STRATEGIC TRANSPORT MANAGEMENT

Transport is the main component of the logistics system. Its importance can be measured through at least three financial indicators: costs, billing, and profit. Transport represents, on average, 60% of logistics costs, 3,5% of revenues, and in some cases, more than twice the profit. In addition, transport plays a leading role in the quality of logistical services, as it directly impacts delivery time, reliability and product safety.

It is important to emphasize that the values ​​presented above can vary substantially, from sector to sector, and from company to company. Participation in turnover, which averages 3,5%, can vary, for example, from 0,8% in the case of the pharmaceutical industry to 7,1% in the case of the pulp and paper industry. As a general rule, the lower the added value of the product, the greater the share of transportation expenses in the company's revenue.

Managing transport means making decisions about a wide range of aspects. These decisions can be classified into two large groups; strategic decisions, and operational decisions. Strategic decisions are characterized by long-term impacts and refer basically to structural aspects. Operational decisions are generally short-term and refer to the day-to-day tasks of transport managers. There are basically four main strategic decisions in transport: choice of modes; fleet ownership decisions; selection and negotiation with carriers; cargo consolidation policy. Among the main short-term decisions, we can highlight: shipment planning; vehicle programming; scripting; freight audit; and fault management.

As it is focused on the strategic management of transport, this article will focus on the discussion of long-term decisions that shape the structure and establish limits related to costs and quality of services.

CHOICE OF MODALS

There are basically five modes of cargo transport; road, rail, waterway, pipeline and air. Each has its own costs and operational characteristics, which make them more suitable for certain types of operations and products. The criteria for choosing modes should always take into account cost aspects on the one hand, and service characteristics on the other. In general, the higher the performance in services, the higher the cost tends to be.

Differences in cost / price between modes tend to be substantial. Based on long-distance closed cargo transport, it appears that, on average, the highest costs / prices are those of air, followed by road, railway, pipeline and waterway, in order. Table 1 presents the average prices charged by the different modes in the United States of America, and in Brazil, for medium and long-distance closed cargo, that is, distances greater than 500 kilometers.

Table 1 shows that the price of air freight in the USA is more than five times higher than road freight, more than twenty times that of rail freight, more than 35 times that of pipeline freight, and about 64 times that of water freight. Road transport, in turn, costs an average of four times more than rail, six times more than pipeline, and 11 times more than water.

In Brazil, the relative prices of the different modes have the same ordering found in the USA, that is, air, road, rail, pipeline and waterway. However, the order of magnitude of the differences between them is significantly different, especially when considering road transport. While in the USA the price of road transport is 4,0 times higher than that of rail, in Brazil this difference is only 1,7 times.

Another way of examining the relative prices of modes in Brazil and the USA is by comparing the value of freight in each country, for each of the existing modes, as shown in the last column of Figure 1. distortion in the road modal. While for air, pipeline and water transport, prices here are higher than those practiced abroad, in the case of road the figure is inverted. That is, the price here is one third of the price practiced abroad. This leads us to conclude that the price of the road is exaggeratedly low, whatever the comparison made. This means that there is a great preference for using the road in the country, as we will see later.

The second dimension to be considered when choosing the modal is the quality of the services offered. There are five most important dimensions, with regard to the characteristics of the services offered: speed; consistency; training; availability; and frequency.

Figure 2 seeks to compare the five modes in relation to their theoretical performance, in each of the five service dimensions. In terms of speed, the air modal is the fastest, followed by road, rail, waterway and pipeline. However, considering that speed must take into account the time spent door-to-door, this aerial advantage only occurs for medium and large distances, due to the collection and delivery times that need to be computed. That is, the greater the distance to be covered, the greater the advantage of air in terms of speed. On the other hand, it is good to remember that, in practice, the time of the road, and the rail, depend fundamentally on the state of conservation of the roads, and the level of congestion of the same ones. In Brazil, the state of conservation of roads and railways is unsatisfactory, and varies greatly from region to region, and from stretch to stretch, which can greatly modify the performance of modes.

Consistency, which represents the ability to meet the expected times, has the pipeline as the best option. As it is not affected by weather conditions or congestion, the pipeline has a high consistency, followed in order by road, rail, waterway and air. The low performance of the airline results from its great sensitivity to climate issues, and its high concern with security issues, which makes delays in departures and arrivals quite common. It is worth remembering again that, as in the case of speed, road and rail performance strongly depend on the state of conservation of the roads and the level of traffic congestion.

The training dimension is related to the possibility of a given modal working with different volumes and varieties of products. In this dimension, the performance highlight is the waterway modal, which has practically no limits on the type of product it can transport, as well as the volume, which can reach hundreds of thousands of tons. The Pipeline and the aerial have serious restrictions in relation to this dimension. The pipeline is very limited in terms of products, as it only works with liquids and gases, and the aerial has limitations in terms of volume and types of products.

The availability dimension refers to the number of locations where the modal is present. Here, the great advantage of the road appears, which has almost no limits on where it can go. Theoretically, the second in availability is rail, but this depends on the extent of the rail network in a given country. In the US, the railway network, with a length of around 300 kilometers, is undoubtedly the second in terms of availability. In Brazil, our network of only 29 kilometers has low availability outside the South and Southeast regions, which means that air transport offers greater availability in many regions. The waterway modal, although offering potential for high availability due to our coastline of eight thousand kilometers, and our fifty thousand kilometers of navigable rivers, actually presents a low availability, due to the lack of port infrastructure, terminals, and signaling .

As for the frequency, that is, the number of times the modal can be used in a given time horizon, the pipeline is the one that presents the best performance. As it works 24 hours a day, seven days a week, the pipeline can be activated at any time, as long as it is available at the desired location. Follow in order of performance, the road, rail, air and waterway. The low frequency of the waterway is a result of the large volumes involved in the operation, which obliges it to work with a consolidated load, thus reducing the frequency. Just as an example, we could cite the case of cabotage in Brazil, whose frequency in the South – Northeast direction is little more than one departure per week.

The combination of price/cost with operational performance in these five dimensions of services results in the choice of the most suitable modal for a given situation of origin – destination and type of product.

For all these and other reasons, the degree of use of different modes varies from country to country and from region to region. Figure 3 allows you to compare the market share of the different modes, in Brazil and in the USA.

A quick analysis of the data in Figure 3 indicates an exaggerated use of road transport in Brazil, compared to the USA (61% versus 26%). On the other hand, the use of rail is very limited when compared to the same country (20% versus 38%). This strong predominance of road transport derives from the low price practiced, due to various distortions in the Brazilian transport system. The road freight sector in Brazil is characterized by high fragmentation and oversupply, as a result of the lack of regulation, which makes entry barriers practically null. These facts lead to predatory competition practices, which causes prices to be lower than the real cost. The low price of the intercity bus is one of the main explanations for the high market share enjoyed by this modal in Brazil.

This exaggerated dependence is cause for concern for at least two reasons: road transport is the second least efficient of all modes, behind only air, both in terms of energy consumption, pollution and safety; the lack of regulation and low prices have been compromising the profitability of the sector, which is increasingly dependent on the self-employed, whose fleet, with an increasing average age, has already reached 18 years, and is on the verge of collapse. This situation is already compromising the reliability and safety of this modal in Brazil, with serious implications for the future availability of this modal. The search for alternatives, mainly rail and waterways, is one of the main topics on the agendas of logistics executives.

DECISION ON FLEET OWNERSHIP: OWN OR THIRD PARTIES?

The decision to have your own fleet, or to use third-party assets, is the second most important strategic decision in transport. In this case, the decision-making process must consider, in addition to the cost and quality of the service, the financial profitability of the alternatives. The great emphasis currently given by companies, mainly large ones, on the return on shareholders' investments, has been one of the main factors influencing companies towards using third parties in their transport operations. As the return on investments is the result of the return on the shareholder's investments, the fastest way to increase profitability is to reduce the shareholder's investments, which can be done through the use of third-party assets, in the case of transport assets .

A number of characteristics of the operation, and of the sector, also contribute to the fleet ownership decision-making process. Among these stand out: the size of the operation; internal managerial competence; the competence and competitiveness of the sector; the existence of return charge; and the modes to be used.

The larger the size of the transport operation, the greater the possibility that the use of its own fleet will be more attractive than the use of third parties. Firstly, because the transport activity presents enormous economies of scale. The larger the operation, the greater the opportunities for cost reduction. Second, transport operations are becoming increasingly sophisticated in terms of technology and management. Being small means having little capacity to maintain specialized teams and to make continuous investments in technology, and in particular, information technologies.

The growing sophistication of transport means that internal capacity to plan, operate and control is increasingly decisive for the performance of the operation. There is no point in being big and having resources, if the organization does not have the internal capacity to efficiently manage its transport operation, and is not prepared to develop it internally. On the other hand, it is good to remember that training is a relative measure, which needs to be confronted with options external to the organization, that is, the competence of the transport sector in the region where the contracting company operates. There are situations where a company wants to outsource its transport operation, but is unable to do so, as it has difficulties finding a service provider capable of meeting the cost and quality of services already achieved internally. That is, the greater the internal competence, and the lesser the sector's development in a given region, the smaller the chance of finding someone capable of replacing the internal operation with cost and quality advantages.

One of the best alternatives to reduce the cost of transport is to capture return cargo. In principle, companies providing transport services have greater chances of capturing return cargo than a company whose business is not the provision of transport services. This is because a specialized company has numerous customers spread out geographically, which increases the chances of combining round-trip freight. However, in cases of large shippers, with wide territorial operations, the combination of round-trip cargo may become feasible, eliminating the need for a third party. In addition, it is always possible for a shipper to look for another company with reversed transport flows, in order to establish a partnership, which allows the use of the same transport assets, via shipment coordination, in order to maximize the use of loads in the return.

The modal used also influences the fleet ownership decision. The more capital-intensive the mode, such as railroad or pipeline, for example, the greater the possibility of using a third party. Capital-intensive modes depend on scale to be efficient, which in most cases makes it unfeasible for a shipper to operate such modes. In the case of road vehicles, there is great volume flexibility, which increases the attractiveness of own fleet.

In Brazil, there is a strong tendency to use third parties, with little investment in own fleet. About 83% of the 500 largest private companies in Brazil do not have their own fleet. Even in cases where this is not the case, the tendency is to combine our own fleet with a third-party fleet. About 90% of the companies that have their own fleet also use a third-party fleet to complete their capacity. This trend is strongly influenced by the low prices charged by self-employed carriers, which makes it very unattractive to invest in own fleet.

SELECTION AND NEGOTIATION WITH CARRIERS

Once the decision has been made to use third parties, it becomes necessary to establish criteria for selecting carriers. There are seven main criteria used in the selection of transport service providers: reliability; price; operational flexibility; commercial flexibility, financial health; quality of operational personnel; and performance information.

The first, and usually most important, criterion for selecting a transport service provider tends to be reliability, that is, the capacity to fulfill what was agreed upon, such as, for example, delivery and collection deadlines, vehicle availability, security, price, information. An unpleasant surprise is everything a shipper wants to avoid. In the just-in-time world we live in today, deviations from the plan can result in substantial impacts on the recipient's operation. Therefore, making sure that the plan will be fulfilled is a fundamental criterion when selecting a transporter.

Price, as it should be, tends to be the second most important criterion. In fact, while reliability tends to be a qualifying criterion, that is, it is a minimum necessary condition for a carrier to be pre-selected, price tends to be a classifying criterion, that is, given that the reliability criterion has been met, that carrier with lower price tends to be selected. It is important to remember, however, that performance criteria are often so critical, as in the case of dangerous products, or products with very high added value, that safety issues weigh more than simply the freight price.

Flexibility, both commercial and operational, has become an increasingly important criterion in the process of selecting carriers. In the turbulent world we live in today, where customer and market segmentation is increasingly used, and innovation is a constant, having the flexibility to adapt operations and renegotiate prices and contracts is a basic need for most shippers. Issues such as location and delivery times, types of vehicle and packaging, service levels, are some of the important dimensions of flexibility valued by shippers.

The financial health of the service provider is another criterion increasingly used when selecting a carrier. The strong tendency on the part of shippers to reduce the number of carriers used, as well as to establish a long-term cooperative relationship, makes the financial health of the service provider grow in importance. There is nothing worse than investing time and resources in developing a tailored relationship, only to find out later that the partner will not be able to keep up with your needs, either in terms of transport capacity, or in terms of technological or managerial modernization.

With the increasing sophistication of transport operations, both from a technological point of view and from a service point of view, the quality of operational personnel has become of fundamental importance in the performance of transporters. The quality of personnel means formal education, technical training, and behavioral skills. Therefore, when selecting a carrier, it becomes increasingly necessary to know and analyze the professional profile of operational personnel.

The continuous monitoring of operations is one of the main features of modern companies that have advanced logistics systems. By hiring a third party to run their transport operations, companies risk losing touch with their performance in the field. To ensure that this does not happen, it is necessary to select a service provider with the capacity to measure performance and make the information available to the contracting company. Typical reports that can be made available are, for example, the percentage of deliveries made within 24 hours, 48 ​​hours, or 72 hours, for each customer class, for each city, or for each region. It is also important to identify problems that occurred during the delivery operation, and the causes of these problems. Just as an example, we could think of a monthly report that would indicate the number of occurrences of failed delivery attempts, and the main causes of these occurrences, such as absence of the recipient, or non-existent address. This makes it possible to eliminate the causes of problems, thus preventing them from recurring in the future.

The negotiation process must be seen as a continuous and structured task, whose objective is permanent improvement, aimed at reducing costs and improving the quality of services. Therefore, it is necessary to develop a cooperative relationship, based on trust and systematic exchange of information. A basic instrument for the cooperation process is the cost spreadsheet. Most cost items, both fixed and variable, can be changed or controlled through proper planning. Let's look at the case of road transport. Vehicle choice has a direct influence on fuel, maintenance, depreciation, capital and insurance costs. The use of more powerful vehicles, which are often more expensive, ends up unnecessarily increasing transport costs. Given the type of cargo, the typical order volumes, and the routes to be covered, it becomes possible to choose the most suitable vehicle for the operation, and which generates the lowest transport cost. The number of hours the vehicle will run per day also has a direct impact on the cost per ton kilometer transported. The greater the number of hours driven, the lower the average cost per ton kilometer.

Another factor that directly influences the unit cost of transport is the time spent on loading and unloading activities. Again, joint planning, involving shipper, recipient, and carrier, allows the proper planning of loading and unloading tasks, thus reducing downtime, and therefore the unit cost of transport.

Two other mechanisms that allow the increase of transport efficiency, and therefore its cost, is the use of information technologies, such as on-board computer, GPS, and routing, and intelligent cargo consolidation policies.

Cargo consolidation, that is, seeking to work with large volumes, using the largest possible vehicles, at full capacity, is one of the main mechanisms to reduce transport costs. The simplest strategy for consolidating cargo is to postpone shipments for a given route until there is enough cargo to reach the maximum capacity of the vehicle used. The problem with this strategy is that it negatively affects customer service, both in terms of delivery times and the consistency of these deadlines. The postponement of the departure implies the non-existence of a defined frequency of departures, making delivery deadlines quite uncertain, generating delays and uncertainties about the actual delivery date.

The smart way to achieve consolidation is by setting up a network of facilities involving cross-docking or transshipment terminals, where through coordination between large vehicles, for transfers between terminals, and small vehicles, for collection and delivery, it becomes possible to achieve consolidation, without jeopardizing the quality of services measured by delivery times and their consistency.