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2. A Survey of Transportation Modes

Figuring out how to transport goods is among the most fundamental busi-

ness decisions a company can make. In some cases, the means of moving

product is limited as a function of availability or the geography over

which a shipment must move. Shipments by truck and rail are primarily

limited to land, for instance. Navigable waterways must be available for

ships, and takeoff/landing strips must be available for air transportation

to be viable. Where multiple options are available, the logistics manager

must evaluate the service attributes and costs associated with available

options.

Chapter 1, “Transportation in Business and the Economy,” introduced

the five modes of transportation: road, rail, water, air, and pipeline. This

chapter reviews each of the modes and compares their relative service

and cost characteristics. Attention then shifts to how the benefits of dif-

ferent modes can be combined through intermodal transportation.

An Overview of the Modes

Chapter 1 noted that $836 billion was spent on transportation in the

United States in 2012. Figure 2-1 illustrates the modal split for this sum.

The term modal split refers to the market share, as measured by total rev-

enues earned by carriers operating within that mode. The dominant

share illustrated by trucking (road) transportation is quite clear, with 77

percent of revenues directed toward this one mode. The ease with which

shipments can be collected and delivered by road explains much of the

success of truck transportation. Yet this mode is also relatively fast, de-

pendable, and flexible in terms of the types of cargo and volume that it

can carry. Rail transportation is a distant second, at 9 percent. Note that

the rail system in the United States is well developed and competitive,

with more than 161,000 miles of track. Similarly, the modes of air, water,

pipeline, and forwarders have extensive capacity and offer comprehen-

sive services in the United States. Quite simply, most goods move by truck

at some point in their distribution.

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Figure 2-1 U.S. domestic modal split (revenues).

When viewing modal split under a different measure, however, we see a

different story. A conventional unit of measure used in transportation is

the ton-mile, a combined measure associated with moving 1 ton (2,000

pounds) a distance of 1 mile. Figure 2-2 reveals that although the United

States relies greatly on truck transportation for moving freight domesti-

cally, the nation also makes extensive use of several other modes. Notably,

rail transportation just surpasses trucks when comparing ton-miles. How

is this possible? Rail transportation is recognized as extremely efficient

for moving large volumes of freight over long distances. The combination

of large volumes and long distances allows rail to exceed the high-fre-

quency movements completed by truck, which, on average, are of much

lower volume and shorter distances. Pipeline is another mode that excels

in moving large volumes over long distances. Although pipelines repre-

sent only 2 percent of the transportation market by revenue (in Figure 2-

1), they accommodate 15 percent of the ton-miles. Multimodal transporta-

tion, referring to a combination of different modes for supporting trans-

portation needs, represents 11 percent of the ton-mile share. Water finds

balance in representing 4 percent of revenues and 4 percent in ton-miles.

Air transportation occupies a very small share of the domestic modal split

in ton-miles. As a premium mode of transportation capable of covering

long distance very quickly, it excels in international transport.

Figure 2-2 U.S. domestic modal split (ton-miles).

When compared side by side, the transportation modes indicate distinct

differences in key aspects of service and cost. The balance of this chapter

reviews each mode in detail.

The Five Modes of Transportation

Transportation occurs in five different ways, based on the commercial sit-

uation at hand. These are reviewed in the following sections.

Road Transportation

Road (or motor) transportation is the most common form of transport in

most settings. Given the extensive network of roadways within towns and

cities, as well as the connections among them, most origin–destination

pairs within a land mass can be reached via some means of motor trans-

portation. Motor transportation includes a wide range of roadway trans-

port, such as trucks, vans, cars, or motorcycles. Trucks serve as the pri-

mary means of moving shipment of a single pallet-size container to sev-

eral pallets. A 53-foot trailer, which has become quite common in many

settings, can hold two rows of 13 pallets, or 26 pallets. If the goods can be

double-stacked (one pallet atop another), the capacity doubles to 52 pal-

lets. The weight capacity for such a trailer is in the range of 45,000

pounds. For smaller loads or city deliveries, smaller vehicles such as box

trucks and vans are preferred, as seen in Figure 2-3.

Figure 2-3 Box truck for city delivery.

Transportation by road is also a relatively fast and reliable means of

transporting goods. Although road travel is not as fast as air transporta-

tion, trucks are faster than the other modes. When moving freight from

one city to another, trucks can usually average approximately 50 miles

per hour, including stops. In a 10-hour shift, this means that a truck can

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cover approximately 500 miles in a single day. Some companies are em-

ploying strategies that can dramatically stretch this range. Among these

strategies is the use of “team drivers,” or assigning two drivers to a truck

and allowing them to alternate driving duties. This arrangement can vir-

tually double the daily range of a truck. Another strategy is to devise relay

networks that allow a driver to cover the typical 500 miles in a shift and

then to hand the truck or trailer to another driver, who then continues

with the delivery toward its destination. Although these strategies help to

improve range, increasing congestion on roadways, particularly in cities,

is challenging the speed and reliability of transport by truck.

Aside from convenience and speed, road transportation is common for

other reasons. The availability of motor carriers contributes to its popu-

larity. For instance, the United States alone has more than 725,000 regis-

tered motor carriers. Trucking companies compete vigorously for busi-

ness in such a competitive market. The competitiveness of the trucking

market has accelerated as a result of deregulatory actions and market

freedoms instituted over the past 35 years.

The U.S. interstate trucking industry was largely deregulated on matters

of economic competition in 1980 through provisions of the Motor Carrier

Regulatory Reform and Modernization Act (known as Motor Carrier Act,

or MCA-80). Until passage of this historic law, the Interstate Commerce

Commission (ICC) regulated matters of market entry and pricing. From

the time of its formation in the Act to Regulate Commerce in 1887, the ICC

enjoyed powers that were quasi-legislative, executive, and judicial in ori-

entation. In other words, the ICC was regarded as the single most influen-

tial body for all economic and competitive matters associated with sur-

face transportation in the United States, including the trucking industry.

MCA-80 removed most of its powers, and carriers began to operate in a

free market-based system for matters of interstate transportation. Note

that intrastate trucking (transporting from an origin to a destination

within the same state) remained regulated by individual states and their

motor rate bureaus until 1994, when states were stripped of this power.

Although the MCA-80 legislation applied only to trucking operations

within the United States, other nations have followed with policies that

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liberalize competition in the trucking and transportation marketplaces.

Many carriers filed for bankruptcy and closed as a result of the intensify-

ing competition resulting from MCA-80 in the United States, but several

other new businesses entered the trucking market because of greatly re-

duced barriers to entry. Furthermore, MCA-80 is credited with instilling

an atmosphere that fostered creativity and innovation in service offer-

ings that was lacking in a staunchly regulated environment. Deregulation

allowed for greater differentiation of service, along with competitive pric-

ing, which greatly benefited shippers. Closer collaboration between ship-

pers and their carriers fostered strategies that reduced logistics costs and

allowed shippers to better leverage carrier capabilities. In fact, many

shippers discontinued the use of private fleets (self-owned and operated

trucking fleets) when they determined that they could buy enhanced ser-

vices at competitive prices in the open marketplace. Shippers in other na-

tions observed the benefits enjoyed by U.S. companies and pushed effec-

tively for greater liberalization in transportation markets in their nations.

This trend continues today.

Trucking Market Segments

The trucking market is divided into three broad segments. These include

segments based on volume (less-than-truckload and truckload), geo-

graphic coverage (regional, national, and international), and equipment

(dry van, refrigerated, flatbed, tank, and special equipment).

Truckload carriers are the largest segment in the road transportation

market. As their name implies, truckload carriers specialize in moving

large volumes of freight for their industrial customers. Although truck-

load carriers do accept smaller loads, they typically target shipments in

the range of 15,000 to 50,000 pounds. Truckload carriers specialize in

door-to-door service, collecting freight at an origin and delivering directly

to the destination without any intermediate stops. This “one-touch” ser-

vice is attractive to shippers because it reduces the time in transit and the

propensity for damaging shipments by avoiding the rehandling of freight.

The larger the geographical area that the truckload operator seeks to

serve, the more likely the carrier will have multiple terminal locations for

housing equipment and station drivers. Many large nationwide carriers

also operate maintenance facilities to service and maintain their equip-

ment at several terminal locations. Aside from these concentrated expen-

ditures on facilities, the capital expenditures for truckload businesses

tend to focus on the trucks (also referred to as tractors or power units)

and trailers. Each truck should have a trailer, but it is not uncommon for

a large truckload business to keep three or four trailers for each truck in

their fleet, to ensure that a sufficient number of trailers is available to

serve customers. This is particularly true when carriers offer “drop

trailer” service, which means that the carrier allows a shipping customer

to keep a trailer for an extended time for loading or unloading purposes.

Larger carriers tend to have more capital dedicated to terminal and

maintenance facilities, as well as a higher trailer-to-truck ratio. However,

it is possible for small carriers to survive with a single truck and trailer. A

new Class 8 (heavy-duty truck with gross vehicle weight of 33,000 pounds

or more) might cost up to $200,000. But used equipment can cost signifi-

cantly less, allowing smaller players to enter the market. For this reason,

most of the 700,000-plus registered motor carriers on record are small op-

erators, with one or a few trucks composing a fleet. For instance, farmers

in North America commonly operate small truckload businesses during

the winter (off-season) months for the agriculture business. In season,

these carriers use their fleet to provide transportation support for the

farm.

The key to survival for any truckload business, large or small, is to make

the best possible use of the available equipment and the driver’s time.

These companies seek to have loaded “revenue miles” to the greatest ex-

tent possible. When a truck is not loaded with freight, it still incurs the

costs of operation (such as fuel, asset depreciation, and sometimes driver

wages) on what are called “deadhead miles.” Therefore, it is essential that

these carriers find revenue opportunities not only for fronthaul move-

ments (origin to destination moves), but also on backhauls (from the des-

tination back to the origin). The high level of competition in the truckload

market requires that prices include only small margins for carriers. One-

way hauls with deadhead backhauls are usually not sufficient to support

a truckload business.

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Less-than-truckload (LTL) carriers specialize in smaller loads, typically in

the range of 150 to 20,000 pounds. Whereas truckload carriers typically

dedicate a trailer to a customer for an origin–destination movement, LTL

carriers operate under the premise of sharing the trailer’s capacity

among multiple shippers. As a result of this “shared capacity” premise,

LTL carriers tend to employ a very different business model than their

truckload counterparts. As noted, truckload carriers operate terminals

that serve the purpose of stationing drivers and equipment. LTL carriers,

on the other hand, employ facilities for collecting and sorting freight, as

well as domiciling equipment and drivers.

The difference in operations between truckload and LTL carriers influ-

ences costing and pricing for these classes of service. The truckload car-

rier collects a shipment at a shipper (consignor) location and delivers the

load directly to the customer (consignee) location. The LTL carrier collects

freight not only at the shipper location, but also from multiple shippers

located throughout the city on the driver’s assigned route. After collecting

freight at multiple shipper locations, the truck returns to the pickup ter-

minal, where it joins with other trucks that collected freight throughout

the day. The trucks are then unloaded, and the freight is sorted. Deliveries

destined for a common city or region are loaded onto a linehaul truck for

transit to a delivery terminal. It is sometimes necessary to direct freight

through another intermediate location, called a breakbulk facility, for fur-

ther consolidation.

When freight arrives at the delivery terminal, it is unloaded again, sorted,

and loaded onto delivery trucks designated for different routes through-

out the city or region. Along one of these routes, a driver completes the

delivery to the customer location. LTL drivers often not only deliver

freight on these routes, but also collect freight along their routes. In total,

LTL deliveries usually require at least one overnight time period to per-

form the pickup, collection sort, linehaul, delivery sort, and ultimate de-

livery sequence. For this reason, LTL deliveries usually require more time

to complete than truckload deliveries.

Also worth noting is that providing LTL service on a large scale requires

considerable capital investment. Terminals and breakbulk facilities add

to the expense of operating in this market segment. For this reason, the

LTL market tends to be much more concentrated than the truckload mar-

ket, with fewer large LTL carriers enjoying sizeable shares of the market.

The second market segment considered here is the geographical scope of

coverage. Some carriers choose to operate in a smaller market on a re-

gional basis. Others provide coverage for an entire nation. Still others

provide trucking services that cross national boundaries. In the days of a

regulated trucking industry in the U.S., carriers commonly specialized in

service within a single state. Today, very few carriers operate on such a

limited basis; instead, they seek to provide broader market coverage.

Even regional carriers usually maintain relationships with other regional

carriers so that they can market and sell broader coverage to shipping

customers, allowing the carriers to compete with nationwide service

providers. These inter-regional operations are usually managed on a re-

ciprocal basis among the regional carriers, with parties seeking to

achieve balance in the freight that each party is contributing to the com-

bined business.

Similar arrangements are often made on international freight. In these

situations, a carrier specializing in one service in one nation hands off

cargo to a partner firm in the destination nation. Individual carriers that

provide service in more than one nation must be licensed to operate in

each of the various settings. Cabotage laws, however, are protective regu-

latory measures that limit the access that non-native providers can offer

in a foreign nation. The North American Free Trade Agreement (NAFTA)

has provisions designed to allow trucking companies to more freely oper-

ate across the national boundaries of Canada, the United States, and

Mexico, although these provisions are not yet fully observed. The

European Union (EU) allows much greater flow of trucks throughout its

member nations.

The third market segmentation of interest is that of equipment. The typi-

cal trailer used in truckload and LTL services is the dry van trailer. This

trailer uses a conventional enclosed “box” design and has no form of re-

frigeration or climate control. Temperature-controlled carriers, on the

other hand, employ insulated trailers equipped with heaters or refrigera-

tion equipment. Food products often require refrigeration or freezing in

transit to maintain the integrity of products. Chemical products and ad-

vanced technologies sometimes require refrigeration to avoid being ex-

posed to high levels of heat. Most temperature-controlled carriers also

provide dry service. However, few dry carriers are in the temperature-

controlled business.

Another common form of equipment is the flatbed trailer. Open-air

flatbed equipment is often used to haul industrial equipment and build-

ing materials (such as timber, lumber, steel, and pipe) that can be secured

with straps and that require little or no protection from the natural envi-

ronment. Hopper trucks are often open-top trucks and trailers that are

used to haul grains (such as corn, soybeans, and wheat), construction ma-

terials (such as sand and gravel), and coal. Tank trucks are used to ship

fluid materials such as water, oil, and corn syrup. Carriers might also spe-

cialize in the areas of household goods transportation, autohauling, ce-

ment, or oversize loads. Figures 2-4 through 2-7 show several of these dif-

ferent forms of equipment.

Figure 2-4 Truck and dry van trailer.

Figure 2-5 Truck and tank trailer.

Figure 2-6 Truck and flatbed trailer.

Figure 2-7 Truck with autohauler trailer.

Discussion to this point has focused on industrial (business-to-business)

forms of roadway transportation. Consumers, households, and small busi-

nesses are also served via roadway transportation. Instead of using large

trucks, however, deliveries for these purposes involve box trucks (known

as straight trucks or city trucks) for furniture and household appliances,

conventional vans for flowers and rugs, and cars for books and pizzas.

Motorcycles and bicycles are used for deliveries in urban areas because

they can quickly navigate crowded streets. Off-road motorcycles are also

used to deliver critical supplies in remote locations that lack good roads.

The diversity of the forms of carriage in roadway transportation speaks

to the dependence of both businesses and consumers on this mode.

Among industrial shippers, trucking represents about 85 percent of the

transportation industry. Road transportation is also the primary means

small businesses and consumers employ. With the tremendous growth in

Internet retailing, success in home delivery is expected to become critical

to businesses in the future. More discussion of this topic is found in

Chapter 10, “The Future of Transportation.”

Rail Transportation

Another form of “surface” transportation is railroads. Railroads offer the

advantage of efficiently transporting very large volumes over long dis-

tances. A typical tractor-trailer truck might have a capacity of up to

50,000 pounds of cargo, but a single rail boxcar can carry approximately

three times this volume. Furthermore, boxcars are usually grouped in

large numbers to form a train, often with more than 100 cars. This speaks

to the efficiency with which trains can transport goods.

The infrastructure for rail transportation is not as extensive as the road

network, making access something of a challenge. The United States has

more than 4 million miles of roadways, but the total rail network totals

just over 161,000 miles. Furthermore, this number has declined dramati-

cally since the railroad industry saw dramatic deregulation in 1980 (the

same year as MCA-80). Similar to interstate trucking, the freight railroad

industry was heavily regulated by the ICC for nearly a century. The

Staggers Rail Act, enacted just one month after the MCA-80, more freely

allowed rail carriers to determine their destinies by allowing greater pric-

ing scrutiny and reducing scrutiny for railroad abandonment. That is, if a

rail operator found a rail segment to be unprofitable, the carrier could

elect to close that segment. Until the Staggers provision, rail carriers

could petition the ICC for the rights to abandon rail, but the ICC could

force the carrier to continue the service under the provision of public in-

terest. This power was greatly reduced under Staggers, and railroad oper-

ators abandoned many miles of their networks that they deemed as un-

derperforming financially. Smaller local or regional rail operators some-

times acquired the abandoned lines. Today, many unclaimed lines have

been converted into recreational bike paths under the Rails to Trails

Conservancy.

The role of railroad transportation has been reduced from 150 years ago,

when it served as an instrument of westward expansion in the United

States. The Golden Spike ceremony of May 10, 1869, when the Central

Railroad and the Union Pacific Railroad met in Promontory, Utah

Territory, marked a major milestone in American history as the West

joined the East with the first transcontinental railroad. The railroad in-

dustry flourished in the back half of the 1800s and early 1900s. In fact, the

number of track miles peaked in the United States in 1916, with 254,251

miles. The railroads were prominent in transporting people as well as

freight among the growing population. In fact, many small cities were

formed along the routes and intersections of the railroads. The advent

and growth of automobiles greatly reduced dependence on railroads.

With expansions in the roadway network and advances in automobile de-

sign and performance, passenger and freight traffic diverted from the

railroads to roadways throughout much of the twentieth century.

The ability to provide door-to-door service for virtually every origin–des-

tination within a land mass is one advantage of roadway transport over

railroads. The average speed and reliability of delivery are two perfor-

mance criteria that tend to favor roadways over rail. As noted, railroads

seek to combine many railcars to form trains that can move long dis-

tances extremely efficiently. It can take several days for a train to form

among railcars provided from many different shippers. An individual

railcar also might travel with multiple trains, stopping in switchyards to

transfer from one train to another before it reaches its destination. Each

transfer can add days to the transit. For these reasons, transportation by

rail can take considerably longer than by truck, with greater variability in

the time required to complete the transit. An exception to these observa-

tions occurs when a company hires a rail carrier for dedicated service be-

tween an origin and destination. Large shippers, such as coal companies,

grain marketers, and automakers, often form dedicated trains, or unit

trains. The average speed of transit is greatly improved when bypassing

switchyards and moving direct to destinations.

The countervailing force to the longer transit time of trains is the im-

mensely efficient means of moving freight. As noted, railroads thrive on

the ton-miles measure because they are designed to efficiently move

large volumes over long distances. One large U.S. railroad estimates that

it consumed roughly 490 million gallons of fuel to move just over 229 bil-

lion ton-miles of freight in 2010. This equates to approximately 467 ton-

miles per gallon of fuel. By comparison, the carrier claims that a truck

would require 71 gallons of fuel to move 19 tons over a distance of 500

miles, equating to about 134 ton-miles per gallon. On these grounds, the

railroad claims to be 3.5 times more fuel-efficient than trucking opera-

tions. On a related note, the Association of American Railroads estimates

that trains emit 75 percent fewer greenhouse gases than trucks, when

moving comparable volumes and distances. These are important observa-

tions in the age of energy conservation and sustainability.

Rail Transportation around the World

Rail transportation is not as prominent for moving freight in settings out-

side the United States. Several reasons are offered for this distinction.

During the second half of the nineteenth century, when rail was instru-

mental in extending development and establishing trade outposts and

new cities in the western United States, many other nations were more

developed, with established trade routes. The United States, on the other

hand, was leveraging the capability of emerging steam-power locomo-

tives to forge growth and development.

In addition, instead of focusing on freight movement, several nations em-

ploy rail for passenger purposes and often heavily subsidize the construc-

tion and operation of these services. Passenger trains are typically called

on for only limited freight service, often for the transport of mail and

parcels. This is true in several European and Asian nations, where high-

speed rail garners much attention for its marvels in moving people at

speeds of up to 185 miles per hour (300 kilometers per hour). China and

South Korea are currently the only operators of magnetic levitation (or

“maglev”) technology for commercial rail purposes, although many other

nations are developing these technologies that allow trains to travel on

magnets instead of using conventional rails and wheels.

Finally, rail is a mode that excels for movements of greater than 500

miles.

Such long-distance movements would exceed the national boundaries of

many nations, requiring coordination across nations to leverage its po-

tential. Yet many nations remain cautious about establishing connections

across national boundaries via rail links. This was particularly true in the

6

boom times of railroad development, before widespread automobile us-

age. Nations tended to be much more insular from an international trade

perspective than today. In fact, where rail infrastructure developed, na-

tions built rail lines of differing gauges (track widths), requiring people

and goods to physically transfer when transported from one nation to

another.

Two developed nations with large land masses, China and Russia, join the

United States as major freight rail nations (see Table 2-1). With consider-

ably less usage than the top three, India, Canada, and Brazil follow. This is

not to suggest that freight rail is an insignificant mode in any setting in

which it operates. For instance, Germany uses rail extensively to trans-

port cargo from its northern port in Hamburg to destinations in the south

of the country. Private investment also is starting to develop rail transport

in several nations of South America and Central Europe, which will spur

considerable usage.

Source: International Railway Union, Railisa, the UIC Statistics Database.

Table 2-1 Top Ten Nations for Freight Rail Volumes (in Ton-Miles,

Billions)

The cost of building rail lines can make them prohibitively expensive in

many settings. In addition to the rail line itself, the operator must procure

the land upon which the rail is to be placed. Combined, the costs of land

and infrastructure usually exceed $1 million per mile. With bridges or

other infrastructure, the costs increase significantly. Annual maintenance

costs are estimated at $300,000 per mile. These economics challenge the

development of railroads in many settings.

Railroad operators provide service to shippers by way of several different

forms of equipment. The boxcar is the conventional form of transport on

railroads for packaged freight. However, most cargo that moves by rail is

not contained on pallets or boxes. Quite often, railroads carry bulk car-

gos. Some cargos require enclosure to protect them from the elements;

others (such as coal and gravel shipments) require no coverage and can

travel in open-top cars or flatcars. Covered hopper cars can carry 263,000

pounds of grains in bulk. Meanwhile, tankcars can transport up to 34,500

gallons of liquid cargo. Figures 2-8 through 2-11 show a variety of rail

equipment used to carry large volumes of freight.

Figure 2-8 Rail boxcar for containerized freight.

Figure 2-9 Small covered hopper car for grains.

Figure 2-10 Flatcar with timber.

Figure 2-11 Rail tankcar.

The Rail Market

The market for railroad services in the United States is segmented based

on the revenues of the carriers. Large nationwide carriers earning oper-

ating revenues of $378.8 million are labeled as Class I carriers, according

to the Association of American Railroads. Class I railroads operating in

the United States include Burlington Northern Santa Fe, CSX

Transportation, Norfolk Southern, Union Pacific–Southern Pacific, Grand

Trunk Corporation, Kansas City Southern, and Soo Line. These major rail-

roads actually are combinations of several disparate railroads. The rail-

road industry has experienced immense merger activity. Examples in-

clude the combination of the Burlington Northern and Santa Fe railroads

in 1995, and the Union Pacific–Southern Pacific merger of 1996.

Furthermore, Grand Trunk is a combination of Grand Trunk Western,

Illinois Central, and Wisconsin Central. Merger activity has slowed in re-

cent years as a result of greater scrutiny by the U.S. Department of Justice.

Despite the mergers, the United States does not have a single railroad that

can provide coast-to-coast service. Instead, western and eastern railroads

maintain interline agreements and alliances that allow them to provide

coast-to-coast connectivity.

Regional railroads operate on a smaller scale, with at least 350 miles of

track and at least $40 million in operating revenue. These companies typi-

cally operate within one state or a few neighboring states. Smaller rail-

roads, with revenues of less than $40 million, are regarded as local or

“feeder” lines. Many formed as a result of deregulation brought forth by

the Staggers Rail Act, acquiring rail lines that larger carriers abandoned.

Still other railroads specialize as switching and terminal railroads.

A growing segment for most large rail operators is the intermodal market.

Intermodal transportation involves the combination of two or more

modes of transportation for a single shipment. Standard intermodal cargo

containers can be transported via truck, rail, or ship. Railroads are a com-

mon component of intermodal transportation because they usually enjoy

efficient portside access for international shipping and can reach cities

very efficiently over long distances. Major railroads also maintain strate-

gic relationships with trucking companies to provide the door-to-door

convenience that trucking services offer.

Increasingly, rail carriers around the world are seeking arrangements

that provide greater connectivity across national boundaries. The United

States and Canada enjoy high levels of connectivity and extensive inter-

lining, particularly with the Canadian Pacific and Canadian National rail-

ways owning significant stakes in U.S. carriers (the Soo Line and Grand

Trunk, respectively). Rail transportation between the United States and

Mexico has increased markedly since the Mexican railroad was priva-

tized in 1995 and operates at six major border crossings. The EU is seek-

ing similar arrangements in Europe to leverage the economies of scale

benefits in a larger market.

Water Transportation

Transportation by water is perhaps most obvious on the high seas, where

giant oceangoing vessels travel from coast to coast with enormous vol-

umes of freight. Ships account for more than 90 percent of overseas inter-

national transport. However, transportation by water can also occur in-

land via lakes and rivers. All means represent significant components of

transportation where navigable waterways present themselves. Unlike

other forms of transportation, the viability of water transport is largely

dictated by location. Put another way, origin and destination locations

that are not located on navigable waterways will find the use of water a

remote possibility. The next sections review ocean and inland water

transportation.

Ocean Transportation

Ocean shipping is one of the oldest and most reliable ways of transporting

goods over long distances. It also represents one of the most economical

means, when one considers the tremendous volumes that a large ship can

carry. Consider, for instance, the Triple-E Class container ships that began

sailing the oceans in 2013. These ships have a capacity of up to 18,000 20-

foot containers, or 20-foot equivalent units (TEUs). The ships are 1,312

feet in length and weigh 55,000 tons when empty. Expressed in product

terms, a single Triple-E ship can carry 182 million iPads or 111 million

pairs of shoes. Maersk, the world’s largest ocean shipping company, or-

dered 20 of these vessels for service between Europe and Asia, at a price

tag of $185 million apiece. This is a far cry from the days of sailing ships,

traversing the great oceans with a simple compass under the power of

sea breezes.

So-called steamships are not the fastest mode of transportation, however.

Ocean vessels travel at speeds ranging from 10 to 26 knots (or 11.5 to 30

miles per hour). Increasingly, ships are reducing their speeds to improve

fuel efficiency. “Slow steaming” can dramatically reduce the energy re-

quired to move these massive vessels. The Triple-E ships are expected to

average 16 knots (18.4 miles per hour). But speed is not ordinarily the

highest priority for merchandise traveling by ocean shipping. Customers

7

of ocean transport are instead seeking the lowest possible price and pre-

dictable, reliable delivery. Traversing the great oceans of the world can

take weeks. Shippers (customers of shipping) fret over variability, how-

ever, for it impacts their ability to serve customers.

Ocean liner service is offered for scheduled routes among major seaports

around the world. Large container carriers operate multiple ships on es-

tablished routes for multiple sailings per week. Bookings are based on

full-container-load (FCL) and less-than-container-load (LCL) bases. LCL

loads are often booked by brokers and freight forwarders that consoli-

date the shipments of multiple customers into FCL volumes. Shipping

containers are of five different lengths: 20, 40, 45, 48, or 53 feet, with the

45-foot container representing an international standard (as established

by the International Organization for Standardization or ISO). The benefit

of standard containers is the ability to stack them on ships and to ease the

transfer of containers among ships, rail, and trucks to accommodate in-

termodal transportation. Container ships represent approximately 13

percent of the world’s ocean fleet capacity.

Aside from container ships, a wide variety of other vessels commonly tra-

verse the great spans of oceans. Bulk vessels carry a diverse assortment

of commodities, including agricultural grains, coal, cement, and mineral

ores. Bulk ships can have a single hold (cavity) for hauling a single com-

modity or multiple holds to transport different products. Similarly, tanker

ships haul liquid commodities such as petroleum, gasoline, and chemicals

in bulk quantities. Routes for bulk vessels are based on trade patterns,

shipping from points of extraction to locations for further processing or

consumption. Customers might elect to hire bulk carriers within the

scope of a carrier’s scheduled sailings or chartering vehicles for dedicated

service. Private ownership and chartering is quite common among global

producers and distributors of commodity materials. Bulk vessels repre-

sent approximately 17 percent of the world’s ocean shipping fleet.

The balance of the world’s ocean fleet consists of a combination of several

different types of vessels and operators, including lighter-aboard-ship

(LASH) carriers and roll-on/roll-off (RORO) carriers. LASH ships carry un-

powered barges from one river port to another. They submerge so that

barges can be loaded before regaining buoyancy for the transportation

segment. Heavy-lift LASH ships are called upon for moving large infra-

structure, such as oil rigs. They have also been used to transport crippled

ships, such the U.S.S. Cole after it was attacked by terrorists in Yemen in

2000. RORO ships are designed to transport wheeled vehicles, hence, the

name. They are used quite commonly for the transport of automobiles

from manufacturing nations to import nations. The world’s military also

makes use of RORO ships to transport wheeled equipment. Passenger

ferry ships often carry personal vehicles as well.

Inland Water Transportation

In addition to ocean transportation, water is an important means of mov-

ing cargo on inland transport segments. Transport over lakes and rivers

can connect critical trade cities and provide access to ocean transport for

global markets. Not all lakes and rivers are viable for commercial trans-

port purposes, however.

In some cases, waterways must be widened, deepened, or straightened to

permit large commercial vessels to be of any practical industrial use.

When economically feasible, governments often develop infrastructure to

overcome these impediments to inland water transportation. Dredging

refers to efforts to deepen or widen a channel by excavating the river or

lake bed to provide greater depth and draft for vessels to navigate. Rivers

are susceptible to silt collections that can build up over time, which

means that dredging can be a recurring need to ensure reliable transit in

some channels.

Canals or trenches can also be developed to allow for short-distance con-

nections between waterways. A canal is sometimes referred to as an arti-

ficial waterway because it involves manmade changes to the landscape to

create navigable waterways. Canals have been in existence for centuries,

dating back to ancient times in Egypt and China. Many canals require

locks and dams to allow ships to travel from high-water to low-water ar-

eas (and vice versa) safely. A lock is a chamber that can fill with water to

raise a vessel to a higher elevation or empty of water to lower the vessel

to a low-water area.

One major infrastructural development of the modern era is the widen-

ing of the Panama Canal. This canal, which marks its centennial (100th

year of operation) in 2014, provides a 48-mile-long shortcut between the

Pacific Ocean and the Caribbean Sea. It is scheduled to have a new, larger

series of locks in place and operational by 2015, allowing for higher vol-

ume and larger ships than the original canal can support.

Transportation by river is determined by several factors. The inland

reach of the river is one consideration. In other words, does the river pro-

vide access to important trade locations, either sources of supply or

points of demand? If so, is the river sufficiently deep and wide to accom-

modate vessels? Finally, what kind of vessels does the waterway support?

Some rivers can support only small-volume, singular barge vessels.

Barges are flat-bottomed vessels that might or might not have motorized

forms of propulsion. Nonmotorized barges rely on external forms of

propulsion, such as a tug or towboat. Small canal barges were once pulled

by horses. Today’s river barges are 195 feet in length, with cargo capacity

of 1,500 tons. Liquid tank barges can be up to 300 feet in length, with ca-

pacity for a million gallons of liquid cargo, such as petroleum, fertilizer,

or other chemicals.

For larger river corridors, such as on the Mississippi and Ohio Rivers in

the United States, the Thames in England, and the Rhine in Germany, sev-

eral barges can be linked in a single tow. In the lower reaches of the

Mississippi River, it is possible to arrange up to 30 barges (5 barges wide

and 6 barges long) in a single tow. Such multibarge tows provide for in-

credible efficiencies. Figure 2-12 illustrates a multibarge tow. In light of

the considerable capacity of a single barge, aligning several barges in a

single transport accommodates immense volumes. Figure 2-13 shows the

comparisons with other conventional forms of transport. Transport by

barge is not particularly fast, however. Depending on the speed of the

river current, barges ordinarily travel downstream at speeds ranging

from 8 to 14 miles per hour. The speed achieved against a current up-

stream is considerably slower, at 4 to 6 miles per hour.

Figure 2-12 A multibarge tow.

Figure 2-13 Comparison of barge capacity.

The efficiency of river transportation bolsters the view of inland water

transport as an environmentally friendly mode of transportation.

Compared to other inland modes of transportation, it generates lower lev-

els of hydrocarbons, carbon monoxide, and nitrogen oxide to move the

same volume of cargo. For instance, a barge towboat generates approxi-

mately 0.0009 pounds of hydrocarbons to move 1 ton-mile, whereas a

train generates 0.0046 pounds and trucks generate 0.0063 pounds, mak-

ing them five to seven times higher in emissions. Despite these argu-

ments in favor of more environmentally friendly operations, one must

also consider the potentially harmful effects of infrastructure develop-

ment that alter the natural ecosystem. Dredging is one activity that has

8

come under great scrutiny in recent years, and most developed nations

employing commercial inland navigation require permits for any river

development.

Another form of inland water transportation is provided by lakes. The

Great Lakes system shared by the United States and Canada offers one

such example. Connected to the Atlantic Ocean by way of the St.

Lawrence River, the five Great Lakes (Lake Ontario, Lake Erie, Lake

Huron, Lake Michigan, and Lake Superior) provide extensive inland

reach for oceangoing vessels, as well as connections among key industrial

cities of the region. The Welland Canal provides an essential connection

between Lake Ontario and Lake Erie, allowing ships to bypass Niagara

Falls, although the canal’s locks cannot accommodate large freighter

ships (known as lakers). Freighters that exceed the 800-foot capacity of

the locks on the Welland Canal travel among the 63 commercial ports on

the four western-most lakes between Duluth, Minnesota, and Buffalo,

New York. These ships can reach just beyond 1,000 feet (300 meters) in

length. These ships primarily carry bulk quantities of minerals such as

iron ore, limestone, coal, grain, sand, and gravel from extraction points to

supply depots and processing sites. Figure 2-14 shows a large lake

freighter.

Figure 2-14 A large lake freighter.

Given the northern climate experienced in these locations, the U.S. Coast

Guard operates ice-breaking operations during the late autumn and early

winter to keep the lakes navigable for lake ships. However, the cold of

deep winter usually ceases these operations for two to three months each

year. Severe drought conditions can also lower the water levels of the

lakes, limiting navigation in summer months.

The Merchant Marine Act of 1920 (often referred to as the Jones Act), a

form of cabotage regulation, requires that ships operating between ori-

gins and destinations in the United States be registered as U.S. carriers,

operate U.S.-built ships, and employ crews of U.S. citizens. Although the

Act was originally intended to apply to intracoastal water transportation,

its provisions also find application across different modes of transporta-

tion in the United States.

Air Transportation

Air transportation is a common means of travel for passengers. It is less

common for cargo, although people and cargo sometimes travel together.

That is, many passenger airlines also operate cargo divisions, allowing

freight to be transported in the lower cargo hold on scheduled passenger

aircraft. A Boeing 777 airplane, for instance, can carry 263 passengers in

the upper hold of the plane and about 9.5 tons of cargo in the lower hold

(or “belly”) of the plane. Transportation of mail and other forms of time-

critical freight is quite common on these scheduled passenger routes.

Other air carriers specialize in the carriage of cargo, dedicating the full

capacity of the aircraft to supporting cargo transport. All-cargo carriers

can operate purely domestic routes or travel internationally. These carri-

ers focus on long-distance routes and those over water among major

trade cities. The value of goods transported by air cargo carriers is usu-

ally quite high, with the average value estimated at nearly $60,000 per

ton. An example includes the transport of time-critical fashion merchan-

dise from Hong Kong to retail centers around the world. The time-sensi-

tive nature of fashion goods often demands that they arrive in retail

stores as soon as possible to ensure that they meet the needs of a sophisti-

cated market.

Another form of air carriage is the service provided by integrated carri-

ers such as DHL, FedEx, TNT, and UPS. These carriers maintain an exten-

sive fleet of aircraft for domestic and international services. Yet they also

operate extensive surface transportation networks to support complete

door-to-door services seamlessly across multiple modes. Integrated carri-

ers are limited to a select few operators that have the immense capital re-

sources to compete effectively on the ground and in the air.

Cargo aircraft can be quite expensive: The cost of a new Boeing 777 ap-

proaches $300 million. Despite the significant price of aircraft, the fixed

costs associated with air operations can be lower than those of other

forms, such as railroad and pipeline. The big difference here is that the

infrastructure required for airlines includes the takeoff and landing facil-

ities and the means of tracking aircraft (which, again, can be expensive).

But often, many different carriers share these facilities. Very few air car-

riers maintain private airfields. Furthermore, the skies between origin

and destination points are free. Railroads and pipelines, on the other

hand, must lay infrastructure between the origin and destination, both

owning the land and maintaining the infrastructure after it is built.

Air cargo is particularly sensitive to an imbalance in transportation

movements. Whereas most passenger transportation tends to be bidirec-

tional (people usually buy round-trip tickets), much freight flows from

manufacturing centers to markets, yet the volumes flowing in the oppo-

site direction are often much lower. Air carriers, therefore, price transit

quite aggressively on the headhaul or outbound trip, with generous dis-

counting on the return trip to entice volume.

Pipeline Transportation

Transportation by pipeline is among the least common and least known

modes. Pipelines are ubiquitous, even though they are rarely seen. For

companies that move massive volumes of fluid material over long dis-

tances, pipelines can be an integral component of supply chain opera-

tions. Whereas trucks, trains, ships, and planes are presented in clear

view of the public, pipelines are often built underground in populated ar-

eas and typically run above ground only in remote areas. Yet pipelines

serve as a primary means of transporting crude oil, refined oil, gasoline,

and natural gas.

As Chapter 1 noted, the United States has more than 1.7 million miles of

pipelines. More than 1.2 million miles are used to distribute natural gas.

Much of the balance is dedicated to lines for crude oil and oil products. In

the case of crude oil, pipelines called gathering lines collect the commod-

ity in the oilfields. At a gathering station, large lines transport the crude

oil to a refinery or processing facility, where the oil is converted into fuel.

Product lines then distribute the refined product to storage locations near

markets and major customers for final distribution.

Pipelines are owned and operated by federal governments in many na-

tions. This is typically consistent in nations that have a significant owner-

ship stake in the energy supply markets. Pipeline ownership in the United

States and many other settings, however, rests with private companies.

These companies are typically multibillion-dollar energy and chemical

companies that can afford the significant investment in building and

maintaining pipelines. Similar to railroads, pipeline operators must call

upon government support in the form of eminent domain, in which the

government requires compulsory forgiveness of private property to se-

cure the right-of-way for the line. The provision of eminent domain is

among the few government provisions that pipeline operators typically

receive in the United States because it is the only mode that receives no

form of direct subsidy from the federal government. The mode also is

unique because it is regulated by the Federal Energy Regulatory

Commission (FERC), an agency within the U.S. Department of Energy. The

other modes of domestic ground transportation (interstate trucking and

rail) are regulated by the Surface Transportation Board.

In addition to the line itself, pipelines require investment in pump sta-

tions, which provide the means of propulsion for the fluid material in

pipelines. Large pump stations might have their own power plants colo-

cated with them, particularly in remote locations. Small crews of 10 to 25

people can operate a typical pump station, making labor costs extremely

low for a long pipeline. The Alyeska Pipeline, which runs a distance of

800 miles from the oil fields in Prudhoe Bay to Valdez, Alaska, requires

only 450 workers.

Pipelines are generally regarded as extremely reliable yet slow. Liquid

product typically flows through a pipeline at speeds of 3 to 5 miles per

hour. Yet as long as the line remains intact and pump stations operate as

expected, product can flow continuously. The diameter of the pipe deter-

mines the overall volume efficiency. A 36-inch pipe can carry 17 times the

volume of a 12-inch pipe. So although it might cost 3.5 times more to con-

struct the larger pipe, a pipe that size can generate a quick payback as

long as the capacity is needed.

Despite a strong record of safe performance for operating pipelines,

safety and environmental concerns remain. Environmentalists fear that

the construction of the lines can impact sensitive ecosystems. It was

feared, for instance, that placing the 48-inch line above the ground in the

trans-Alaska pipeline would interfere with the migrations of caribou and

other wildlife. To counter this concern, some sections of the pipeline are

buried in the ground or elevated to allow animal and human traffic to oc-

cur unfettered. However, burying and elevating lines costs considerably

more. Furthermore, concerns remain that breaks in buried lines will be

difficult to detect and repair. Areas prone to earthquakes and seismic ac-

tivity require that lines be built with a degree of flexibility to accommo-

date tremors and small quakes, again adding to the expense.

Intermodal Transportation

In 1956, a major innovation in transportation occurred in Baltimore,

Maryland. Entrepreneur Malcolm McLean improvised a new form of

transportation by converting a retired World War II oil tanker shipper

into the first lift-on/lift-off container ship, called the Ideal-X. The premise

involved not only the conversion of the ship, but also the creation of a

standard cargo container that could be moved by flatbed trailer truck and

easily transferred to a ship. Building standard-size containers meant they

could be placed optimally on the deck of the ship, and they eventually

were designed so that they could be stacked several layers high for in-

creased efficiency. This innovation marked the beginning of modern in-

termodal transportation.

Intermodal transportation involves the use of two or more modes of

transportation to move a shipment from origin to destination. Intermodal

transportation leverages the relative strengths of each mode or over-

comes a challenge faced by a single mode. For instance, the Ideal-X al-

lowed truckload-size shipments to move quickly from an inland origin to

a shipping port. After it was transferred (or “transloaded”) to the ocean

ship, the shipment benefited from the volume and distance efficiencies

the ship offered. Finally, upon arrival at the shipping port near the cus-

tomer, the freight benefited from the convenience of door-to-door deliv-

ery that trucking afforded. The significant innovation here was that after

the goods were loaded in the container, they need not be handled again

until delivery. That is, there was no requirement of handling loose cargo

or bags of goods on a repeated basis, as had been the convention from the

time of Viking ships! Over time, the standard intermodal shipping con-

tainers could move by rail as well as truck and ship. The introduction of

intermodal rail improved the efficiency of container transport over long

distances on the ground. It is possible on some rail corridors to double-

stack the containers to enjoy even greater efficiencies.

Intermodal transportation often involves road, rail, and water transporta-

tion in succession. In the first segment, a container is collected at a ship-

per location by truck. The truck delivers the container to an intermodal

rail yard, where it is transloaded to rail for long-distance ground move-

ment to an export shipping port. The container can then ship along with

thousands of other containers on the ship. At the import port location, the

container is transferred to the ground for movement by rail or truck to

the customer location. The development of international standards for

container sizes and configurations supports this seamless transition

across different modes in multiple countries. In 2012, 12.3 million inter-

modal shipments moved in the United States, with 80 percent of those

moves occurring in intermodal containers. Figures 2-15 through 2-20

show some of the different means of intermodal transportation today.

Figure 2-15 Intermodal shipping container.

Figure 2-16 Trucks deliver containers to port.

Figure 2-17 Gantries and cranes transload containers at ports.

Figure 2-18 Intermodal ocean container ship.

Figure 2-19 Intermodal containers aboard a large river ship.

Figure 2-20 Intermodal rail transportation.

Innovations continue to be introduced in intermodal transportation, in-

cluding the size of containers and the ships to carry them (both of which

are increasing). The Triple-E fleet of ships that Maersk launched begin-

ning in 2012 has a capacity of 18,000 20-foot equivalent units (TEUs), or

9,000 40-foot equivalent units (FEUs). Many shipping ports will be re-

quired to dredge deeper sailing channels and develop larger quays with

more dock space and conveyance equipment to accommodate these behe-

moth vessels.

Note that air transportation is also involved in intermodal transportation

with the use of standard air containers employed by integrated carriers

such as UPS, FedEx, and DHL. These containers are designed to fit in the

trucks of these carriers, as well as in their cargo aircraft, with fast and

easy transfer of the containers at airports. The containers are moved

from truck to airplane using roller conveyance. Even the cargo hold of

the aircraft is equipped with roller floors to allow the cargo to flow easily

into the proper position in the aircraft and back off again. Figures 2-21

and 2-22 show air operations using the containers and roller equipment.

Figure 2-21 Air containers.

Figure 2-22 A “belly” air container.

Pipeline is the only mode, to date, that does not find involvement in inter-

modal transportation. The fluid materials that are transported via pipe-

line are often moved by other modes upon induction into the pipeline.

Fluids also are commonly delivered via other modes after moving by

pipeline to a distribution point. Consider oil extracted in the north shore

of Alaska, transported to the south of Alaska via the Alyeska Pipeline.

From Valdez, it is transferred to an oil tanker ship for transport to the U.S.

Northwest. From here, the product might move by rail or truck to cus-

tomers. Yet the distinction of intermodal transportation is the ease of con-

veyance afforded by using a single container to move a consolidated vol-

ume of goods among the various modes of a shipment. This does not cur-

rently exist in pipeline transportation.

Interesting designs exist, however, for transporting nonfluid materials in

pods via pipeline. Imagine the pneumatic vacuum tubes that drive-in

banks use to transfer currency and small documents between a teller and

consumer from the comfort of your car—but on a much larger scale.

Extensive studies have examined the viability of such forms of trans-

portation. Designs for pneumatic capsule pipelines (PCPs) are under con-

sideration in Europe and Asia for the transfer of much larger containers

for cargo. Researchers in China claim to be working on designs that will

transport people and goods at speeds in excess of 1,000 kilometers per

hour (faster than today’s commercial jet aircraft!) within 10 years. It is

conceivable that these pods could be transported by other modes of trans-

portation to provide point-to-point delivery on a more comprehensive ba-

sis, hence qualifying such a move as intermodal.

Summary

Key takeaways from this chapter include:

Five basic modes of transportation exist: road, rail, water, air, and

pipeline.

Each mode has its relative strengths in terms of service and cost.

Most products are transported by road at some point in their

distribution.

Nations with high-performing railroads and navigable waterways have

advantages in moving large volumes of freight over long distances very

efficiently.

Pipelines are expensive to build and maintain, but they operate ex-

tremely efficiently in the transport of fluid materials.

Intermodal transportation leverages the advantages of two or more

modes of transportation to support a shipment’s movement.

Endnotes

1. The term forwarders refers to transportation service providers that

work across modes.

2. In the United States, federal guidelines permit truck-trailer combina-

tions to weigh up to 80,000 pounds. The truck and empty trailer can

weigh up to 36,000 pounds, leaving approximately 44,000 pounds avail-

able for freight. Individual states allow higher or lower weight restric-

tions, because matters of truck safety are regulated at the state level.

3. A simple Google search for “Ohio trucking services” yielded 2.14 mil-

lion results (as of September 8, 2013). Although the number of trucking

companies offering service in the Ohio market is far less than this, it

speaks to the ease with which available carriers can be found.

4. States continue to regulate matters of safety and social concern, which

often has implications for the economic vitality of motor carriers.

5. The Owner-Operator Independent Driver Association (OOIDA), a trade

association representing small operators, boasts more than 160,000 mem-

bers in the United States.

6. Source: CSX Transportation Web site, at

www.csx.com/index.cfm/about-csx/projects-and-partnerships/fuel-

efficiency/.

7. John Francis Peters (2013), “Building the World’s Biggest Boat,”

Bloomberg Businessweek (September 9): 44–50.

8. C. Jake Haulk (1998), Inland Waterways as Vital National Infrastructure:

Refuting “Corporate Welfare” Attacks, Allegheny Institute for Public Policy.