Truck, Train, Ship, or Plane?

Inputs and products are transported in one of four ways: truck, train, boat, or airplane. Firms seek the lowest-cost mode of transport, but which of the four alternatives is cheapest changes with the distance that goods are being sent.

The farther something is transported, the lower the cost per kilometer (or mile). Longer-distance transportation is cheaper per kilometer in part because firms must pay workers to load goods on and off vehicles, whether the material travels 10 kilometers or 10,000. The cost per kilometer decreases at different rates for each of the four modes because the loading and unloading expenses differ for each mode.

Trucks: Short Distances

Trucks are most often used for short-distance delivery because they can be loaded and unloaded quickly and cheaply. Truck delivery is especially advantageous if the driver can reach the destination within one day, before having to stop for an extended rest.

Ship By Truck

The highest volumes of freight truck traffic in the United States are in the East.

Trains: Cross-Country Shipment

Trains are often used to ship to destinations that take longer than one day to reach, such as between the East and West coasts of the United States. Loading trains takes longer than loading trucks, but once under way, trains aren’t required to make daily rest stops like trucks (Figure 11-23).

Ship By Rail

Most rail moves long distances east-west within the United States.

Airplanes: Small & Valuable Packages

Airplanes are most expensive for all distances so are usually reserved for speedy delivery of small-bulk, high-value packages

Ship By Air

FedEx Express Services.

Boats: Crossing Oceans

Ships are attractive for transport over very long distances because the cost per kilometer is very low. Ships are slower than land-based transportation, but unlike trains or trucks, they can cross oceans, such as to North America from Europe or Asia (Figure 11-25).

Ship By Boat

The world’s largest cargo ports and shipping routes are shown.

Break-of-Bulk Points

Mixed modes of delivery are often used. For example, air freight companies pick up packages in the afternoon and transport them by truck to the nearest airport. Late at night, planes filled with packages are flown to a central hub airport in the interior of the country, such as Memphis, Tennessee, or Louisville, Kentucky. The packages are transferred to other planes, flown to airports nearest their destination, transferred to trucks, and delivered the next morning.

Many companies that use multiple transport modes locate at a break-of-bulk point, which is a location where transfer among transportation modes is possible. Important break-of-bulk points include seaports and airports. For example, a steel mill in Gary, Indiana, may receive iron ore by ship via Lake Michigan and coal by train from Appalachia.

Containerization has facilitated transfer of packages between modes. Containers may be packed into a rail car, transferred quickly to a container ship to cross the ocean, and unloaded onto trucks at the other end. Large ships have been specially built to accommodate large numbers of rectangular box-like containers.

Regardless of transportation mode, cost rises each time inputs or products are transferred from one mode to another. For example, workers must unload goods from a truck and then reload them onto a plane. The company may need to build or rent a warehouse to store goods temporarily after unloading from one mode and before loading to another mode. Some companies may calculate that the cost of one mode is lower for some inputs and products, whereas another mode may be cheaper for other goods.

Just-in-Time Delivery

Proximity to market has become more important in recent years because of the rise of just-in-time delivery. As the name implies, just-in-time delivery is shipment of parts and materials to arrive at a factory moments before they are needed. Just-in-time delivery is especially important for delivery of inputs, such as parts and raw materials, to manufacturers of fabricated products, such as cars and computers.

Under a just-in-time system, parts and materials arrive at a factory frequently, in many cases daily or even hourly. Suppliers of the parts and materials are told a few days in advance how much will be needed over the next week or two, and first thing each morning, they are told exactly what will be needed at precisely what time that day. To meet a tight timetable, a supplier of parts and materials must locate factories near its customers. If given only an hour or two of notice, a supplier has no choice but to locate a factory within around one hour of the customer.

Just-in-time delivery reduces the money that a manufacturer must tie up in wasteful inventory. Manufacturers also save money through just-in-time delivery by reducing the size of the factory because space does not have to be wasted on piling up a mountain of inventory. Leading computer manufacturers have eliminated inventory altogether. They build computers only in response to customer orders placed primarily over the Internet or by telephone.

Just-in-time delivery means that producers have lower inventory to cushion against disruptions in the arrival of needed parts. Three kinds of disruptions can result from reliance on just-in-time delivery:

• Natural hazards. Poor weather conditions can affect deliveries anywhere in the world. For example, blizzards can close highways, rail lines, and airports.

• Traffic. Deliveries may be delayed when traffic is slowed by accident, construction, or unusually heavy volume.

• Labor unrest. A strike at one supplier plant can shut down the entire production within a couple days.

Pause & Reflect 11.1.6

How might weather conditions influence the choice of a factory site between the North and the South in the United States?