used
o Internal or inland carriers
Operate barges and towboats on principal U.S. rivers
Most found on river systems flowing north to south through central U.S.
o Great Lakes carriers
Provide services between ports on Great Lakes
Lake ships tend to remain on lakes
Some lake ships access Atlantic and Gulf coast ports via St. Lawrence Seaway
o Coastal carriers
Operate ocean-going ships and barges along Atlantic, Pacific and Gulf of Mexico coasts
Moves large quantities of crude oil from Alaska ports to refineries along Pacific Coast
o Intercoastal carriers
Operate ocean going ships and barges between coasts
Moves large quantities of oil from Gulf to Atlantic ports

Number and Categories of Carriers

Relatively small number of small firms
o Approx. 680 domestic for-hire carriers in 2006
Number of carriers rapidly declining since 2000
Inland carriers earn highest share of revenues
o Inland carrier revenues flat over last decade
o Coastal carriers earn next highest share
o Great Lakes carrier revenues are growing due to increase in higher valued
freight

Competition
Moderate intramodal competition
o Small number of carriers on each waterway system
Intense intermodal competition
o With rail for dry bulk commodities (grain, ores, coal)
o With pipelines for oil and petroleum products

Operating and Service Characteristics

Principal competitive advantages
o Low cost transport service for large volumes over medium to long distances
o Relatively large carrying capacity
 o Fuel efficient
Principal competitive disadvantages
o Speed of service
Slowest mode for dry cargoes
o Weather-related service disruptions
Vulnerable to ice, flood, and drought conditions
o Accessibility limitations
o Packaging requirements for high-value goods
Service disadvantages may add cost for user and create tradeoffs with low rate
advantage
Commodities hauled
o Water carriers well suited for low value-to-weight cargoes where transport
rates are significant part of total delivered cost. E.g. coal and coke, petroleum,
crude materials, food and farm products, chemicals.

Equipment
Vessels
o Have large openings into cargo holds to facilitate cargo loading and unloading
o Watertight walls divide holds enabling carrying of multiple types of
commodities
o Largest vessel: tanker 18K – 500K ton capacity
Used largely to transport petroleum
o Barges – powerless vessel towed by towboat
Used largely on inland waterways
Low marginal cost to add barge to a tow

Terminals
Functions
o Facilitate intermodal transfers
o Provide temporary storage in port area
Require significant capital investment
o Facilities include ship loading/unloading equipment, land for storage, road and rail access
o Most are publicly provided and operated
o Some are owned by large bulk commodity shippers
Recent improvements focus on mechanization

Cost Structure
Relatively high variable, low fixed costs
o Fixed costs: about 15% of total operating costs
Nature provides ways
Governments provide for improvements to rivers, canals, channels, locks, dams,
terminals and ports
o Variable costs: about 85% of total
Water transport is not labor intensive (rail and pipelines are even less labor intensive)
Carriers pay user charges for portion of publicly provided
improvements
Current Issues
Drug and alcohol abuse
o Random and pre-certification testing
Port development challenges
o Economic vs. environmental tradeoffs
o Appropriation of port revenues
o Inter-port competition
o Impact of “mega-ship” emergence

Pipelines
Highly specialized mode, hauling small variety of products

Significance of Pipelines
Carry 20% of intercity ton-miles (2005)
o Crude oil and petroleum products represent 66% of ton-miles, natural gas 33%
Earn 4% of total intercity transportation revenues
Reflects efficiency of pipeline transport and low value per ton of products transported

Types of Carriers and Ownership

90% of carriers operate as common carriers
Individual, vertically integrated oil companies own and operate most oil pipelines
Some lines are joint ventures of two or more oil pipeline companies
Other types of ownership
o Railroads
o Independent oil companies
o Other types of industrial companies

Pipelines Industry Overview, Number of Carriers (Market Structure)

Small number of large carriers
Industry tends toward oligopoly
o 20 integrated oil companies control 66% of crude oil mileage
o Entry costs are high: capital intensity, obtaining rights-of way
o Significant economies of scale in investment and operation
Capacity rises more than proportionally with increase in line diameter.
Thus, investment cost per ton-mile and operating cost per barrel both
decline as size increases.

Pipeline Operating and Service, Characteristics

Commodities carried – 4 principal products
o Oil and oil products
o Natural gas
o Coal and coal products
Moves in pulverized form as slurry
Requires large quantities of water – very few such lines
o Chemicals
 Relative advantages
o Low rates
o Low loss and damage rates
o Warehousing function (3-5 mph)
o High delivery dependability
Relative disadvantages
o Slow speed limits responsiveness
o Limited geographic flexibility
o Limited variety of products carried

Pipeline Competitive Conditions

Very little intramodal competition
o Small number of carriers
o High capital costs and scale economies
o Procedural requirements for entry
o Ownership by large oil companies
Limited intermodal competition
o Difficult for other modes to match rates
o Water carriers are principal competitors

Pipeline Equipment, Oil Pipeline Network

Includes system of
o Gathering lines and stations
o Crude oil and product trunk lines
o Pumping stations, refineries, and terminals
Gathering lines
o Move oil from wells to gathering stations
o Relatively short distance movement
o Small diameter, laid on ground surface
Crude oil trunk lines
o Move crude oil from gathering stations to refineries
o Long distance movement
Shipments average 800 miles, may move 1,000s of miles
o Large diameter lines laid underground
o Pumping stations provide power
o Capacity determined by line diameter and pumping station power
Finished product trunk lines
o Move product from refineries to market area terminals
o Long distance movement
Shipments average 400 miles, may move 1,000s of miles
o Large diameter lines laid underground
o 15 grades of finished product, including kerosene, jet fuel and gasoline
o Final delivery to customer usually by truck
Pipeline Cost Structure
High % of fixed costs
o Pipeline owners provide right-of-way
o Capital invested in
Rights-of-way, pumping stations, terminal facilities
o Significant economies of scale
Helps explain joint ownership
Very low labor costs
o Pipeline industry employs 8,000
o Motor carriers employ 10 million to move comparable ton-miles
Rates
o Freight classification is not necessary due to small number of products
o Conditions are not conducive to differential pricing
One-way movement, limited geographic coverage, limited variety of
products
o Rates quoted on a per barrel basis
Typically point-to-point or zone-to-zone
o Minimum shipment sizes (tenders) required
Class 7: Public transportation
Relevant ingredients
Passengers
Infrastructure
Line system
Timetable
Vehicles
Crew
Maintenance
Fuel
Etc….

Public Transport Modes

Bus
Train
Metro/Light Rail
Tram
Airplane
Ferry
(Taxi, Uber)
(Bike sharing)
(Car sharing)

Last years, public transport is gaining a larger share in the distribution of transport modes, at
the expense of car usage.
Modal split public transport (NL): 17%

Strategic planning problems (Costly)

Infrastructure layout
Facilities
Line planning
Fleet size
Personnel base
Necessary: Demand forecasts

Infrastructure layout
Where to build nodes (stations, stops, airports) and where to build links (tracks, roads).
Costly process
Demand forecasts are very important
But difficult
o Political involvement
o Development of certain areas (cause-effect)
o Frequencies
o New ways of working
o How are other transport modes evolving
Low cost airlines
Uber
 Electrical (automated) cars

Facilities
Offices
o Can by anywhere
Depots
o For crew or vehicles
Traffic control centers
Maintenance locations
o Should be reachable by the vehicles

Line planning
Air transportation
o Mostly one stop
o Frequencies?
Rail/bus/Tram/Ferry transportation
o Mostly done via public tenders
o Multiple stops
Many stops (more direct connections)
Few stops (faster)

Equal stop patterns (easy to schedule)

Different stop patterns (less stops necessary: faster)
o Long lines
A lot of direct connections
Disruptions will spread over the whole network
o Short lines
Less direct connections
Disruptions have less influence
o Frequencies (cyclic or not)

Crew base
Different type of crews
o Drivers, conductors, cleaning, maintenance
Training
o Development/educational possibilities
Labour rules
o Full-time/part-time
o Temporary/permanent

Tactical planning problems

Timetabling
Vehicle planning
Crew planning
Revenue management
Infrastructure maintenance

Timetabling
 Minimum:
o Running times
o Dwell times (rusttijd/time at stop)
o Headway times (volgtijd)
o Connection times (overstaptijd)
Several model variants (periodic (repeat timetable)/non-periodic)

Mathematical model for timetabling

Event-Activity network
Events
o Departures
o Arrivals
Activities (between two events)
o Runtime (between two events of the same train)
o Dwell time (between two events of the same train)
o Headway (between two events of different trains)
o Transfers (between two events of different trains)
Events indicated by nodes
o Grey: arrival
o White: departure
Activities indicated by arcs
o Dotted: dwell time activities (3 minutes)
o Solid: headway activities (2 minutes)
Source (B): capacity (number of tracks, ….)
Crew planning

Duties can be generated by a graph

o Nodes: departures or arrivals
o Arcs: tasks or transfers
Second arc -> mealbreak possibility (time > 30 min.)
Dotted arc -> travel as passenger
o Source: start time and
location
o Sinc: end time and
location
A path in the graph represents
a duty
o However: check
mealbreak
o Resource constraint
shortest path problem
[0/1, number] = [mealbreak,
time]
Constraints when summing up:
o Maximum 1x 1
o Total duration < 330
min
o Every arc in at least
one duty
Vehicle planning
Similar to crew planning
o No mealbreak
Different capacities
o Demand forecasts
o OV-chipcard
Tactical planning problems

Revenue management
Ticket price
Passengers pay different prices
o To attract more passengers
o To reduce cost (off-peak discount)
o To have more profit (airline)

Operational planning problems

Timetabling
o Special events
o Construction works
o Seasonal effects
o Disruptions (real time)
Vehicles
o Defects
o Maintenance
o Special events (changed demand)
o Seasonal demand changes
o Construction works
o Disruptions (real time)
o Redistribution of bikes/cars (bike/carsharing)
o Fueling/charging
Crew
o Rostering
Maximum average shift length
Maximum percentage night shifts
Maximum percentage long shifts (>9 hours)
o Holidays/illness
o Special events/construction works
o Disruptions/real time
Revenue management
o Last minute discounts
o Empty seats for cargo/packages
Class 9: City Logistics
Transportation Chain

City Logistics
Is the process of totally optimizing the logistics and transport activities by private
companies with the support of advanced information systems in urban areas while
considering the traffic environment, traffic congestion and energy consumption (and
emissions) within the framework of a market economy
“City Logistics is an integrated approach for urban goods distribution based on the
systems approach. It promotes innovative schemes that reduce the total cost
(including economic, social and environmental) of goods movement within cities”

Since 1950s urbanization has been increasing rapidly and will continue to do so. In 2007 for the
first time more people lived in urban than rural areas. Consumers require a constant stream of
goods and services.
The lack of appropriate infrastructure is leading to massive traffic congestion: the average
speed e.g. in London’s city center is about 15 km/h – even in the 19th century the horse drawn
carriages were faster.

Commuter (=forenzen) stress and higher journey times occur in metropolitan areas as a result
of road congestion.
Infrastructure constraints lead to massive traffic congestion.
Based on a study on Urban Freight in European cities, the flow of goods contributes in
a disproportionate way to pollution and thereby reduces the quality of life in the city.
Urban freight makes 10% of the traffic, but 40% of the pollution and noise and a usage
of road space between 20-25% (road x hours)
By 2030 the freight transport tones per km is expected to grow by 63%

The importance of city logistics

 Entry limitations costs 425 million Euro per year
Growing population in urban areas
Fill rate trucks: 24% drives empty, average fill rate is 57% and 30% efficiency
improvement means 22 billion Euro for the transport industry
Total NL CO2 emissions = 31,4 Mt. Innercity = 31% (9,7 Mt) and truck/bus = 12% (3,8
Mt)
Transport emissions. 29% increase between 1990 and 2007, 73% of transport emissions
on roads and 40% of road is in the city

Stakeholders
City Logistics Managers – Shippers – Logistics Service Providers – Retailers – Consumers –
Government
Themes: Quality of life, congestion and ‘green’

Current situation

In the future it could be

possibly?
Key challenge: leveling costs and tariffs

Challenges in pickup and delivery chains

Transport demand is growing
o Growth of 25% between 2010 and 2030
Urbanization trends leading to larger cities
o Control good flows within urban areas
Transport externalities
o Traffic congestion and CO2 emissions
Oil becomes scarcer
o Decarbonization of transport becomes necessary
First-time-hit rate for medium-value goods: between 60% and 80% (smaller than for
low and high value products) (Gevaers, 2014)
Hit rate for home delivery:
o Tuesday and Thursday bad (Closed doors)
Same day delivery?
o PostNL: > 80% choose a later day (up to 3 days)
Reverse logistics can affect costs negatively by a factor of between 2 and 4 (Gevaers,
2014)
Goods transport in major urban areas accounts for:
 o 20% of traffic;
o 35% of CO2 emissions made by all urban trips; and
o 50% of the diesel used;
Last mile delivery accounts for 20% of the total cost of the transportation chain
New partners/services/technology on the market:
o Fast Moving Consumer Goods manufacturers
o Uber
o Drones

Some city logistics requirements

Vehicle Routing and Scheduling provide the core techniques for modelling City Logistics
Cases of particular interest are:
When customers specify a time-window to be visited by the pick-up/delivery trucks
When the vehicle routing and scheduling has to be dynamic based on real time
information.
Dial a ride services (e.g. taxi)
Accounting for information changes whiles vehicles are distributing goods, and sequential
updating of routes should occur.
Requires models to emulate dynamic traffic conditions

Challenging issues
Competition
Efficient logistics systems --- Just In Time transport systems
Freight carriers --- better services with lower costs
Shippers --- designated time windows
Increase in urban freight transport
o Congestion
o Negative environmental impacts
o Crashes
o Energy consumption
o Noise
o Emissions (Particulates & GHG)
o Vibration
o Visual intrusion

Congestion in Traffic Networks by bottlenecks at highways in case of e.g. traffic incidents and
weather conditions.

Efficiency and environment (function of city logistics)

 20th century
Any major reduction in environmental impact does not seem possible without putting
the logistics innovations themselves into reverse (J. Cooper, 1991)

21st century
ICT (Information and Communication Technology), ecommerce (B2B, B2C)
Development and deployment of ITS (Intelligent Transport Systems)
o SCM (Supply Chain Management)
o ERP (Enterprise Resource Planning)
o CRP (Continuous Replenishment programme)
Outsourcing of freight transport---3PL
Characteristics of City Logistics
Total optimization taking into account environment, congestion, safety, energy etc.
Free activities of companies supported by public sector through deregulation
Full utilisation of advanced information techniques including ITS and GIS (Geographic
Information Systems)
Mindset of cooperative competition

Structure of visions for city logistics

Sustainability Mobility Liveability

Global competitiveness

Efficiency　

Environment friendliness　

Congestion alleviation　

Security　

Safety　

Energy conservation　

Labour force　
Class 9: Cooperation – Pricing and Costing in Transportation
4C is…
Cross Chain Control
Cross Chain Coordination
Cross Chain Cooperation
Cross Chain Consolidation (Centre)
This concerns the bundling, coordination and control of physical goods flows, information
flows, and financial flows along with data management

Forms of cooperation
A 4C classification
Type I consists of partners who know and trust each other
Type II collaboration maintains a longer collaborative relationship
Type III collaboration refers to those organizations which have a significant level of
integration, and each company treat others as an extension of its own business unit
Arm’s length: a company where you would buy something for example.
Horizontal integration: setting up of a new company

Another 4C classification

Types of cooperation/collaboration
Range of relationship types
Transactional: Both parties in a vendor relationship are said to be at “arm’s length”
Collaborative: the relationship suggested by a strategic alliance is one in which two or
more business organizations cooperate and willingly modify their business objectives
and practices to help achieve long-term goals and objectives
Strategic: represents an alternative that may imply even greater involvement than the
partnership or strategic alliance.

Drivers and Facilitators

Drivers defined as “compelling reasons to partner”; all parties “must believe that they will
receive significant benefits in one or more areas and that these benefits would not be possible
without a partnership”
Facilitators are defined as “supportive corporate environmental factors that enhance
partnership growth and development”; As such, they are the factors that, if present, can help
to ensure the success of the relationship

Drivers of horizontal integration

Transport network density drives transport efficiency
Production volume drives production efficiency
Sourcing volume drives transport and production efficiency and lower prices
Scale allows to reduce per unit cost of product or service

Drivers of vertical integration

Need for speed and responsiveness
o Lower pipeline and on-hand-stock investments
o Higher customer service
Power
o Shorter supplier lead times
o Smaller supplier order quantities
Demand dynamics
o Market cycles amplify upstream (Bullwhip)
Demand distortion
o Independent forecast amplify forecast errors (Bullwhip)
Mutual dependency
o Key components are unique for buyer

Partnership: Tailored business relationship based on mutual trust, openness, shared risk and
shared rewards that yields a competitive advantage, resulting in business performance greater
than would be achieved by the firms individually

Definition of Third-Party Logistics

Essentially, a third-party-logistics firm may be defined as an external supplier that
performs all or part of a company’s logistics functions
Among these, multiple logistics activities are included, those that are included are
“integrated” or managed together, and they provide “solutions” to logistics/supply
chain problems.
Types of 3PL Providers:
o Transportation-based
 o Warehouse/distribution-based
o Forwarder-based
o Shipper/management-based
o Financial-based
o Information-based firms

Urban Environment and Transportation

Transportation demand is growing and expected to continue growing
Last-mile logistics is more and more situated in growing urban areas:
o Increasing urban population growth
o (Over)congested
o Difference with emerging cities
Both internal costs and the external costs are key logistics drivers
o Decarbonisation to reduce pollution
Reasons for bundling:
1. Costs: less trucks, less kilometers
2. Service: higher frequency, faster delivery, greater scope
3. Flexibility: new markets, new customer desires
4. Future proof: knowledge sharing, strong partnerships, dependency on fossil fuels
5. Sustainability: less CO2, less congestion

Currect Logistics Network Redesign of Logistics Network

TriVizor: World’s First Cross Supply Chain Orchestrator. Reduction of costs, km’s driven, vehicles etc.

What about the cost savings?

 Cost savings are not always equal over all partners
Limited savings if no synergy in the networks

How to share the benefits?

Shapley value for player i:

o Allocates to each participant its average marginal contribution

o Complete random order of entering of participants
For two players:
o Equal allocation of the total value of cooperation
o Regardless of the specific characteristics (e.g. size, orders, etc.) of the two
players

CO3 project
Mission: encourage a structural breakthrough in the competitiveness and sustainability of
European logistics by stimulating horizontal collaboration between European shippers.
Horizontal flow bundling and co-modality scenarios, designed to be repeatable and scalable,
will be created in a number of test cases.

Elements of collaboration

Cooperative culture
Goal orientation: collaboration partners strive and pursuit
common goals;
Leadership: appropriate leadership arrangements put the
employees in the position to collaborate with the collaboration
partners, e.g. encouragement of teamwork;
Division of work: division of work resulting in workload reduction
for each collaboration partner;
Transparency: if partners have access to collaboration-related
information without loss, delay or distortion, transparency exists;
Trust: a corporate culture based on trust enables the employees to trust external collaboration
partners;
Understanding: a shared understanding for the business and current situation of the
collaboration partner advances the success of collaboration.
Experience: experienced benefits and issues within collaboration can be taken into early
consideration of collaboration planning.
Collaboration business models
Essential elements: without which no collaboration would get started. These are trust,
solidarity, mutuality and dependence.
Improvement elements: the ones that help in building up a collaborative group which is more
efficient than the sum of the individual firms. These are organisational compatibility, managerial
synergy and operational symmetry.
Framework elements: the ones that define the legal and operational structure of the
collaboration. These are contracts and type of collaboration.
Distributive element: the one that deals with the fair partition of the collaborative performance,
gain sharing or even value sharing.

How to come to a solution

Trust
Solidarity
Mutuality
Dependence
For gain sharing this means: Collaboration

Gain sharing?
Like beamer (projector) and fitness (gym) the term “gain
sharing” is an English term invented by Dutch
professionals that does not exist in English or is not
appropriate use of existing terminology
Gain sharing is a system of management used by a business to increase profitability by
motivating employees to improve their performance through involvement and
participation. (Wikipedia)

Examples of Allocation Methods

Equally: Split the savings equally among participants.
Proportional (simple): to factors in cooperative mode:
- Proportional to cost incurred in cooperative mode
- Proportional to full kilometers traveled in cooperative mode
- Proportional to total kilometers traveled in cooperative mode
Proportional (in comparison with individual modes):
- Proportional to extra full kilometers traveled
- Proportional to extra cost incurred.
Tariffs:
- Per full kilometer swapped
- After the fact Tariffs
a rate for exchange of full kilometers resulting in a desired allocation.
- Pre-defined tarrifs
Game Theoretic Solutions:
 - Shapley Value
Shapley value takes into account the average contribution of a player
to the coalition.
When 3 or more players: Taking into consideration the intermediate
coalitions. What if you form each subgroup of players?

Desired Properties of Allocation Methods

Individually Rational: No party is worse-off by cooperation.
Pareto Efficient: All costs/savings are allocated.
Dummy Player: Zero allocation is given to non-contributing players
Symmetry: Similar players get the same allocation.
Minimum Liability: Each player incurs a minimum cost.
Minimum Benefit: Each player benefits at least some amount.

More Desired Properties of Allocation (with 3 players and more)

Sub-coalition Rationality: the collective gain of any subgroup of players is at least as high as what they
can obtain by themselves.
Population Monotone: gains of any individual or sub-coalition does not decrease as the result of new
players joining the cooperation