The Path to Smarter Logistics
The United States has the largest freight transportation system in the world. The stats are fairly staggering: four million miles of public roads, 140,000 miles of railroad tracks operated by freight carriers, 25,000 miles of navigable waterways, 9,800 coastal and inland waterway facilities, and 5,200 public-use airports, according to the Bureau of Transportation Statistics. The distance of roads alone would equal about 10 round-trips to the moon.
Choosing how you get your company's products from point A to point B to point C is one of the most important decisions you can make. After all, shipping products faster and cheaper will make for happier customers. That's where logistics come in.
If you want to maximize your company's profits, it's important to stay abreast of current trends in the transportation industry. For instance, many companies are beginning to move their supply chain and shipping centers to southern states, where it's more cost effective, according to Christiaan Wolhof, president of the Eagan, Minnesota-based K2 Logistics. "That tendency is continuing very, very rapidly," he notes. Shipping to areas with high—and low—population denisities tend to affect prices, too. Sending trucks to large cities gets expensive because of city restrictions that prevent access to large trucks. Shipping to rural areas tends to be more pricey, too, because if there's no freight to carry out, carriers will charge extra fees to cover the expenses of moving vehicles with no cargo.
Below is a brief overview of the different methods of shipping—by land, sea, and air—as well as some of the trends that have been affecting each mode of transport.
- Ocean shipping: In 2010, Shanghai surpassed Singapore as the busiest port in the world, according to the Shanghai municipal government. In the U.S., Los Angeles ranks as the busiet port, though it's only about 16th most trafficked in the world, according to the American Association of Port Authorities. Ocean shipping accounts for about 90 percent of world trade, with over 50,000 merchant ships operating worldwide. Shipping containers are sized at 20 and 40 feet long, and are sold by LCL (less-container-load) and FCL (full-container-load). Cargo ships are used to carry a wide variety of goods, from clothing to chemicals to cars. Bulk carriers, as its name implies, are ships specially designed for carrying loose items, like grain, in bulk. Generally, shipping aboard an ocean freighter is much more cost effective, though slower, than shipping via air. Shipping rates depend on a variety of factors, including the weight, length of distance traveled, and product type. A trip from New York to Europe, for example, will cost anywhere between $2,000 and $6,000, depending on several factors including weight, commodity, and gas prices.
- Air: It may surprise you to know that Memphis International Airport is the busiest cargo airport in the world. In second and third are Hong Kong and Shanghai, and are poised to take over as the busiest cargo airports in the world in the next few years. Not so surprising is that moving products via air is the most expensive—but fastest—way to ship. According to Michael Rogers, president of 4 Way Logistics, a logistics firm based in San Ramon, California, air shipping is becoming more expensive because of new TSA rules and rising gas prices. Some companies opt to send a portion of their products by air, and the rest by land or sea, in order to hedge their costs. Small, perishable items are ideal for air transport. Shipping costs for air freight are based on a dimensional weight, rather than an actual weight. Dimensional weight is calculated by multiplying the length, width, and height of the container, and dividing that figure by a "dimensional factor" or a "dim factor" for short. For example, if the container you're shipping is a 10'x10'x10' box, the dimensional weight would be 1,000 divded by the dim factor, which can be anywhere from 194 to 224, according to Rogers.
- Trucking: Trucking is the most common method of freight transport over land in the United States. Products can be shipped in a variety of trucks, including dry van, flatbed, small parcel, and LTL, or less-than-truckload. Trucks are the most common method of transport within the country, both for raw materials like lumber and consumer goods like food products. Trucking prices are on the rise. New safety standards set by the U.S. transportation authority will put new restrictions on carriers. According to Rogers, these new standards could potentially put 20-30 percent of truckers out of work. The safety initiative, CSA 2010, will also force a number of carriers to decommission unsafe vehicles, which means they'll be fewer trucks available, and carriers may have to raise prices to compensate for the reduction in available equipment. Costs for trucking goods vary depending on weight and distance traveled, but a coast-to-coast trip will cost anywhere between $2,000 and $5,000.
- Rail: Rail shipping is the most cost effective mode of transportation for products that need to travel more than 700 miles on land. But it can take a while. "If you're not in a hurry to get your shipment there, that's what you want," Rogers says. A single carload can carry up to 200,000 pounds of freight, which is more than three truckloads. Rail shipping works best for dense, heavy freight that can be double stacked, too. Paper products, for example, are ideal for long-distance intermodal shipment since they are not fragile and can be stacked easily into containers. The price for rail transportation is usually a little bit cheaper than trucking, according to Rogers, and a cross-country trip would take between five to seven days.