TRANSPORTATION
A G L O B A L S U P P L Y C H A I N P E R S P E C T I V E
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Australia • Brazil • Mexico • Singapore • United Kingdom • United States
John J. Coyle
The Pennsylvania State University
Robert A. Novack
The Pennsylvania State University
Brian J. Gibson
Auburn University
TRANSPORTATION
Eighth Edition
A G L O B A L S U P P L Y C H A I N P E R S P E C T I V E
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Transportation: A Global Supply
Chain Perspective, Eighth Edition
John J. Coyle, Robert A. Novack, and
Brian J. Gibson
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A very special note of thanks and appreciation is due to our families. John Coyle would like
to thank his wife Barbara, their children John and Susan, and their grandchildren Lauren,
Matthew, Elizabeth Kate, Emily, Ben, Cathryn, and Zachary. Bob Novack would like
to thank his wife Judith and their children Tom, Elizabeth, and Alex. Brian Gibson
would like to recognize his wife Marcia, son Andy, and his longtime mentor,
Dr. Bob Cook (1947–2014). Special mention should be made in reference
to Dr. Edward J. Bardi to express our deep appreciation of his many
contributions not only to the continuing development of this
text but also to the supply chain management text.
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Brief Contents
Preface xviii
About the Authors xxi
Part I
Chapter 1 Global Supply Chains: The Role and Importance of
Transportation 3
Chapter 2 Transportation and the Economy 34
Chapter 3 Transportation Regulation and Public Policy 59
Chapter 4 Costing and Pricing for Transportation 104
Suggested Readings for Part I 166
Part II
Chapter 5 Motor Carriers 168
Chapter 6 Railroads 200
Chapter 7 Airlines 233
Chapter 8 Water Carriers and Pipelines 260
Suggested Readings for Part II 294
Part III
Chapter 9 Transportation Risk Management 297
Chapter 10 Global Transportation Planning 327
Chapter 11 Global Transportation Execution 358
Chapter 12 Third Party Logistics 393
Chapter 13 Private Transportation and Fleet Management 425
Chapter 14 Issues and Challenges for Global Supply Chains 447
Suggested Readings for Part III 470
Glossary 472
Name Index 483
Subject Index 485
Appendix A Selected Transportation Publications A-1 (available on
book companion website cengagebrain.com)
Appendix B Transportation-Related Associations B-1 (available on
book companion website cengagebrain.com)
vi
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Contents
Preface xviii
About the Authors xxi
Part I
Chapter 1 Global Supply Chains: The Role and Importance of
Transportation 3
TRANSPORTATION PROFILE: Critical Role of Transportation in
Global Economy 4
Introduction 5
Global Supply Chain Flows 5
The Economic Basis and Logic of Improved Global Trade 11
Absolute and Comparative Advantage 11
Contributing Factors for Global Flows and Trade 12
Population Size and Distribution 12
Urbanization 16
Land and Resources 17
Technology and Information 17
Globalization 19
Supply Chain Concept 19
Development of the Concept 20
GLOBAL PROFILE: P&G May Jettison Half of Their Brands 20
ON THE LINE: Transportation’s Impact on the Global Supply Chains 24
Summary 27
Study Questions 28
Notes 29
Case 1-1: Clearfield Cheese Company Case: A Sequel 30
Case 1-2: KEMS LLP 32
Chapter 2 Transportation and the Economy 34
Introduction 35
Up and Down with the Big Muddy 35
Historical Significance 36
Economics of Transportation 37
Demand for Transportation 38
Passenger Demand 38
Transport Measurement Units 39
ON THE LINE: “It’s a Bird, It’s a Plane … No, It’s a Drone” 40
Demand Elasticity 42
vii
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Freight Transportation Demand 43
Service Components of Freight Demand 45
TRANSPORTATION PROFILE: “The Mailman May Ring Twice” 47
Value of Goods 47
Gross Domestic Product (GDP) 50
Environmental Significance 51
The Environment 52
Safety 53
Social Significance 53
Political Significance 53
Summary 55
Study Questions 55
Notes 56
Case 2-1: Highways Galore 57
Case 2-2: The Sustainability Team 58
Chapter 3 Transportation Regulation and Public Policy 59
TRANSPORTATION PROFILE: Congestion Ahead: Merging Disparate
Transportation Bills into a Well-Funded Solution 60
Introduction 61
Regulation of Transportation 61
Nature of Regulation 61
Common Law 62
Role of the Independent Regulatory Commissions 63
Role of the Courts 64
Safety Regulations 65
State Regulations 66
Development of Regulation 66
Current Economic Regulations 68
Current Motor Carrier Safety Regulations 70
Antitrust Laws in Transportation 71
Transportation Policy 72
Why Do We Need a Transportation Policy? 73
Declaration of National Transportation Policy 74
GLOBAL PERSPECTIVES: TTI Releases NAFTA 20 Years After 76
Policy Interpretations 77
Who Establishes Policy? 78
ON THE LINE: Bill That Would Jack Up Insurance Minimum by 400 Percent
Seen as a Long Shot 81
Public Promotion 82
Transportation Planning and the Public Sector 82
An Approach to Public Project Planning Analysis 83
Air 84
Motor and Highway 85
viii CONTENTS
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Rail 86
Domestic Waterway Operations 87
International Water Carriage 87
Pipeline 88
Miscellaneous Forms of Promotion 89
Transportation Promotion in Perspective 89
User Charges 89
Nationalization 90
Transportation Safety 90
TRANSPORTATION TECHNOLOGY: ATA, Shippers Applaud FMCSA Proposal for
ELDs in Trucks 92
Transportation Security 93
Summary 95
Study Questions 95
Notes 95
Case 3-1: Who Pays the Price? 97
Case 3-2: Federal Highway Infrastructure Funding 98
Appendix 3A: Department of Transportation 99
Federal Aviation Administration 100
Federal Highway Administration 100
Federal Railroad Administration 100
National Highway Traffic Safety Administration 101
Federal Transit Administration 101
Maritime Administration 101
St. Lawrence Seaway Development Corporation 101
Research and Innovative Technology Administration 101
Pipeline and Hazardous Materials Safety Administration 102
Federal Motor Carrier Safety Administration 102
Office of the Inspector General 103
Surface Transportation Board 103
Summary 103
Chapter 4 Costing and Pricing for Transportation 104
TRANSPORTATION PROFILE: Some LTL Carriers Shun Annual GRIs in Favor of
“Customer-Centric” Approach 105
Introduction 106
Market Considerations 107
Market Structure Models 107
Theory of Contestable Markets 108
Relevant Market Areas 109
Cost-of-Service Pricing 110
Value-of-Service Pricing 114
Rate Making in Practice 120
General Rates 120
Rate Systems Under Deregulation 127
CONTENTS ix
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Special Rates 128
Character-of-Shipment Rates 128
ON THE LINE: Big Rate Changes Ahead for FedEx Ground 130
Area, Location, or Route Rates 130
Time/Service Rate Structures 131
Other Rate Structures 132
GLOBAL PERSPECTIVES: Ocean Carriers Hike Rates 134
Pricing in Transportation Management 134
Factors Affecting Pricing Decisions 134
Major Pricing Decisions 135
Establishing the Pricing Objective 136
Estimating Demand 137
Estimating Costs 138
Price Levels and Price Adjustments 138
Most Common Mistakes in Pricing 139
Summary 142
Study Questions 142
Notes 142
Case 4-1: Hardee Transportation (A) 144
Case 4-2: Hardee Transportation (B) 145
Appendix 4A: Cost Concepts 147
Accounting Cost 147
Economic Cost 147
Social Cost 148
Analysis of Cost Structures 148
Rail Cost Structure 152
Motor Carrier Cost Structure 153
Other Carriers’ Cost Structures 154
Notes 154
Appendix 4B: LTL and TL Costing Models 156
Operational Activities 156
Cost/Service Elements 156
TL Costing 156
LTL Costing 160
Conclusion 165
Suggested Readings for Part I 166
Part II
Chapter 5 Motor Carriers 168
TRANSPORTATION PROFILE: Tight Capacity Outlook Will Likely Remain Intact for
a While, Say Industry Stakeholders 169
Introduction 170
Industry Overview 170
Significance 170
Types of Carriers 171
x CONTENTS
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ON THE LINE: Dedicated: One Bright Spot in the TL Picture 173
Number of Carriers 174
Market Structure 175
Competition 176
Operating and Service Characteristics 176
General Service Characteristics 176
Equipment 177
Types of Vehicles 178
Terminals 180
Terminal Management Decisions 183
GLOBAL PERSPECTIVES: UPS Adds to Latin America Healthcare Portfolio 186
Cost Structure 186
Fixed Versus Variable Cost Components 186
Economies of Scale 188
Current Issues 191
Safety 191
Technology 192
LTL Rates 192
TRANSPORTATION TECHNOLOGY: Filling the Gaps with TMS 193
Financial Stability 194
Summary 195
Study Questions 196
Notes 197
Case 5-1: Hardee Transportation 198
Case 5-2: Squire Transportation 199
Chapter 6 Railroads 200
TRANSPORTATION PROFILE: Riding High 201
Introduction 202
Industry Overview 203
Number of Carriers 203
Competition 205
GLOBAL PERSPECTIVES: Intermodal Volumes Finish 2013 Strong
Reports IANA 207
Operating and Service Characteristics 208
General Service Characteristics 208
Constraints 210
Strengths 210
Equipment 211
Service Innovations 213
ON THE LINE: XPO’s Grand Entrance into Intermodal 216
Cost Structure 216
Fixed Costs 216
Semivariable Costs 217
Variable Costs 217
CONTENTS xi
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Economies of Scale 219
Financial Plight 220
Legislation Reform 220
Improved Service to Customers 221
Current Issues 222
Alcohol and Drug Abuse 222
Energy 222
Technology 223
TRANSPORTATION TECHNOLOGY: GAO Report Calls on Congress to Extend
Positive Train Control Deadline 224
Future Role of Smaller Railroads 225
Customer Service 226
Drayage for Intermodal Service 226
Summary 227
Study Questions 227
Notes 228
Case 6-1: CBN Railway Company 230
Case 6-2: Railroad Reregulation? 231
Chapter 7 Airlines 233
TRANSPORTATION PROFILE: Slight Improvement Despite Headwinds 234
Introduction 235
Industry Overview and Significance 235
Types of Carriers 235
Private Carriers 235
For-Hire Carriers 235
Market Structure 237
Number of Carriers 237
Competition 238
Intermodal 238
Intramodal 238
Service Competition 238
Cargo Competition 239
Operating and Service Characteristics 239
General 239
GLOBAL PERSPECTIVES: U.S. Airports Ramp Up Competition for Cargo
Dominance 240
Speed of Service 241
Length of Haul and Capacity 241
Accessibility and Dependability 243
Equipment 243
Types of Vehicles 243
Terminals 243
ON THE LINE: International Standards: IATA Launches “Secure Freight” 244
Cost Structure 246
xii CONTENTS
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Fixed- Versus Variable-Cost Components 246
Fuel 247
Labor 247
Equipment 248
Economies of Scale/Economies of Density 248
Rates 250
Pricing 250
Operating Efficiency 251
Current Issues 252
Safety 252
Security 253
Technology 253
Summary 255
Study Questions 256
Notes 256
Case 7-1: Airspace Airlines 258
Case 7-2: Airline Consolidations 259
Chapter 8 Water Carriers and Pipelines 260
TRANSPORTATION PROFILE: Bigger Ships for the Bigger Ditch 261
Introduction 261
Brief History of Water Transportation 262
Water Transport Industry Overview 263
Significance of Water Transport 263
Types of Carriers 266
TRANSPORTATION TECHNOLOGY: Here Come the Mega Ships: Big Changes
Coming 267
Number and Categories of Carriers 268
Competition 268
Operating and Service Characteristics 269
Equipment 271
Cost Structure 276
Current Issues 277
Brief History of Pipelines 277
Pipeline Industry Overview 278
Significance of Pipelines 278
Types of Carriers 279
Ownership 280
Number of Carriers 280
Operating and Service Characteristics 281
Relative Advantages 282
Relative Disadvantages 282
Competition 283
Equipment 283
Commodity Movement 284
Cost Structure 286
CONTENTS xiii
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ON THE LINE: The Politics of Global Pipelines 287
Summary 289
Study Questions 290
Case 8-1: Great Lakes Carriers: A Sequel 291
Case 8-2: CNG Pipeline Company 293
Suggested Readings for Part II 294
Part III
Chapter 9 Transportation Risk Management 297
TRANSPORTATION PROFILE: Battling the Global Piracy Challenge 298
Introduction 298
Risk Concepts 299
Transportation Risk Management Process 300
Step 1—Risk Identification 302
Step 2—Risk Assessment 306
Step 3—Risk Management Strategy Development 307
ON THE LINE: Conducting an International Supply Chain Risk
Assessment 308
TRANSPORTATION TECHNOLOGY: Protecting Product Along the Global Cold
Chain 312
Step 4—Risk Review and Monitoring 313
Supply Chain Security 314
Aviation and Transportation Security Act of 2001 315
Maritime Transportation Security Act of 2002 316
Security and Accountability for Every Port Act 317
GLOBAL PERSPECTIVES: Transportation Security—Global Collaboration
Required 319
Summary 320
Study Questions 320
Notes 321
Case 9-1: Young Again Pharmaceuticals 323
Case 9-2: Techno-Shades 325
Chapter 10 Global Transportation Planning 327
TRANSPORTATION PROFILE: Global Trade Expansion Drives Transportation
Planning Challenges 328
Introduction 329
Overview of Global Transportation 330
Global Trade Agreements Stimulate Transportation
Activity 331
GLOBAL PERSPECTIVES: NAFTA Cross-B Transportation—an Unfulfilled
Promise 332
Logistics Channel Issues in Global Transportation 333
Export Preparation Activities 335
xiv CONTENTS
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Terms of Trade 335
Cargo Insurance 338
Terms of Payment 340
Freight Documentation 341
Transportation Planning 346
Mode Selection 346
TRANSPORTATION TECHNOLOGY: The Automated Commercial Environment:
Nearing Completion 347
Carrier Selection 349
Route Planning 350
ON THE LINE: Panama Canal Expansion to Double Capacity 351
Summary 352
Study Questions 352
Notes 353
Case 10-1: Music Explosion—Creating a “Sound” Global
Transport Plan 355
Case 10-2: Tablets for the Masses 357
Chapter 11 Global Transportation Execution 358
TRANSPORTATION PROFILE: International Freight Challenges 359
Introduction 359
Overview of Global Freight Flows 360
Intermodal Transportation 361
Preparing Freight for Movement 366
Policy and Regulatory Issues Impacting Global Flows 367
Global Transportation Providers 368
Ocean Shipping 368
ON THE LINE: E × E × E = Mega Capacity 373
International Air 374
Surface Transport 377
Ancillary Services 378
Port Operations and Customs Clearance 379
Seaports 379
TRANSPORTATION TECHNOLOGY: Port Automation Critical to Global Flows 381
Airports 382
Customs Clearance 384
Summary 387
Study Questions 387
Notes 388
Case 11-1: As the Blade Turns 390
Case 11-2: Get Me Those T-Shirts 391
Chapter 12 Third Party Logistics 393
TRANSPORTATION PROFILE: Key Criteria for Evaluating Potential 3PL
Providers 394
CONTENTS xv
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Introduction 394
Industry Overview 395
Types of 3PL Providers 396
ON THE LINE: Amazon.com: More than an Online Retailer? 400
3PL Services and Integration 401
GLOBAL PERSPECTIVES: UPS Expands Incheon Air Hub in Korea 404
3PL User Overview 405
Reasons for Outsourcing 406
Primary Activities Outsourced 407
Results Achieved 408
Establishing and Managing 3PL Relationships 409
Strategic Needs of 3PL Users 413
TRANSPORTATION TECHNOLOGY: The Payoffs of 3PL Investment in IT
Capabilities 415
Summary 418
Study Questions 418
Notes 419
Case 12-1: Jetstream Aerospace 421
Case 12-2: Closet Concepts Ltd 423
Chapter 13 Private Transportation and Fleet Management 425
TRANSPORTATION PROFILE: The Silent Partner: Private Fleets 426
Private Transportation 426
What Is Private Transportation? 427
Private Rail Transportation 427
Private Air Transportation 428
Private Water Transportation 429
Private Oil Pipeline Transportation 429
Private Trucking 430
Private Trucking Cost Analysis 433
ON THE LINE: Taking the Company Private 435
Major Operating Decisions 436
Summary 443
Study Questions 444
Notes 444
Case 13-1: Nittany Products: A Sequel 445
Case 13-2: Naperville Hardware Distribution 446
Chapter 14 Issues and Challenges for Global Supply Chains 447
TRANSPORTATION PROFILE: Dark Clouds on the Horizon 448
Introduction 449
Transportation Infrastructure 450
Highway Traffic and Infrastructure 451
xvi CONTENTS
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Railroad Traffic and Infrastructure 452
Waterway Traffic and Infrastructure 453
Technology and Transportation: A Necessary Marriage 456
Sustainability: Going Green with Transportation 458
TRANSPORTATION TECHNOLOGY: Truck Navigation 461
Fuel Cost and Consumption 462
Motor Carriers 463
Air Carriers 463
Water Carriers 464
Rail Carriers 464
Pipeline Carriers 464
Carriers’ Responses 465
Summary 466
Study Questions 467
Notes 467
Case 14-1: Green and Lean 468
Case 14-2: Bald Eagle Valley Trucking 469
Suggested Readings for Part III 470
Glossary 472
Name Index 483
Subject Index 485
Appendix A Selected Transportation Publications A-1 (available on
book companion website cengagebrain.com)
Appendix B Transportation-Related Associations B-1 (available on
book companion website cengagebrain.com)
CONTENTS xvii
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Preface
In this book Transportation: A Global Supply Chain Perspective while attention was paid
to the global aspect of transportation in previous editions, especially the seventh edition,
the authors realized that the global dimension required even more emphasis to reflect the
increased challenges and requirements of 21st century supply chains. Transportation has
become even more important for efficient and effective supply chains in today’s complex
and competitive global environment. It has become the critical link in successful supply
chains and may be the most important industry for the economic advancement in the
economies of the world. The authors are convinced much more attention and focus
must be given to transportation infrastructure investment to meet the needs of the global
economy.
The text follows the format of the previous edition with three sections and 14 chap-
ters, but substantive additions and changes have been made to enhance the global discus-
sions, improve the content and organization, and streamline and update relevant parts of
text. Part I provides the foundation for the overall text. Chapter 1 explores global thrust
of this edition examining key critical areas such as population trends and related issues
for developing and developed economies. Chapter 2 provides the economic foundation
and rationale for the role of transportation as well as its political and social importance.
Chapter 3 explores the regulatory and public policy issues associated with transportation
while Chapter 4 offers a discussion of transportation costing and pricing in a market-
based economy.
Part II provides an overview of the major transportation alternatives available to
individual and organizational users. Chapters 5 through 8 discuss and examine the key
features and issues of the five basic modes of transportation, namely, motor (5), rail (6),
airline (7), water, and pipeline (8). Each of the basic modes provide some inherent
advantages for shippers of particular commodities or locations that need to be appre-
ciated and …
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