Questions On Rail Transportation

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MKT 431 FINAL

Rail Transportation:

Equipment
Cars- box, flatcar, gondola, hopper, tank, reefer
Way/terminal
Privately financed land/trucks/terminal
But shared right of way by the other lines
Number of carriers (industry structure)
Concentrated: small number (571) dominated by a few large (class 1) carriers
Current competitive environment
Between railroads
Few places served by multiple railroads
Large financial barriers to entry on a large scale
Between modes
Intense
What they move:
Characteristics of principal commodities
Large quantities of low-value-to-weight (bulk)
Principal commodities hauled
Coal
Farm products
Chemicals
Transportation equipment
Constraints
Fixed right-of-ways
Service limitations
Strengths
Large carrying capacity, few size or weight constraints
Handling almost any type of cargo
Assumption of liability for damage
High % of fixed cost in short run
High % of long-lived (durable) assets
RRs own and maintain networks (right-of-way) and terminals (freight yards)
Geographically fixed, reduced responsiveness to demand
$ Billions in annual capital expenditures
Variable costs
Labor: 33% of each revenue dollar
Unionized work force
Fuel: locomotives increasingly productive and fuel efficient, thus reduced fuel expenditures
Fixed cost
70/80%
Operating ratio
Operating expenses/net sales
80%
Capital turns
Asset turnover (sales/assets)
1/3
Price flexibility
High
Profit on equity ROE; RONW
Profit generated with shareholders invested money
2%
Class 1 railroads are
Line haul freight railroads with operating revenue in excess of $346.8M
The US class 1 railroads are:
BNSF railway
CSX transportation
Grand truck corporation
Ect.

Motor Transportation

Industry overview
What they move:
High-value manufactures, must transport relatively short distances (less than one day drive)
Live animals and bulk materials over short distances

Truck infrastructure
Way/terminal
Interstate highway system
Publicly financed
Private terminals

Operating and service characteristics

Missing some?????

Cost structure (fixed vs variable)
70-90% variable cost, fixed costs low
Public investment in highway system
Few terminals needed, except LTL

Principal variable costs associated with daily operations:
Labor,
fuel, maintenance highway charges

Cost structure
% fixed cost 10% operating ratio 95-90% capital cost3/1
Price flexibility low
Profit of equity11%

For a long distance, tractor-trailer operation
Total operating cost: $2.07 mile
Driver cost: 19% of total operating costs
Mileage rate for distance traveled
Hourly rate for loading/unloading operating delays
Driving time regulations
Max: 11 hrs driving, 14 hrs “on-duty”
No driving after 60 hrs on duty in 7 days or 70 hrs on duty in 8 days

Financial issues
Financial stability
Many carriers have high operating ratios, exceeding 95%
Many financial failures following deregulation
Rate slowed in 1990s
2,345 failures in 2002
Overcapacity is a recurring problem
More price discounting and financial pressure

Air Market Structure

Number of carriers
Relatively small number of for hire carriers
Revenues earned by small number of majors

Types id carriers
Private carriers
For-hire carriers
Classifies by annual operating revenues
Majors
Nationals
Regionals
Classifies by type of service
All-cargo
Commuter
Character
International

Global Transport Providers: Air
Air carriers
Air parcel post
Provided by postal services
Express or expedited service
Focus on small package, express shipments
Fed-ex, ups, and DHL and examples
Passenger carriers: carry cargo in plane belly
Ex: Delta airlines owns 500 garment containers
Carriers garments between Caribbean and Asia
All-cargo carriers: specialized in heavier iems

Competition
Very limited intermodal competition over long distance
Show More

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