BMGT370 Exam 2 Study Guide Dedicated Contract Carriage DCC A third party service that dictates equipment vehicles and drivers to a single customer for its exclusive use on a contractual basis Serves as a customer private fleet with a customized turnkey solution Includes the management of drivers vehicles maintenance services route design delivery and administrative support for a fixed price Companies gain the advantages of a private fleet without the direct responsibility of capitalizing and operating it o Contract for a specific organization for a specific period of time o Set amount of equipment and sets drivers to run operations o BUMPING DOCKS drive to a facility someone else unloads the car The driver may not even exit the car O Pricing models Fixed Variable best one Line up fixed and variable costs o o Create a margin Utilization Scale o Purely mileage based good for the shipper o o Can be manipulated 201 miles could cost 500 while 200 miles could be Easy to administer and assign costs 300 o Windows of mileage charged based on window Ex 100 200 miles 200 300 miles 300 400 miles Over Under o Better than utilization scale and easy to administer o Establish how many miles at what cost Rebate per mile if under Expense per mile if over Backhaul Revenue Sharing o Party A lets Party C use Carrier B on the backhaul Party A gets backhaul subsidized Carrier B earns revenue Party C gets service at discount O Advantages and Disadvantages Advantages Leasing o Specialized Equipment o Less Capital Investment o o On time delivery service o o Equipment is Always Available Intense Driver Labor Requirements o More than Bumping Docks Disadvantages o More expensive than for hire carriers o Labor is not your own difficult to control Small Parcel o Market Structure Duopoly in the US type of Oligopoly cost to a Cournot Model o Cournot Model Industry structure in which companies compete on the amount of output they will produce which they decide on independently of each other and at the same time Complex internationally o Domestic Service Types Express o Next day overnight air o 2 day o 3 day Ground o Pricing ie Zone Zone Weight Service Type o Operating and service characteristics Hub and spoke model o o Constraints efficiency centralized operations and ease of adding spokes Strengths lack of flexibility potential disruptions starving the hub more touch points two trips legs per package and missing connections Founded by Jim Casey 1907 Founded by Fred Smith 1971 UPS DHL FedEX Founded by Ken Allen Adrian Dalsey Larry Hillblom Robert Lynn 1969 o All Three companies base prices on ZONES Zones and transit times are different The zone map is just for pricing it has nothing to do with transit times FedEx and UPS publish their pricing at the beginning of every year o o Rail Intermodal o Economic significance Industry revenue is 0 4 of GDP and 12 7 of total expenditures for freight transport service in US Railroad employs 187 000 people Good for new plant and equipment infrastructure Concentrated small number 565 dominated by a few Class I 7 carriers o The rest are regional or local short line carriers o Industry Structure o Types of carriers Class I carriers revenue carriers that generate greater than or equal to 369 6 million in o 7 class I railroads the rest are regional or local short line carrier railroads operating at least 350 route miles and or earning annual Regional revenue of at least 40 million but less than class I revenue threshold Local switching and terminal service line haul below the regional status plus railroads that provide only o Competition Intensity changed during second half of 20th century INTRAmodal competition o Current industry structure is a differentiated oligopoly Small number of large carriers Only a few railroads serve each region creating this oligopolistic market o Number of carriers is small in part due to Large financial barriers to entry FInancial attractiveness of mergers and consolidations o Commodities hauled Bulk products 83 coal farm products chemicals food and kindred products nonmetallic minerals Non bulk products transportation equipment intermodal mixed freight o Competitive Advantages Disadvantages of the mode Advantages Large Carrying Capacity o o Can carry any kind of cargo o o Piggyback Services Takes liability Disadvantages Speed Flexibility o o o Rights of Way Impede Door to Door Services o Service types and equipment types Carload basic unit of measure of freight handling Boxcar plain standardized roofed freight car with sliding doors on the side used for general commodities Boxcar equipped modified boxcar used for specialized merchandise Hopper car freight car with floor sloping to one or more hinged doors used for discharging bulk merchandise Covered hopper a hopper car with a roof designed to transport bulk commodities that need protection from the elements Flatcar freight car with no top or sides used primarily for TOFC service machinery and building materials Refrigerator controlled temps Gondola freight car with no top a flat bottom and fixed sides used primarily for hauling bulk commodities Tank car specialized car used for the transport of liquids and gases o Cost structure Large proportion of RR costs are indirect fixed o 30 of costs do not vary with volume due to long lived assets o Own and maintain their own network and terminals Semi variable 40 o Major cost element in railroad industry Operation maintenance ownership of rights of way Labor Fuel o Economies of scale in rail The falling average cost dollars ton as scale or capacity INCREASES assuming capacity is utilized Economies of density or utilization Falling average costs as volume carried INCREASES assuming capacity remains constant Large among railroads due to high fixed costs o Staggers Rail Act 1980 Further relaxes regulatory framework for railroads Results in great improvement in railroad financial condition Authorizes contract rate making Enables railroads to tailor services to shipper specific needs Evens the playing field with truck and water carriers o o o o o o Inland Water o Types of carriers Private carriers o Own the freight transported o Own or lease the vessels o Can transport exempt commodities on a for hire basis o o 3 or less commodities transported in the same barge unit also exempt Excluded from federal economic regulation from economic regulation o For hire water carriers Exempt carriers charge a fee for services Excluded from federal econ regulation Carriers are