Chapter 3: Markets and Modes of Transportation

Question 1

What are traditional functions of freight forwarders?

Answer 1

Traditional functions of freight forwarders are “transfer functions”; corresponding to the “First Meaning of Logistics” (=PPP):

• The freight forwarder as a carrier with own assets (trucks)
• The freight forwarder as warehouse keeper with self-owned or rented storing space
• The freight forwarder doing the handling of goods in distribution
• The freight forwarder as a forwarding agent in goods consolidation
• The freight forwarder as Multimodal Transport Operator (MTO) or Combined Transport Operator (CTO) in multimodal transports

Question 2

What are logistics functions of freight forwarders?

Answer 2

Logistics functions of freight forwarders enlarge the traditional functions with “value-added” activities and complex value bundles. Often, these value-adding activities are the base for an outsourcing process. Examples are:

• Fitting deliveries with inventory management systems
• Take over of picking, packaging and labeling activities
• Special services for retail-chains or pharmaceuticals
• Shelf maintenance for a receiver, returns management, empties management, debt collection, etc.

Question 3

How would you describe the market of freight forwarding in Germany?

What are different branches of freight forwarding?

Answer 3

• Dominating legal form (2005): GmbH (58%) and GmbH & Co. KG (26%).
• Most of freight-forwarders are “mixed companies” (carrier & warehousing), middle-class-oriented
• The most important branches of freight forwarding are:
  
  • road haulage freight forwarder
  • groupage freight forwarder
  • rail forwarder
  • inland vessel navigation forwarder
  • seaport forwarder
  • air freight forwarder
  • warehousing (distribution, delivery, CW)
  • furniture removal firm etc.

Question 4

How would you characterize the business in freight forwarding?

Answer 4

• Means of transport and freight terminals are fix-costs intensive (material and personnel) and expansive (= high costs for business readiness!)
• As a service, freight forwarding activities are based on specific, service-related characteristics (e.g. non-tangibility). The consequences are challenges in measuring the service output, improving and selling the service
• Economical transports need a high level of capacity usage with less empty runs, that means a high parity of goods flows.
  Background: The offering of goods volume is not stable, the offering of shipping space is almost constant → capacity balancing during seasonal fluctuations
• Freight forwarders are restricted by a lot of legal regulations with public service orientation (working times, restriction of admissions, tolls etc.)

Question 5

How would you characterize the business-model of “TimoCom”?

Answer 5

TimoCom is a software-provider of an internet-based platform, supporting the information exchange between buyers (shippers) and sellers of freight (carriers) resp. transport capacity. The core market is the spot-market of FTL (= Full-Truckload) transports.

The biggest advantage for shippers and carriers are the significant reduction of transactions costs while using TimoCom.

Question 6

What are transaction costs?

Answer 6

Transaction costs can be divided into three broad categories:

• Search and information costs are costs such as in determining that the required good is available on the market, which has the lowest price, etc.
• Bargaining costs are the costs required to come to an acceptable agreement with the other party to the transaction, drawing up an appropriate contract and so on.
• Policing and enforcement costs are the costs of making sure the other party sticks to the terms of the contract and taking appropriate action (often through the legal system) if this turns out not to be the case.

Source:
Dahlman, Carl J. (1979). “The Problem of Externality”. In: Journal of Law and Economics. 22 (1): 141–162. doi:10.1086/466936

Question 7

What is the “Transportation Spot-Market”?

Answer 7

The transportation spot market is a mechanism by which unfulfilled and urgent demand is satisfied. Shipments are tendered one at a time on a load-by-load basis. Because of the often severe shortage of spot market capacity and its relatively high and volatile prices, shippers must actively as opposed to passively seek carrier capacity. Often, they turn to third parties.

Source:
Lindsey, C.; Mahmassani, H. (2017): Sourcing truckload capacity in the transportation spot market: A framework forthird party providers. In: Transportation Research, Vol. 102, No. 8, p. 261-273; online under: doi.org/10.1016/j.tra.2016.10.001 , 18.05.18

Question 8

What is the “TimoCom Transport Barometer” and for what is it used for?

Answer 8

The “TimoCom Transport Barometer” is a visualization of the relationship between the freight offers of shippers and vehicle capacity of freight carriers for a specific transport relation.

It shows (over time if more than one barometer is available) how the relationship between demand for freight capacity (shippers) and supply freight capacity (carriers) developed. This has a direct impact on the price of this transport relation. The higher the demand and the lower the available capacity the higher will be the price for this relation.

Question 9

Please name for road, rail, airandsea transportsthe appropriatetermsfor afull and a part vehicle load!

Answer 9

1. Road:
   Full Trailer Load / Full truck load (FTL)
   Less than Truck Load (LTL)
2. Rail:
   Full Wagon Load (FWL)
   Less than Waggon Load (LWL)
3. Air:
   Full aircraft charter
   Consolidation (Consol)
4. Sea:
   Full Container Load (FCL)
   Less than Container Load (LCL)

Question 10

Road transport is often called the “most flexible” mean of transportation.
Please reason this statement!

Answer 10

Road transport is the most flexible transportation mode in comparison to sea, rail or air transport because:

• it offers as the only transport mode the possibility of a “door-to-door” service with low handling (“one touch”) and turnover activities
• it is the fastest mode for short journeys at an acceptable price
• it is much easier and convenient to book a road transport than a freight transport by rail, air or sea
• the vehicles are very adaptive according to different technical needs or sizes
• the fix cost investment in a truck is in comparison to other transport modes low and also the possibility to sell it is higher

Question 11

In which contexts of transportation is a rail transport more competitive than a road transport?

Answer 11

A rail transport is under the following circumstances (probably) more competitive than road transport:

• the transport distance one-way is larger than 600 km (Economies of Distance!)
• the train can use its full capacity in both directions of transport - from A to B and from B to A
• probably necessary pre- or post-haul transports to or from rail terminals (by truck) are not needed and/or shipper and/or consignee have a direct rail connection → low transshipment / handling costs!

Question 12

If you have to plan an international container transport by sea, what are restrictions and needs caused by this mean of transportation?

Answer 12

• Container transports are often very long (4-6 weeks) - this makes it difficult to plan the ETA (= Estimated Time of Arrival)
• Because of such long trips, the insurance costs are higher and more packaging is needed (temperature, turbulence on the sea, etc.)
• Container transports need a pre- and post-haul transport on land. Often this part of the transport is the most expansive one, so it has to be organized efficiently

Question 13

For which types of goods would you use air transport? Characterize these goods by three criteria!

Answer 13

Because air transport is the most expansive but fastest mode of transport, goods transported by air cargo are characterized by:

• high value per kg (laptops, expansive machinery parts etc.)
• high time-value for the customer because they have to be transported fast (perishable goods, living expansive animals, important documents
• low weight and low volume because of the high transport price per kg and or loading meter
• non-toxical or any other legal restrictions because of security or safety

Question 14

How would you define an “intermodal transport”?

Answer 14

An intermodal transport is a transport which uses more than one mode of transport. The goods remain in the same load-carrying unit (container, trailer or swap-body) during the exchange of freight from one transport mode to another.

Question 15

What are the advantages and disadvantages of intermodal transports?

Answer 15

Advantages:

• Lower costs on longer trips
• Could be faster than one mode
• Reduces road congestion
• Lower negative environmental effects

Disadvantages:

• Regional availability
• “Double handling” during transshipment process
• Needs specialized, standardized equipment
• Needs specialized terminals (in Germany the biggest constraint)
• Road legs are still needed for consolidation

Question 16

Which transport-trends force the modal-split towards road transport?

Answer 16

Three main trends in freight transport drive the modal-mix towards an extensive use of road transport:

• Freight volume effect [Gütermengeneffekt]: Constant freight volume with increasing transport distances (the “Globalization”-Trend)
• Freight structure effect [Güterstruktureffekt]: Growing part of transport for high-end, expensive goods (Reduction of bulk production, higher share of transport for consumer goods)
• Logistics effect [Logistikeffekt]: Reduction of shipment sizes with more orders in the same time slot (“Atomization” of shipments)

Question 17

Which main weight segments in road transportation do you know?
Please name the segments and give for each the lower and upper weight limit per shipment!

Answer 17

The main weight classes in road transportation are:

• CEP (Courier, Express and Parcel): between 0-31,5 kg per shipment for B2C and 0-70 kg per shipment for B2B-relations
• General Cargo: between 50-2.500 kg per shipment
• Part Load (LTL): between 1.500-8.500kg per shipment
• Truck Load / Full Load / Full Truck Load (FTL): between 8.500-25.000 kg per shipment

Question 18

How large (in Bill. €) is the l**ogistics market in Germany**?
Why do you think **Germany has developed such a strong position** in the global market of service providers?

Answer 18

The size of the logistics market in Germany is approx. 235 bill. € (2014)

The strong competitive position of Germany in logistics is mainly driven by:

• the central geographical position of Germany in the “heart” of Europe
• the challenging demand for logistics innovations of an export-oriented industry
• the high level of logistics know-how by specialized education and practitioner knowledge in logistics service companies

Question 19

Please name the average logistics costs (in % of total revenue) for the following branches: construction/chemical industry, food, electronics!

What is the most important driver of the share of logistics costs on total revenue in a company?

Answer 19

The average logistics costs in percentage from total revenues are:

• in construction / chemical industry: 12-15%
• in the food sector (retailers): 3-6%
• in electronics: 4-7%

The most important driver of the logistics costs is the value to weight ratio of the transported goods.

Question 20

The prognosis of traffic performance (measured in tkm) for the next decade heads in the direction of a “traffic collapse”.

What could be actions of the players involved in the freight transport to be prepared for this situation?

Answer 20

There are different possibilities for reducing the traffic collapse in developed countries like Germany:

• the logistics service providers and the industry should invest in tracking and tracing, navigation and communication technologies
  → reduction of traffic jams; shortening the loading and unloading times; better “takted” transports (efficiency!)
• the industry should promote goods in a way for the end-consumer, that a higher degree of freight consolidation is possible (“de-atomization” of shipments).
  → better capacity utilization = fewer transports and lower investments in vehicles and transport infrastructure
• the government can steer traffic flows in the direction of a more efficient modal-mix by higher and/or new toll fees, subventions in environment-friendly technologies, supporting of rail technologies etc.