OPTIMIZATION OF FREIGHT TRANSPORTATION WITHIN NAFTA COUNTRIES: FRAMING THE ISSUES

1. OPTIMIZATION OF FREIGHT TRANSPORTATION WITHIN NAFTA
COUNTRIES: FRAMING THE ISSUES
Josue I Hernandez
Environmental Policy Analysis
Johns Hopkins University
Abstract
Transportation supports and makes possible most other social and economic activities and
exchanges, making its influence felt in all economic sectors. Optimization in freight transportation
is a determinant factor in the success of global manufacturing and marketing strategies. Recent
free trade agreements in the Western Hemisphere, such as NAFTA, give a natural advantage to
the United States granted its geographical proximity to markets. Despite advances in
communications and technology, there are still transportation efficiency and efficacy
shortcomings. Further improvements can be achieved through the optimal management of
logistics processes. The ISTEA provides the support and resources to engage in research and
development activities.
Freight Transportation in the United States
In order to be competitive in global markets, the transportation system of the United
States (U.S.) needs to meet the requirements of shippers and carriers, of consumers and
producers. The role of the transportation system is key for a dynamic economy. According to
the Bureau of Transportation Statistics (BTS), the share of transportation-related final demand
in gross domestic product (GDP) provides the best description of the influence of the
transportation sector in the economy. The transportation-related final demand in GDP (U.S.
DOT, Transportation In the U.S., p.11) is defined as “the value of all transportation-related
goods and services, regardless of industry origin, delivered to the final customer, and includes
consumer and government expenditures, investments, and net exports”. Under this perspective,
transportation inputs in the economy as a share of the GDP has been close to 11 percent since
1989, adding $777.2 billion to a $7.25 trillion of GDP in 1995. During the last years,
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2. transportation activity has increased steadily, moving more goods and people, singularly
without an increase in the consumption of resources. The share of transportation to the U.S.
economic activities has remained constant.
During the last years, international trade has become an increasingly important activity
in the U.S. economy. The total imports and exports of goods and services increased from 11.3
percent of the GDP in 1970, to 24.7 percent in 1995 (U.S. DOT, Transportation in the U.S.,
p.2). An extensive network of roads, railroads, waterways, pipelines, and air routes support
freight transportation across the country. The trade of goods, which can be considered a
reliable indicator of freight movement, more than duplicated, from 8.1 percent in 1970 to 19.5
percent in 1995 (U.S. DOT, Transportation in the U.S., p.4). Maritime freight transportation,
involving trade with other countries, also increased from 581 million tons in 1970 to over 1.1
billion in 1995.
According to the Commodity Flow Survey (CFS) conducted by the BTS in 1993,
during a normal day in that year, roughly 33 million tons of goods were carried an average
distance of 298 miles. The US transportation system shipped more than 12 billion tons of
goods, generating a total of 3.6 trillion ton-miles throughout 1993. A nationwide survey of
200,000 shippers provided information about the nature of their goods, what mode was
utilized, and the destination of their products (U.S. DOT, Truck Movements in America, p.1).
The most probable paths used by the carriers were determined by Oak Ridge National
Laboratory. They used advanced network simulation models and data on highways, railroads,
waterways, pipelines, and air routes located in the National Transportation Atlas Database,
published by the Bureau of Transportation Statistics. The data generated accounts for almost
all truck activity, but it does not consider U.S. imports, foreign trade crossing U.S. territory,
and national goods forwarded by household, rental, services, and government shippers.
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3. The BTS remarks that during 1993, food and similar products, such as cereals, account
for barely under 15 percent of the total value of shipments. However, they constitute the
largest category of commodity by cost, and the fourth largest category by tonnage. The most
important goods by value were processed products like chemicals or associated products;
transportation equipment; non-electrical machinery; and electrical machinery, equipment, or
supplies. By weight, other important commodity categories contain raw materials such as
petroleum or coal products; non-metallic minerals; and bulk clay, concrete, glass, or stone.
Transportation in the U. S. by Mode Type
The transportation of goods by truck has the largest proportion of freight movement in
the U.S. For shipping distances less than 500 miles, trucks dominate by far the U.S.
transportation system. They move close to 75 percent of the value and just over 50 percent of
the weight of all goods forwarded. Oak Ridge National Laboratory calculations for the
Commodity Flow Survey (Table 1) estimates that trucks transported close to 900 billion ton-
miles of goods, with an estimated worth of $4.6 trillion during 1993. The most important
variables that influence the demand for road and rail freight transportation are distance, cost,
quality of service, existing alternatives, and economic and environmental conditions. Customers
are influenced not only by rates and speed, but also by the perceived service quality of
alternative modes of transport.
The importance of intermodal freight transportation has increased in recent years, due
to the economic advantage for shippers of using efficiently connected modes. Intermodal
carrying is defined as unitized loads, such as containers or trailers that can be transferred from
one mode to another. An important change in the development of intermodal transportation is
the increased use of the international maritime container, which is revolutionizing the railroad
business almost to the same degree it had previously transformed maritime transportation. The
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4. adaptation of the container as a “container on flat car” (COFC) and its recent “double stack”
(DS), has offered the possibility to the railways to compete with long-haul trucking.
Table 1. U.S. Freight Shipments by Mode
Mode Tons % Tons-mi % Value %
(Millions) (Millions) (Billions)
Trucks 6,386 52.5 869,536 24.0 4,403 71.9
Water 2,128 17.5 886,085 24.4 251 4.1
Rail 1,544 12.7 942,561 26.0 247 4.0
Pipeline 1,343 11.0 592,900 16.3 180 2.9
Air 3 0.03 4,009 0.1 139 2.3
Intmod. Tot. 208 1.7 235,856 6.5 660 10.8
Unknown 545 4.57 96,972 2.7 244 4.0
Total 12,157 100 3,627,919 100 6,124 100
Source: Pocket Guide to Transportation (U.S. DOT, p. 10), 1998
The share of intermodal movement has increased during recent years. The traditional
combination of rail and truck transportation shipped around 41 million tons of cargo, valued at
$83 billion in 1993. The prices of goods shipped by intermodal transportation are usually high.
According to the BTS (U.S. DOT, Transportation in the U.S. p.11), commodities shipped by
postal, parcel, and courier services averaged $14.90 per pound, while intermodal shipments
using railroads and trucks had an average cost of $1.02 per pound. While the most expensive
transportation costs arise when air and air-truck combinations are used, costing an average of
$22.15 per pound, the least expensive ones are under $0.10 per pound for railroads, water
transportation, and pipeline.
Research and Development under ISTEA
The Intermodal Surface Transportation Efficiency Act (ISTEA) was enacted in 1991,
and at that moment, the statistics of transportation in the U.S. had moved through two
completely different stages. The Department of Transportation (DOT) and the Census Bureau
of the Department of Commerce during the 1970s conducted a comprehensive analysis of
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5. national transportation information. Significant data-collection activities in all modes of
transportation originated comprehensive publications such as the National Transportation
Atlas. This shared effort was at its best around 1977. Due to government deregulation and
diminishing federal budgets, many statistical programs were ended. As a consequence, the
federal government did not conduct any comprehensive national analysis of transportation
between 1979 and 1989, and no national multimodal data on commodity traffic was gathered
between the years of 1977 and 1993. The essentiality of this class of information for the
transportation sector kept a high demand for publications.
The Bureau of Transportation Statistics (BTS) was created to generate a set of
knowledge relevant to the interest of policy-makers, and to inform the public about
transportation in the U.S. and its consequences. Its basic functions include the collection,
analysis, and publication of relevant data. The BTS was directed by congress to assess the
current state of the transportation system, how well the information was analyzed, and to
report the statistics in the Transportation Statistics Annual Report (TSAR).
So far, the BTS has delivered the requested information in most of the areas specified
in the ISTEA. Among others, it has initiated attempts with Canada and Mexico to generate a
connected representation of freight transit in North America.
The ISTEA provides the necessary resources and guidance for research and
development activities. Abundant provision of resources is contributed for investigation and
the consequent application of generated innovation to solve existing highway issues. The
creation of a new Applied Research and Technology Program is focused on the test,
evaluation, and implementation of innovations to enhance the durability, efficiency, efficacy,
productivity, and safety of highway, and intermodal transportation systems. As usual, required
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6. funds are available for new construction, but the program will emphasize the protection,
improvement, and increased efficiency of existing facilities.
ISTEA has the authority to initiate an integrated plan at a national level to promote
research and development for the surface transportation. The Research Advisory Committee
and the National Council on Surface Transportation Research are in charge. The function of
the Committee is to provide timely advice to the secretary about issues with respect to
research and development activities in the short and the long run. With the creation of a new
International Highway Transportation Outreach Program, the U.S. highway community will
be able to promote and to transfer domestic transit expertise to other countries. The activities
of the Council include the analysis of technology developments in the U.S. and around the
world; the identification of discontinuities and duplications in the national system; and the
determination potential areas in which productivity, efficiency, safety, and durability of the
national network can benefit.
Global Trade and Freight Transportation
Transportation accessibility nourishes and promotes most of the current social and
economic activities in the nation. Transportation of merchandise is a determinant activity in
the U.S. economy, not only as compared by its proportion in the economic activities of the
country, but also by the growing predominance that the transportation and distribution of
commodities have on the performance of essentially all the different sectors of the economy.
The world economy of today is totally different from the world economy that existed
in 1948, when the General Agreement on Tariffs and Trade (GATT) started at Bretton
Woods. Worldwide economic deregulation has changed the economic landscape during the
last two decades. In addition to the increased membership and the reach of the GATT, the
economic benefits for its constituents have also expanded. For instance, tariffs around the
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7. world have diminished from an average of around 40 percent after World War II, to the
present level of about 5 percent (Sager, p.240). However, the increased number of GATT
member nations and the increasing complexity of trade issues considered in GATT meetings
have encouraged the formation of preferential and regional trade agreements.
The start of regional trade agreements is a natural response to geographical proximity.
Normally, members of a regional trade agreement are close geographically and, in response to
lower transport and communication costs, they can be expected to have intensive trade,
regardless of the status of a multilateral trading system such as the GAAT. The increased
globalization of the economy and the need for long distance movement of freight, people, and
information, usually in trips that can be characterized as intermodal, accentuates the
importance of transportation for all economic activities.
The international commercial activity of the 1990s has benefited from a sequence of
free trade agreements. The objective of these pacts, in both a global and a regional scale, is to
develop an even economic environment among pact partners. As trade barriers are lowered,
trade pacts are enabling profound market changes across the globe and are accelerating global
trade activity. Modern market changes include the reduction of quotas and tariffs, more
economic stability, and a developed consumerism in many new markets. However, in order to
have a successful free trade agreement, one of the determinant factors is freight transportation
cost.
A trade agreement is justified, in economic terms, if it improves the social welfare of
the participant countries. One way to characterize trade costs, is to locate them among the
polar cases of zero and infinite inter-regional transportation costs, respectively. In order to
have a complete analysis, there is the need of a general model that can manipulate the
intermediate realistic case, where transportation costs between regions are less than infinite,
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8. while greater than zero. Data collected through the period of 1965 to 1990 indicates that
those real values for intra-continental cost range from 10 percent, the proportion of the total
cost of the commodity at which transportation costs are beginning to be a burden, to 16
percent. Hauling through long distances can generate costs greater than the freight value and
insurance amount required by the physical transport of goods. Transportation costs of 16
percent are frequent, but local production and imports from closer suppliers make it
unsustainable on the long run. As expected, negative returns to regionalization may begin to
set when transportation costs reach about 23 percent (Frankel, et. al., p.68). Despite the
obvious importance of distance in transportation costs, and the impact of the latter in the
volume of trade, empirical studies repeatedly underestimate the importance of this factor. The
distances considered by some researchers are usually between the major cities of the regions in
question.
The recent market changes and the drop of trade barriers have encouraged traffic
shifts, moving to new, untapped locations. For instance, economic improvements in
MERCOSUR countries have allowed U.S. exports growth of over 40 percent to this region
from 1993 to 1996. As a consequence, shippers are now transporting different types of
products to new locations, as new markets open. Economic development in different regions
of the world demand products from industrialized countries. Commodities like railroad
equipment, power station components, and industrial equipment, are being transported from
all points on the world to new, and often distant, locations. Freight transporters are
confronting new demands. Carriers must be able to manage the challenge of physically moving
these goods to unusual destinations. They must also consider cost-related new complications,
such as the improbability of any sort of back-haul from these places.
Trade in the Western Hemisphere
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9. In the Western Hemisphere, as in the rest of the world, the natural determinants of
trade are the physical proximity of related countries, their sizes and GDP, and whether they
share a common language or a common border. It is a normal practice that countries, even
without the formation of regional trade areas or preferential trading arrangements of any sort,
trade more with their neighbors than with other countries, in a large part because of freight
transportation costs.
Most of the regional trade agreements in the Western Hemisphere that were
established in the past did not initially come to much, such as the 1960 Central American
Common Market (CACM), the 1960 Latin America Free Trade Association (LAFTA) or the
1969 Andean Pact. However, recent trade agreements have been more serious, for example,
the Canadian-US Free Trade Agreement negotiations were successfully concluded in 1988,
and the treaty went into effect in 1989. MERCOSUR was negotiated between Argentina,
Brazil, Paraguay and Uruguay in March 1990, scheduling an elimination of all regional tariffs
by the end of 1994. Colombia and Venezuela revitalized the Andes Pact in the 1990-1991
period. The North American Free Trade Agreement (NAFTA) started negotiations between
the Canadian, Mexican, and U.S. governments in 1992, and went into effect on January 1 st,
1994.
The North American Free Trade Agreement
According to information provided by the BTS Trans-border Surface Freight Dataset,
released by the Census Bureau in 1995, nearly $274 billion worth of goods moved by land
between Canada and the U.S., up 10.5 percent from 1994, the first year NAFTA was in effect.
By freight worth, 68 percent of this traffic moved by truck, 20 percent by rail, and 4 percent
by pipeline. The rest moved by other surface modes. Trade between Mexico and the U.S.
moved by land during 1995 was over $97 billion worth of goods, up 7.8 percent from 1994.
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10. By value, 81 percent of this trade moved by truck, and 14 percent by rail. Along the U.S.-
Mexican border, there were approximately 11,000 truck crossings from Mexico to the U.S. on
an average weekday of 1995. This represents a 27 percent increase from 1992, and there are
strong indications that the trend will continue into the future.
There is evidence that NAFTA is making improvements on both the dimension and
composition of trade flows. During 1994, NAFTA’s first year, trade between the NAFTA
partners grew by 17 percent over 1993, reaching a record of $350 billion. Recent
developments suggest shippers are likely to see more opportunities for efficiency as private
investment and lowering trade barriers force market changes forward. For example, the
Mexican government is privatizing the national railroads, speeding the sale of its container
terminals, and improving the performance major highways. These changes should improve
inland transportation efficiency. However, meaningful improvements will likely take several
years to implement.
Meanwhile, changing market dynamics resulting from the NAFTA have allowed U.S.
businesses to increase their share in the North American market, for instance, U.S. auto parts
started to get a competitive advantage over Japanese ones to supply auto manufacturers in
Canada and Mexico. This competitive advantage has been driven by reduced tariffs, integrated
rules of origin and amplified transportation arrangements. Combined, these have lowered
costs and reduced cycle time. Other companies are taking advantage of new market
opportunities by relocating production. For example, market changes generated by NAFTA
compelled Kodak to repatriate some of its production back to North America from Europe; in
order to accommodate expected increased film exports in the region.
However, companies and governments need to be aware that in the long run, unstable
market forces can block commercial opportunities in emerging markets like Mexico.
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11. Developing markets typically experience cycles of economic unrest, characterized by political
turmoil, trade imbalances, and currency fluctuations. For example, since the commercial tariffs
opened to Mexico in 1994, there were episodes of political strife, export surges and recedes,
and a major devaluation of the peso.
Addressing the Issues
The rules of the game are changing along the implementation of the free trade pacts
and are driving changes in the fundamental rules of the logistics structure. These dynamics are
providing freight forwarders with many opportunities and challenges that previously were not
part of their decision alternatives. The implications of these rule changes can have immense
consequences for both shippers and carriers. This perception is supported by an American
Management Association survey, in which half of the 146 companies surveyed feel that trade
globalization will have the greatest impact on their business in the coming years (Zubrod,
p.62). These companies can have new opportunities as changes in trade flows occur: they can
reduce costs by rationalizing and relocating sourcing and production to different locations, by
minimizing transportation costs. They can also take the opportunity to serve with reasonable
profits a broader consumer base in the newly expanded markets.
Policies established by governments can significantly affect the amount of traffic and
therefore the utilization and efficiency of a transportation system. Prevalent examples of
government rulings include energy pricing and taxation, mode imposition, infrastructure
utilization pricing, etc. Changes in the regulation of transportation can have a powerful
impact on the operation and competitive environment of transportation firms. The
deregulation effort of the 1980s, particularly in North America and currently starting to gain
momentum in Europe, has seen governments remove numerous rules and restrictions. The
main effects can be seen in the entry of new firms in the market and in the fixing of tariffs and
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12. routes, resulting in a more competitive industry and in changes in the number and
characteristics of the transportation firms. Simultaneously, more stringent safety regulations
have been imposed, resulting in complicated planning and operating procedures.
As producers of commodities look to capitalize on new opportunities brought by
market changes, they also encounter new challenges. For example, small and medium-sized
companies are finding themselves under strong competition, missing free trade opportunities
because they lack the scale and financial agility to react quickly to changing trade flows. In the
case of large corporations, that do have the scale and financial agility to extend a portion of
their supply chain to newly liberalized markets, they are mostly restrained because of
limitations of the transportation infrastructure. As an example, exporters sending raw
materials to Mexico for manufacturing, face new logistics challenges such as transportation
equipment shortages, long and unpredictable inland transit times, and long delays at the
customs.
Even as shippers stretch their supply chains across unfamiliar and distant markets, they
are continuously raising expectations for reduced cycle times, lower inventory levels and
increased market responsiveness. As producers of goods are restructuring their logistics
networks, they are also looking for different alternatives to meet their transportation needs,
looking at the way they buy transportation services. Consequently, their key purchasing
factors for logistics services are now based on capabilities such as mobilizing and managing
increasingly complex information and physical flows at reasonable prices.
Carrier Demands
Freight carriers in North America are increasingly facing constant changes in the
process of supplying production and distributing commodities, as requests from NAFTA
shippers arrive. To meet those changes transportation providers need to accommodate to
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13. frequent shifts in buying behavior, just-in-time (JIT) deliveries requests, and increased
complexity in information. Those carriers who want to participate and succeed in the evolving
global market require three new capabilities such as access to information and technology,
increased scale throughout the world, and the ability to integrate the components of the
supply chain.
Access to Information and Technology. Transportation providers can obtain earlier
access to useful information such as raw material orders, target cycle times, and sales
forecasts, linking up with shippers. Current demands for information are related with the
domestic transportation of international trade, costs of transportation, motor vehicles
availability, and railroad geography and condition, among others. There are sophisticated
systems that can provide carriers with the ability to manage both information and physical
flows by linking with information centers. The centers can provide internal analysis, such as
planning and execution information, purchase order data, and shipment interface information.
Scale Expansion. One of the fundamental skills of transportation providers is the
ability to be immediately responsive, with cost-competitive, seamless global service. This
capability requires a certain critical mass of the transportation firm to efficiently mobilize
commodities for customers anywhere in the world. Some small and medium-sized
transportation forwarders are finding themselves able to compete only in price, and may
eventually be driven out of business. They are disadvantaged because of their inability to
provide the reliability of service or the physical equipment needed to flexibly respond to the
demands of shippers.
Supply Chain Integration. Another important advantage is the ability to integrate and
aggressively manage the components of the regional supply network. Transportation
providers are the link between shifting global supply and demand locations. To be successful,
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14. freight forwarders require the management capability to orchestrate real-time information
across different modes and geography.
An overview of the U.S. transportation system clearly indicates that despite extensive
transportation infrastructure and technological advances, connections between the different
transportation modes are typically the weakest links in the national transportation system.
Bottlenecks at transfer terminals can result in costly delays, as currently happens in most West
Coast international maritime ports. Historically, the national railroad network has been divided
in eastern and western railroad companies, with one of the railroads providing coast-to-coast
service on a single set of tracks. A strong NAFTA concern is about whether north-south
transportation costs could obstruct the growth of trade among the U.S., Canada and Mexico.
However, highway, railroad, and water links provide states in the Midwest comparatively
good access to eastern Canadian cities, which, in turn, have relatively good access to the U.S.
Gulf Coast ports. U.S. trade with Canada is concentrated in the industrialized Northeast and
Midwest. Trade with Mexico is even more concentrated geographically, remarkably with
Texas and California.
As a summary, the tasks ahead to develop a transportation system that can enhance
the commercial performance of companies, individuals, and governments in the NAFTA
countries, given the current competitive global pressures to dominate markets, are as follows:
identify what kind of information is needed in order to carry sound transportation planning,
and design the means to collect it; develop a NAFTA-wide inventory of modes of freight
transportation; locate where there are bottlenecks and where there is under utilization; and
identify present and future sources of supply and demand, across all different kinds of
commodities, from natural resources to manufactured products.
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15. Based on existing and forecasted information, planners have to develop transit
scenarios that can meet present and future transportation needs in an efficient and effective
way. In case the analytical tools identify non-existing better alternatives, economists should
run benefit-cost analyses to evaluate the construction of new railroads, highways, intermodal
installations, maritime ports, etc. Planners should also maintain awareness of potentially
disturbing factors that can affect freight transportation, such as oil prices, demography
changes and migration, regional policies towards trade, depletable resources, global
environmental concerns, etc.
Basically, what is needed is to create a NAFTA scheme, capable of recognizing
inefficiencies and opportunities, making the right decisions, building up infrastructure, and
above all, capable of and prone to provide timely and meaningful information to the public.
The market place will make optimization run efficient trade in North America.
Transportation Models
Transportation anywhere in the world is a complicated field, with multiple players and
levels of decision, where investments are usually capital intensive and the implementation
takes a long time. Freight traffic needs to be flexible enough to react to changes in the
political, social, and economic trends. It is a field where timely and efficient methods and
instruments are needed to help and to improve the planning and decision-making processes.
For the benefit of the NAFTA region, the freight transportation industry has to accomplish
high efficiency in terms of economic efficiency and service quality.
Economic performance today is not just in terms of regional optimization; North
American dependence in imported oil, cheaper and better foreign technology, raw materials,
among others, can exercise a negative effect in the trade balance.
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16. Industry is aware of these competitive trends, and it is adapting to new paradigms on
production and management. Practices such as small or no inventories associated with JIT
supply, production, and distribution; quality control of the entire logistics process driven by
customer demands and requirements, etc., compels high service standards on the
transportation industry. This applies, in particular, to absolute delivery time and reliability of
the transportation sector.
The Council of Logistics Management (Fawcet, p. 18) has defined logistics as “the
process of planning, implementing, and controlling the efficient, effective flow and storage of
materials, finished goods, services, and related information from origin to the location where
they are used or consumed”. The success of business competing in global markets depends in
the implementation of sound management of logistics strategies.
Reliable decision-making induces the development of policies and operating strategies
that can be operative over long time horizons. These decisions determine the design and
construction of physical infrastructure (highways, railroads, loading and unloading terminals,
etc.), where to locate the facilities, on what lines to add capacity or which ones to abandon,
etc. The above issues can be collectively recognized as logistics system design. With this
unified approach, regional, national, and international levels of integration can be examined,
and strategic models and plans for the freight transportation industry can be considered
simultaneously.
The models most frequently used are the following.
Location Models. The sitting of one or several facilities, in this case transportation
infrastructure, are considered location problems by the systems engineering discipline. The
most frequent objective is to facilitate the transportation of goods or the supplying of services
along a given transportation network. They can be classified as follows.
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17. • Covering problems are usually dealing with the optimal location of public facilities
such as schools, post offices, and libraries. These models position infrastructure at
the vertices of a network, so that the remaining vertices are covered by the chosen
facility. One of the objectives can be to minimize the total cost of locating them.
• Center problems frequently originate when there is the need to locate emergency
facilities such as ambulance, police, and fire stations. Center models position
infrastructure at vertices of a network to minimize the distance between a vertex
and a facility.
• Median problems are reasonably applicable to freight distribution, usually in the
form of intermodal terminals, storage and distribution centers. Median models
locate infrastructure at vertices of a network and designate demands to these
facilities to minimize the total weighted distance between facilities and demand
areas.
More complicated location problems can arise in production and transportation
planning. For example, the models for a multi-commodity site location. The formulation could
aim to determine the logistics design of the land distribution and transportation of an
international freight transportation company. The planning scheme could include the
determination of inland depots, the assignment of customers to depots for each commodity
type, and direction of operations and the determination of the main repositioning flows of
empty containers to counter the regional differences between supplies and demand. Currently,
there are computer applications that can work through new communications technology such
as the Internet. Model 204, a product of Computer Corporation of America, is database
software that can be able to handle complex information needs, such as the ones required by
the logistics problem stated above.
Network Design Models. Network design problems are considered a generalization of
location formulations. They are graphically represented by nodes or vertices connected by
links. The vertices usually represent origins or destinations of some transportation supply or
demand of commodities. The links can have several properties such as distance, carrying
capacity, and costs.
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18. From a planning perspective, freight transportation can be divided in operations that
are concerned primarily with long-distance movements of commodities, such as railroad
transportation and less-than-truckload (LTL) trucking, and those that execute several pickup
and delivery operations, over relatively short distances. The first case is often recognized as
the service network design problem, and the second type of operations is frequently identified
as vehicle routing problems.
Spatial equilibrium models can be useful for companies, governments and multilateral
organizations interested in a wider perspective of a regional economic performance. Decision-
makers can improve the quality of their analysis and resolutions if they integrate spatial
modeling in their information package. This analytical tool is embodied in the theory of
competitive spatial market equilibrium, which investigates and examines trade and
transportation expenses between different locations, with explicit supply and demand
characteristics.
The prediction of multicommodity freight flows over multimode networks is an
important component of the economics of transportation. However, perhaps due to the
inherent difficulties and complexities of such problems, the study and modeling of freight
flows at the regional, national or international levels have not yet achieved full development.
Conclusions
Within the NAFTA context, freight transporters must find ways to improve their
resources and capabilities. In order to serve more complex global demands and to face the
competitive challenges of a deregulated environment, transportation providers need to
establish strategic associations with both shippers and other carriers to meet the North
American success requirements. By cooperating with and partnering with shippers,
transportation providers can become more integrated with their customers. There is the
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19. strategic need to share information, facilities, equipment, and personnel since their joint
performance can improve decisions, costs, and reliability.
By cooperating with and partnering with other transportation providers, carriers can
develop virtual global transportation networks and take advantage of someone else’s scale of
competence. This “virtual scale” gives carriers, regardless of their size, access to integrated
supply chain skills, more flexible service, and better resource utilization. Transportation
providers can become more informationally integrated and physically interdependent. As a
possible result of this cooperation, we could see a new class of carrier in North America, very
different from the common definition.
Transportation systems comprehend a great deal of material and human resources.
They exhibit complicated relationships and tradeoffs among the several decisions and
management policies affecting the system. The policies concerning any entity interested in the
good performance of trade are the following.
Strategic policies involve long-term planning, and the decisions are made at the highest
management levels. They usually require considerable capital investments over a long period
of time. Infrastructure such as physical networks, construction of service facilities, and
resource acquisition are good examples. New infrastructure can be constructed or improve
existing ones. Decisions also include the abandonment of underused and unprofitable facilities.
Tactical policies are for medium-term planning, and they look for an efficient use of
resources aimed to get better performance of current facilities. This type of decision addresses
issues located between the long-term and day-to-day operations. Route choices, type of
services to operate, and repositioning of supplies are among the tactical decisions made at this
level.
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20. Operational policies involve local management in very active surroundings. Its domain
is the short-term planning, where the time factor plays a significant role. Activities such as the
scheduling of services, maintenance activities, and crew management, are relevant operational
decisions.
Efficiency in freight transportation is good not only for shippers and transporters, but
also to the entire NAFTA economy. Therefore, the participation of governments in providing
data, communications, and physical infrastructure at the expense of taxpayers, is going to
come back in the form of improved social welfare.
In the case of Canada, for example, transportation is a sector that presents special
problems for the government at all levels. It is one of the few economic sectors in which all
indicators are moving in the wrong direction. In addressing the challenge, Canada will require
the work and cooperation of all levels of the public sector, in many different facets of societal
and economic activities. One aspect of this challenge will require a stronger reliance on
transportation demand management (TDM) in order to reverse current indicators.
In the U.S., despite recent investments in information systems, logistics information
capabilities are still inadequate to support strategic business decision-making. Capturing,
analyzing and disseminating relevant information in a timely manner is a major challenge to
support global operations of freight carriers. As a consequence of a demanding marketplace,
excellence in logistics has become the objective of manufacturers throughout the NAFTA
countries. The rationale is that optimization in logistics allows manufacturers to effectively
and efficiently produce and deliver a more competitive product/service package to their
customers, wherever they operate in today’s global market. What this all means, is that
expanding trade activity has prompted market changes that have, in turn, transformed the
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21. mechanisms for international supply chain management. Recent developments suggest that
global logistics is becoming an activity indexed by cooperation and integration capabilities.
The future success of freight transportation firms will depend in finding ways to
compete on information and management service capabilities, rather than on a traditional
asset-based capability. What is at stake is not only the future of the freight forwarders, but
also the economic well being of suppliers and consumers to which they provide services.
Confronted with other economic regions, the European Community is gearing up, the ultimate
casualty may be the North American economy. It is up to the governments of Canada,
Mexico, and the United States to provide the adequate support to facilitate and enhance trade
in the NAFTA area.
References
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22. Fawcett, S. E. and Clinton, S. R. (1997) “Enhancing Logistics to Improve the
Competitiveness of Manufacturing Organizations” Transportation Journal V31 N1.
Frankel, J., Stain, E., Wei, S. (1995) “Trading Blocks and the Americas: The Natural, the
Unnatural, and the Super-natural” Journal of Development Economics V47 N1.
Lustig, N. C. (1997) “NAFTA: Setting the Record Straight” The World Economy V20 N5.
Sager, M. A. (1997) “Regional Trade Agreements: Their Role and the Economic Impact on
Trade Flows” The World Economy V20 N2. Check.
U.S. Department of Transportation Bureau of Transportation Statistics (1998) “Pocket Guide
to Transportation” U.S. Department of Transportation.
U.S. Department of Transportation Bureau of Transportation Statistics (1997)
“Transportation in the United States: A Review” U.S. Department of Transportation.
U.S. Department of Transportation Bureau of Transportation Statistics (1997) “Truck
Movements in America” TranStats May 1997.
Zubrod, J. F. and Barron, M. B. (1996) “Trade Pacts Fuel a Transformation in the Rules of
Global Logistics” Transport &Distribution V37 N4.
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