Module: Transport Operations & Costing

Learning Unit 2: Modal Choice

Importance of the main modes of freight transport

• Changing nature of logistics

• Transport modes important for efficient global operations

• Road freight transport the dominant mode of transport in many countries

Task: Compare the 2014 freight transport modal split of South Africa with the main 15
European countries and the USA?

Logistics Barometer 2016 [online] available from: http://www.sun.ac.za/english/faculty/

economy/logistics/Documents/Logistics%20Barometer/Logistics%20Barometer%202016%20Report.pdf

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Modal choice

Source: Ruston et al., 2017:426

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Modal choice selection matrix

Source: Ruston et al., 2017:438

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Aspects of international trade

• trade agreements and economic unions;

• financial issues;
• terms of trade;
• documentation;
• the use of freight forwarders

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Modes of transport and appropriate Incoterms 2010

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 Categories of
Incoterms 2010

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The E term

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F terms

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C terms

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D terms

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Maritime Transport

Read:
• Pages 447 – 468 (Chapter 26) in “ The handbook of logistics and distribution management”
Maritime Transport - Structure of the industry

1. Liner conferences
• Groups of shipping lines that work fundamentally for member interest
• Work together to agree tariffs on certain routes

2. Shipping lines
• Own and operate different types of ships
• Provide the physical means to transport cargo by sea

3. Ships’ agents
• Provide services to shipping lines
• Services include: provision of food and spare parts; arranging any repairs; refuelling etc.

4. Freight forwarders
• Oversee and manage the movement of freight from the point of origin to the point of destination
• Provide integrated door-to-door solutions and usually have worldwide networks of offices, and agents

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Common shipping terms

• Full container load (FCL) - a shipment that will fill a given container.
• Less than container load (LCL) - a shipment that will not fill a container and therefore will require to be
consolidated with other LCLs in order to economically fill a shipping container.
• Hook to hook - his term is used when quoting prices for break-bulk sea freight. The price includes
loading the goods on to the vessel and unloading the goods at the destination port. It also includes the
cost of transporting the goods between the origin and destination ports.
• Liner in / Liner out - The shipping line is responsible for the cost of loading / off-loading the cargo
• Free in and/or free out - The party purchasing the sea freight is responsible for the loading / unloading
cost
• Break bulk cargo - This is a general term for non-containerized loose freight
• Weight or measure (W/M) - A common method used to price sea freight for break-bulk shipments. The
method considers that 1 metric tonne is equal to 1 cubic metre and that the price quoted applies to the
higher of the two numbers

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Common shipping terms

• Stackable cargo - If a cargo is non-stackable it will mean that any space above it will be lost as
loading capacity
• Stowage plan -This is a plan prepared by a representative of the shipping line, which will clearly
show where each item to be loaded will be placed in the ship’s holds or on the open deck.
• Lost slots - the slots that cannot be used by the shipping line because the cargo is protruding into
another slot’s space.
• Port rotation - This refers to the order and names of the ports at which the ship is planning to call.
• TEU - This stands for 20-foot equivalent unit and is equal to one 20-foot ISO shipping container.
• FEU -This stands for a 40-foot equivalent unit and is equal to one 40-foot ISO shipping container.
• Plimsoll line – Or international load line is found painted on the hull of a ship around the water line.
The Plimsoll line is a mandatory requirement and indicates the maximum safe load level for the ship

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Surcharges
• Bunker adjustment factor (BAF) - It is designed to take account of the variations in the price of marine fuel
in different parts of the world.

• Currency adjustment factor (CAF) – It is another common surcharge that is applied to take account of any
differences in cost incurred by the shipping line due to currency exchange fluctuations for services bought by
them in foreign currencies in the execution of their services on the customer’s behalf.

• Peak season surcharge (PSS) – Due to the rapid growth in exports from countries such as China, backlogs
occur at certain times of the year. A shortage of transport carrier capacity and an imbalance in trade flows
means that carriers can apply this surcharge, which customers are forced to pay.

• Repositioning charge - This is a surcharge that is sometimes applied by the shipping line to cover the cost of
returning an empty container to a location where it may be loaded with revenue earning cargo.

• War risk surcharge - It is applied to take account of the increased possibility of incidents that could result in
the partial or total loss of the transport company’s assets.

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Documentation

Bills of lading
• Issued by the shipping line as a receipt for the cargo being transported
• Contract of carriage to deliver the cargo to a named destination
• States what has been loaded and in what condition
• A negotiable document and legal bearer of the bill of lading is the owner of the goods
• Several different types of bills of lading

Letters of credit
• Not necessarily required to facilitate the actual international transport
• Protect for both the buyer and seller
• A letter of credit (LC) issued by a bank in one country on behalf of a buyer, names the seller as beneficiary to
the funds outlined in the LC. The LC is then sent to the seller’s bank in a different country
• Used to guarantee that the seller gets his payment in time and in full, and that the buyer does not release
funds until the goods are received in full and in good condition
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Documentation

Certificate of origin
• A document issued by a certifying body that establishes the origin of the goods being transported.

Commercial invoices
• Produced by the seller and establishes amongst other things the weight of the goods, the number of items, a
description of the goods, and the price of the goods being sold.

Packing lists
• A detailed list of all the items to be transported.
• Typically contains as a minimum a brief description of the items: their weight; the length, width, height of each
item; and how many items are contained in each package.

Other documents
• Insurance certificates, material data sheets fumigation certificates etc.

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Vessel classification and certification

Deadweight tonnage (DWT)

• It is a measure of how much weight a ship may safely and legally carry. It includes the weight of the
cargo, crew, passengers and provisions.
• It is the weight of absolutely everything that the ship is carrying, but not the weight of the empty ship
• It is the difference between the laden and unladen weight of the ship.
• Normally expressed in metric tonnes (equals 2,204 pounds or 1,000 kilogrammes).

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Common ship types and their cargoes

Cellular container vessels

• These ships are specifically designed to carry ISO shipping containers.
• These vessels have grown in size and speed over the last few years and tend to work to very strict schedules.
• To speed up operations they often load and unload at the same time
• Largest container vessels in terms of carrying capacity are the MSC Oscar, Oliver, Zoe and Maya with official
capacities of 19,224 TEUs each.

• Break-bulk freighter
• These vessels carry any kind of loose cargo that is not liquid or loose bulk commodities.
• Used to be very common ships, but these days there is an increased use of shipping containers and
specialized ships
• Where cargo handling is less well developed, LOLO (lift-on lift-off) vessel are more common. They are usually
equipped with their own cranes to facilitate loading and offloading

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Common ship types and their cargoes
Roll-on roll-off (RORO) vessels
• Designed specifically to carry wheeled vehicles
• Equipped with a ramp that can be raised and lowered to allow vehicles to be driven on and off
• Have many decks and can carry thousands of vehicles
• Mainly utilized by vehicle manufacturers

• Liquefied natural gas (LNG) vessels

• Have a number of large spherical tanks that are positioned longitudinally along the entire length of the cargo-
carrying area of the hull.
• The LNG is loaded and unloaded in liquid form just like any other bulk liquid.
• ‘Q-Max’ ships can carry 266,000 cubic metres (normal vessel carry 140,000 cubic metres) of LNG

Oil tanker
• These ships carry large volumes of crude oil in liquid form.
• Various sizes of oil tanker
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Common ship types and their cargoes

Specialized heavy lift vessel

• Designed to carry very heavy or large cargoes that other ships cannot accommodate
• Designed with most of the hull being covered in a flat open deck that can aid loading and offloading
• Usually have their own cranes with heavy lifting capabilities.
• Some are capable of semi-submersion to facilitate the loading of cargo

Dry bulk carrier

• Designed to carry any type of loose dry bulk commodity such as grain, stone, ores, coal or phosphates

Handysize
• Smaller-sized ship used to carry bulk commodities or crude oil.
• Size of between 10,000 dwt (deadweight tonnes) and 30,000 dwt.

Handymax
• Vessel used to carry bulk commodities or crude oil of a size between 30,001 dwt and 50,000 dwt.
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Common ship types and their cargoes
Aframax
A crude oil tanker of between 80,001 dwt and 119,000 dwt.

Suezmax
The maximum size of ship that can pass through the locks of the Suez Canal is 200,000 dwt

Panamax / New Panamax

The maximum size vessel that can pass through the Panama Canal (< 366m long, 49m beam, 15.2m draft)

Very large crude carrier (VLCC)

A crude oil tanker used to carry bulk oil of between 200,001 dwt and 350,000 dwt.

Ultra large crude carrier (ULCC)

A crude oil tanker that are too big to use the Suez or Panama canals. Largest vessels in the world (> 350,000 dwt.)

Capesize
• Vessels that are too large to pass through either the Suez or the Panama canals.
• Have to take the long route around either the Cape of Good Hope or Cape Horn

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Ports and cargo handling

Terminal handling
• Nature of terminal handling facilities available. Not all ports are capable of handling all types of cargo
• Charges for terminal handling will vary from port to port and by the type of cargo handled.
• Many ports will offer free periods of storage - if exceeded demurrage or detention charges
• Direct delivery - a reduced handling charge - can speed up vessel turnaround times
• Separate tariffs for other services such as to lash cargo, operate cranes etc.

Other factors
• Cargo surveyors
• Caro superintendents
• Security, piracy, politics and war
• Land bridges
• Speed, weather, port congestion

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Air Transport

Read:
• Pages 469 – 483 (Chapter 27) in “ The handbook of logistics and distribution management”
Air Transport - Structure of the industry

1. International Air Transport Association (IATA)

• Set many of the standards of operation for the industry
• Provide the cargo accounts settlement system (CASS) to their members

2. Airlines
• own (or lease) and operate aircraft to carry both passengers and cargo
• National ‘flag carriers’ vs ‘budget’ / low cost airlines

3. Cargo agents
• Freight forwarders who are licensed by IATA to handle freight
• IATA sets standards of operation

4. Airport authorities
• Own (or lease) and operate the airport infrastructure

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Air cargo handling

Unit load devices (ULDs)

• shipping containers of the skies.
• Stow cargo efficiently and safely while maximizing space utilisation
• Most designed to reflect the shape of the aircraft hold
• IATA developed a system of identifying ULDs (e.g. AMA or AMU)

Air cargo handling equipment

• Aircraft design require sophisticated handling
• Hi loader lift ULDs to door of aircraft to fixed conveying systems of tracks fitted with rollers
• Small mobile case for meals, drinks, duty free products, blankets etc.
• Aircraft loaded from a side door with a scissor lift vehicle
• Large heavy lift cargo aircraft accessed from front or rear doors or tilting nose section

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Types of air freighter

• Variety of aircraft that carry air cargo – payload

from 600kg – 250 tons

• Helicopters – 4 – 20 tons payload

o Oil industry - gain access to offshore oil installations
o Humanitarian aid agencies - shuttle medical supplies
and personnel to disaster locations

• Passenger aircraft carry cargo in their belly holds

• Carrying capacity of some air freighters

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Documentation

Air waybills (AWB)

• Contract to transport goods by air
• Issued by the carrier airline, details the goods being carried and includes the charges for this service
• Non-negotiable document
• Sometimes used as through delivery documents
• Used for both domestic and international carriage of goods

House air waybills (HAWB)

• Issued by a freight forwarding company, e.g. IATA cargo agent
• Most often used in the situation where small cargo shipments are consolidated
• Individual HAWBs consolidated in a master air waybill (MAWB)

Other documentation
• Packing lists, commercial invoices, certificates of origin

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Air hubs and spokes

• Characteristics of air transport necessitates hubs

• Strategically located
• Utilized by airlines, freight forwarding companies and air cargo customers
• Not necessarily the shortest route but lowest transport costs
• Hubs or Gateways include: London Heathrow, Amsterdam Schiphol, and Al Maktoum International
Airport in Dubai (expected capacity of 160m passengers & 12m tons of cargo annually)
• Employed on the major trade routes

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Air freight pricing

• Generally the most expensive mode of transport (costs per ton)

o Limited space on aircraft (total volume, size of access doors and payload restrictions)
o Shape of fuselage
o Passenger baggage priorities & load balancing

Basic principles of price calculation

1. Measure cargo dimension in centimeter (length × width × height = cargo volume)
2. Pricing is based on a weight or measure system (charge at the higher of the weight or the volume)
o 1 metric tonne = 6 cubic metres or 6,000 centimetres cubed (cm³ )* = 1 kilogramme
o 1 cubic metre = 166.67 kilogrammes of chargeable rate

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Air freight pricing

Basic principles of price calculation

3. Air freight rate is calculated by multiplying the agreed kg tariff rate by the chargeable weight

For example:
A piece of cargo weighs 150 kg’s and has dimensions of 120 cm × 80 cm × 50 cm

Calculation: volume = 1.2 metres × 0.80 metres × 0.50 metres = 0.48 cubic metres (expressed as m³)
Therefore, the volumetric weight is 0.48 cubic metres × 167 kilogrammes = 80 kilogrammes.
Using the same example, the volumetric weight may also be calculated in the following manner:
120 cm × 80 cm × 50 cm/6,000 = 80 kg equivalent volume

The chargeable weight is 150 kg’s as the weight exceeds the volume equivalent of 80 kg’s

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Air freight pricing

Basic principles of price calculation

4 Look up the agreed tariff for the chargeable weight from the origin airport to the destination airport
5 Minimum chargeable weight apply but generally the cost per kilogramme diminishes as the chargeable weight
increases.
6 Airlines may also impose certain surcharges (e.g. fuel surcharge)
7 Air freight rate only covers the cost of carrying the cargo from one airport to another, and there are many other
additional charges that must be considered

• Specialist air cargo carriers or chartering of an air freighter for large consignments
o Price negotiation but basic principles remain the same
o Single charters are often charged on a round-trip basis

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Air cargo security

The major risks associated with air cargo security and air industry security include:
• The placing of explosive or incendiary devices inside air cargo
• The undeclared or undetected transport of hazardous material
• The possibility of smuggling contraband goods
• Theft from air cargo
• Hijackings of aircraft or sabotage

These risks may be limited by:

• implementing or improving cargo screening and inspection
• improving the physical security of air cargo facilities
• ‘known shipper’ programmes
• improving staff security training
• restricting access to aircraft and air cargo facilities
• use of the latest air cargo security technology

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Rail and Intermodal Transport

Read:
• Pages 423 - 500, 507 - 511 (Chapter 28) in “ The handbook of logistics and distribution
management”
Rail and intermodal transport

• Large investments in global transport infrastructure

• Rail play a key role in transporting intermodal containers

• International Standards Organization (ISO) containers and pallets revolutionized the movement of
freight

• Containers reduces multiple, improves security, reduces loss and damage and speeds up the whole
process

• Most international shipments are carried inside containers and makes the logistics process efficiently

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Strengths and weaknesses of rail transport

Strengths
1)Potential for high average speeds
2) Rail in the majority of cases runs from city centre to city centre
3)The railway effectively utilizes land space.
4) Rail is less environmentally adverse than other forms of transport
5) Very cost effective when handling bulk materials
6) Railways are energy flexible and energy efficient
7)Good safety record
8)Great scope for the full automation
9)Least affected by bad weather

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Strengths and weaknesses of rail transport

Weaknesses
1) Vulnerable to downturns in economic activity
2) Inflexible infrastructure makes it economically vulnerable to major changes in industrial and social
activity
3) Need to trans-ship from rail to other modes of transport for some part of the journey
4) Labour-intensive and often unionized industry makes it susceptible to industrial action that can
impact customer service

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Rail and Intermodal Transport

Read:
• Pages 423 - 500, 507 - 511 (Chapter 28) in “ The handbook of logistics and distribution
management”
Rail and intermodal transport

• Large investments in global transport infrastructure

• Rail play a key role in transporting intermodal containers

• International Standards Organization (ISO) containers and pallets revolutionized the movement of freight

• Containers reduces multiple, improves security, reduces loss and damage and speeds up the whole process

• Most international shipments are carried inside containers and makes the logistics process efficiently

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Intermodal equipment - containers

ISO containers
• Containers are usually rectilinear boxes constructed of steel
• TEU and FEU
• Various types - Open-topped versions, Tanktainer, Refrigerated and flat-rack options

The swap-body
• Container used primarily on bimodal intermodal operations (road and rail)
• It’s a self-supporting body that has supporting legs that may be folded away when not required.
• It’s transferred from road vehicle to rail wagon by means of an overhead straddle crane
• Unlike ISO containers, most swap-bodies cannot be stacked

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Intermodal equipment - containers

RoadRailer® trailers
• A method of effectively converting a road-going
articulated semi-trailer into a rail-going rail wagon
• A railway bogie is placed under the rear of a
specially designed road semi-trailer
• The bogie attaches itself to the kingpin of the
following road trailer
• Road wheels of the semitrailer are mechanically
retracted to prevent them from interfering with the
movement of the train
• Allows for a more rapid transfer of vehicles from
road to rail

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Intermodal equipment - containers

Unaccompanied trailers
• Road semi-trailers may be used to send goods by roll-
on roll-off sea ferry (RORO).
• Do not require any adaptation of the road trailer and
avoids the added cost of sending the tractive unit and
driver with the trailer.
• Shipping tariffs relate to the length of the vehicle, thus
unaccompanied trailers will be shorter and cheaper
• Piggyback – applies principle to road – rail
environment
• Spine rail wagon – road trailers loaded on rail wagon
with the road wheels and landing legs either side of a
central spine of wagon (see picture)

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Intermodal handling equipment

Ship to shore gantry crane (SSGC) Gantry (or portal) crane

• Crane designed to lift containers and swap-bodies.
• Large devices mounted on rails, which are able to
• Able to transfer containers and swap-bodies
speedily transfer containers from the sea-going vessel quickly from road to rail and vice versa
to trucks or rail wagons

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Intermodal handling equipment

Straddle carrier
• Straddle carriers are smaller versions of gantry cranes
• They are capable of performing the same basic functions as a gantry crane but on a smaller scale

Grappler lift
• This is a similar handling vehicle to the gantry crane except that it is fitted with four arms and is designed
specifically to handle swap-bodies

Reach stacker
• Heavy-duty material handling truck fitted with a lifting arm and
a spreader beam
• Capable of lifting containers and swap-bodies and is used to
load and unload road and rail wagons

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Intermodal vehicles - Sea

Cellular container ship

• A custom-built sea-going vessel for the carriage of
containers
• Containers are loaded one on top of the other and
guided into position by the means of vertical guides at
each corner of the container.
• Containers are secured together by means of a twist-
locking device and deck lashings
• Containers may be stacked four or more high above
deck level
• Some vessels carry other cargo in the spaces in the
holds created by the squaring-off effect. This service
is sometimes referred to as LOLO (lift-on lift-off).

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Intermodal vehicles - Sea

The roll-on roll-off (RORO) vessel

• A sea vessel designed to carry road
vehicles
• Vehicles are driven on to the vessel by the
driver or, as in the case of unaccompanied
trailers, by port-based vehicles.
• Allows unaccompanied vehicles or trailers
to be delivered to the port of departure and
then collected from the port of arrival.

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Intermodal vehicles - Rail

Rolling motorway
• Rail version of the roll-on roll-off sea ferry. Vehicles are
driven on to specially designed rail wagons by their drivers.

Double stacking
• In some parts of the world containers may be carried by
rail double stacked, ie one container loaded on top of
another.
• Method not practical in South Africa due to the restrictive
loading gauges

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Intermodal vehicles - Road

Road Skeletal trailer

• An articulated semi-trailer that is designed to carry ISO
containers
• It is fitted with twist locks at various points on the trailer to
allow the carriage of different sizes of container
• Does not have any loading platform and is a framework
designed to support containers alone

Extendable trailers
• Sometimes called ‘slider’ trailers because of their ability
to be extended or shortened depending on the size of
the container to be carried.

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Rail transport

• System of fixed infrastructure based on two parallel metal rails laid on supports known as ‘sleepers’
• Require a solid base and with relatively shallow gradients and wide radius curves
• Rail track must be free from
• Require stations to allow the transfer of passengers or cargo
• Management for the trains’ operation is required (a system of signalling and train scheduling)

Locomotives
• Locomotives may either pull the train from the front or
push from the rear
• In some cases two or more locomotives are used
• Locomotives may be powered by diesel engines,
electric power sourced

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Rail transport

Rolling stock
• The collective name for the different types of vehicle drawn by the locomotive
• Diverse variety of rolling stock reflects the different types of cargo being transported
• Cargo may be transported in enclosed boxcars, refrigerated wagons, flat wagons, tankers, wagons,
hoppers and car transporters.

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Rail transport

Railway gauge
• Distance between the two rails of the railway
• Standard gauge - used in approximately 60% of he world’s railways - is 4 feet 8½ inches (1435 mm) wide
• Broad gauge refers to rail widths greater than 4 feet 8½ inches
• Narrow gauge refers to rail widths less than 4 feet 8½ inches
• South Africa and its neighbouring countries use a rail width of 3 feet 6 inches (1067 mm) or Cape gauge.
• Broader rail gauges are capable of carrying heavier loads but utilize more land space and require broader
curves in the rail track

Loading gauge
• Refers to the maximum permitted height and width of the rolling stock
• Is a function of the height of overhead restrictions
• The distance between train pathways and trackside structures determine the width of the rolling stock

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Strengths and weaknesses of rail transport

Strengths
1)Potential for high average speeds
2) Rail in the majority of cases runs from city centre to city centre
3)The railway effectively utilizes land space.
4) Rail is less environmentally adverse than other forms of transport
5) Very cost effective when handling bulk materials
6) Railways are energy flexible and energy efficient
7)Good safety record
8)Great scope for the full automation
9)Least affected by bad weather

53
Strengths and weaknesses of rail transport

Weaknesses
1) Vulnerable to downturns in economic activity
2) Inflexible infrastructure makes it economically vulnerable to major changes in industrial and social
activity
3) Need to trans-ship from rail to other modes of transport for some part of the journey
4) Labour-intensive and often unionized industry makes it susceptible to industrial action that can
impact customer service

54