Page 178 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 8: Transportation

Rail Network Notes

Historically, railroads have handled the largest number of ton-miles continental. As a result of
the early establishment of a comprehensive rail network connecting almost all cities and towns,
railroads dominated intercity freight tonnage until after World War II. This early superiority
resulted from the capability to transport large shipments economically and to offer frequent
service, which gave railroads a somewhat monopolistic position. However, with the advent of
serious motor carrier competition following World War II, the railroads’ share of revenues and
ton-miles started to decline.
The capability to efficiently transport large tonnage over long distances is the main reason
railroads continue to handle significant intercity tonnage and revenue. Railroad operations
incur high fixed costs because of expensive equipment, right of way (railroads must maintain
their own track), switching yards, and terminals. However, rail experiences relatively low
variable operating costs. The replacement of steam by diesel power reduced the railroads’
variable cost per ton-mile, and electrification offers potential for more reductions.

Did u know? New labour agreements have reduced workforce requirements, further
decreasing variable costs.

Motor Carriers

Highway transportation has expanded rapidly since the end of World War II. To a significant
degree the rapid growth of the motor carrier industry results from door-to-door operating
flexibility and speed of intercity movement.
Motor carriers have flexibility because they are able to operate on all types of roadways. In
comparison to railroads, motor carriers have relatively small fixed investments in terminal
facilities and operate on publicly maintained highways. Although the cost of license fees, user
fees and tolls is considerable, these expenses are directly related to the number of over-the-road
units and miles operated. The variable cost per mile for motor carriers is high because a separate
power unit and driver are required for each trailer or combination of tandem trailers. Labour
requirements are also high because of driver safety restrictions and the need for substantial
dock labour.

Notes In comparison to railroads, motor carriers are best suited to handle small shipments
moving short distances.

The characteristics of motor carriers favour manufacturing and distributive trades, short distances,
and high-value products. Motor carriers have made significant inroads into rail traffic for medium
and light manufacturing. Because of flexibility of delivery, they have captured almost all freight
moving from wholesalers or warehouses to retail stores. The prospect for maintaining stable
market share in highway transport remains bright.
The primary difficulties relate to increasing cost to replace equipment, maintenance, driver
wages, and platform and dock wages. Although accelerating labour rates influence all modes of
transport, motor carriers are more labour-intensive, which causes higher wages to be a major
concern. To counteract this trend, carriers have placed considerable attention on improved line-
haul scheduling that bypasses terminals, computerized billing systems, mechanized terminals,
tandem operations that pull two or three trailers by a single power unit, and utilization of
coordinated intermodal systems. These enhancements reduce labour intensity and, thus cost.

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