Public Administration: Transportation
Transportation’s Role in Supply Chain Management
Transportation is a critical ingredient in the supply chain from producers to consumers; it affects lives of citizenry in various countries of the world. It is perceived to be the glue that keeps supply chains or chains of distribution together. Without transportation, therefore, there is definitely business and industrial frustration and economic loss. Conversely, a healthy transport system creates opportunities and rewards for everyone. Organizations operating in the modern complex and competitive economies use this element to enhance efficiency and effectiveness.
External factors that have affected organizations in the global economy
The current global economies are far complex due to rapid changes brought about by various external factors. Globalization is one of the major external elements which affect organizations either positively or negatively i.e. it may create a wider market and more employment and at the same time may lead global recessions or loss of manufacturing jobs. Organizations also ought to adapt to technological advancement in order not to perish. Other external factors that affect businesses are knowledgeable and enlightened consumers, consolidation, and the integration of supply chain parties i.e. retailers, wholesalers, producers, and government policies and regulations.
There is a high dependency of the global economy on transportation. It is common for various geographical regions to focus on production of certain goods and services. This ultimately leads to oversupply of goods in one area and demand for these goods in others. Transportation comes in handy to play an important role of helping to close the supply and demand deficit intrinsic in the mass-production approach. Since geographical areas are specializing in the production of particular goods and/or services, they will be relying more on the other regions to produce the additional goods and services that they need or cannot produce. Transportation will be used to move these goods and make these services available to different geographical locations in an efficient and effective manner.
Transportation, likewise, is a fundamental factor in the movement of people to and from various locations. This is because we live in a highly mobile society where people need to travel constantly and extensively; for instance, from a region of under-supply to a region of oversupply. The speed and effectiveness of air and road transport have now made it possible for a person to attend two or more meetings a day in different geographical locations. When people travel to different places, it allows swapping of ideas and growth of new approaches in the interchanges that can arise among them, as well. After all, there is allowance for mobility of labor to enhance organizational operations in different regions.
Elasticity is equal to sensitivity; hence, price elasticity of demand refers to the sensitivity of customers to changes in prices; little sensitivity means that the demand will be inelastic. When it comes to transportation, from a general perspective, demand is inelastic where freight pace reductions will not noticeably amplify the demand for freight transportation. Here, substantial rate reductions would be necessary for a consequential rise in the demand for the product and,consequently, the demand for transportation of that product. Then again, some other modes of transport may experience price responsiveness.
Transporting involves a request to move a given weight between two points or destinations. Its demand is measured in weight-distance units for freight (ton-mile) and passenger-distance units for people (passenger-mile). However, these metrics pose various challenges; for example, a ton-mile is not homogeneous to enhance comparison. Generally, transportation demand metrics or units are heterogeneous in nature, whereby the same unit of demand could have different costs for producing it and different user requirements.
Transportation and technology
There has been a rapid technological advancement in the recent years, and it may have various applications in the transportation industry and the general supply chain. For example, in the long-haul or trailer motor carrier industry, monitoring drivers and their gear had traditionally been a challenge. But the adoption of GPS and wireless computing among drivers has influenced reduced challenges in keeping track of the assets. It is possible to relay instructions to drivers, aiding their decision-making capacities and solving issues such as locating specific areas. The same technology is also used in the railway and air modes of transport especially for tracking and communication purposes.
Freight and value of transportation service
Freight transportation is usually due to derived demand whereby freight is not usually transported to another location unless there is a need for the product. It is a common demand in the industrial sector; for example, demand for transportation of raw materials must be initiated through demand for finished products. Nonetheless, transportation cost impacts demand whereby inclusion of transporting cost and ancillary expenses in the original cost of freight results to a higher cost (landed cost).
The supply chain concept
This is not a new concept in organizational administration although it gained or attracted more attention in the 1990s. It now the fundamental technique and focal point for making businesses more competitive in the global market. It can actually be viewed as a conduit for the efficient and effectiveflow of products and materials, services, information, and financials (usually cash)from the supplier’s supplier through the various immediate organizations which are the intermediaries out to thecustomer’s customer. It is simply a system that networks the original producer or vendor to the end user or consumer.
Transportation Role in the Economy
Governments in global economies are highly investing in transportation infrastructure due to its benefits in the economy. It is common to see local authority clear roads with snow, and building others especially in urban centers to decongest traffic. All these actions are meant to create free access to various destination points. This element has actually been pivotal in industrialized economies, where it provides the necessary critical links between producers and
consumers both domestically and globally. Citizens in these economies need transportation to move produce from distant regions to available markets, and so is to businesses that need an efficient transport system to engage in production and supply.
The flow or movement of people or freight to and from various destinations creates a particular pattern. This is due to the catalytic effect transporting has on the society; it stimulates commercial activities and movement. Different transport modes create specific patterns i.e. water routes to transport bulky items such as petroleum and coal go to and from the U.S via Europe to the Far East to create an east-west pattern. There are also north-south patterns created through trading between countries in Africa and South America, and those developed in the northern hemisphere.
Gross domestic product
Transportation activities impact on the Gross National Product of any given country. For instance, in the U.S, it accounts for about 10.5 percent of the GDP, outdoing other sectors such as education, which accounts for about 7.6 percent. As a matter of fact, transportation is a major component of household expenditures, where in the U.S economy it accounts for 18 percent of these expenditures. Households spend more only on housing – 24.3 percent – then followed by transportation. However, air travel accounts for the major part of the total transport expenditure and the trend is positive to expect more GDP from transportation.
Transportation systems impact on population distribution and consequently urban economic development. They enable all business operations to go on efficiently, hence the life support system of the people. However, transportation ultimately affects the economic value of goods; still, it creates different utilities or value. With transportation, there is creation of place utility whereby goods are availed at the place where they can be sold at the required time. There is also possible quantity utility due to guarantees that the products will arrive devoid of damage in the accurate quantity.
Transportation has a history and its development since the historical past is associated with civilizations around the globe. Ancient Egyptians demonstrated how the river Nile could be an important foundation in their society. It provided a means to transport goods and also a way for Egyptian soldiers to travel and defend their people. Likewise, in the United States there has been a revolution in transportation, with various significances. For instance, the Erie Canal, steamboats, early turnpikes, and the early rail system were all developed to meet the economic andsocial needs of the growing nation.
Transportation may be so beneficial to the economy but it involves social cost due to its negative impacts. There is the issue of pollution that come about as ships and oil tankers spill oil products that eventually get their way to water resources or exhaust smokes that cause acidic rains. Vehicles and aero planes cause noise pollution since they burn engines that make noise. Environmental significance brought about by transporting activities calls for attention especially now the world faces the greenhouse effect that lead to global warming. The major cause of the greenhouse effect is chlorofluorocarbons emitted to the atmosphere, and vehicles and airplanes are emitters of these gases.
Social and political significance
Healthy transportation systems can enhance the health and welfare of the society. This is evident in regularly famine stricken developing countries where road and other transport networks are used to supply food and drug aid. Poor and inefficient systems will hamper aid to these people hence social significance brought about by transportation. This element is also politically significant especially due to the fact that political governments are the ones with the mandate to maintain and fund road network projects. Government involvement is essential to design feasible transport routes, meet the outlay of constructing free roads and highways, and develop harbors and waterways. Sufficient and efficient transportation is desirable to generate national unity; the transportation set-up permits the heads of government to travel rapidly to converse with the citizens.
Transportation is in a continuous state of changes. This is evident through the tremendous transformations seen since 1970s. Elements tangled with the modification include the social, politico-economic forces. Modern transporting is far complex and better to impact different aspects of life of people. There are railroads and superhighways that can split towns and neighborhoods, and the site of highway interchanges can decide the location of manufacturing, retailing, and distribution procedures. Yet, customers make decisions depending on transportation services available and their cost.
Transportation Regulation and Public Policy
Transportation has stood out to be the powerhouse of the global economy. Due to the various benefits derived from it, most countries have developed policies and regulations towards a reliable, safe, and fair transporting network for all users. The United States in particular has attempted to set policies and establish regulations in all its states and in federal level to control its transportation system to assure fairness and equity to transportation providers, shippers, and citizens. Policy and regulation agencies, however, have not been all successful due to challenges posed by the nature of transportation.
Regulation of transportation in the United States
Just as in most global economies, the U.S. has not allowed for free market, hence taking control of the performance of its various industries. The government provides the legal foundation and framework under which businesses operate and for their control. Disregard of market regulation will give room to market imperfections such as existence of monopolies, hence government control regardless of opposition from different sectors. U.S’ institutional structure for modifying transportation is offered by federal statute. The common/civil law provides remedies for various transportation issues such as situations where transportation subscribers charge discriminatory and unreasonable rates.
Regulatory agencies and the courts in regulating transportation (U.S)
The U.S department of transportation (DOT) is the one that houses the agency; Surface TransportationBoard (STB), responsible for railroad regulation. This agency took over from Interstate Commerce Commission (ICC) which was initially bestowed the authority to control railroad industry. ICC had more powers than STB with its statutory acts that gave it more authority i.e. Motor Carrier Act of 1935, the Transportation Act of 1940, and the Freight Forwarder Act of 1942 gave powers to the ICC over the motor carrier, domestic water carrier, and freight forwarding industries.
Besides ICC, other agencies that were established were Civil Aeronautics Board (CAB) to administer airlines, Federal Maritime Commission (FMC) to administer international water carriers and Federal Energy Regulatory Commission (FERC) to regulate rates and practices of oil and natural gas pipelines. However, these commissions have been virtually abolished and their powers is now vested to DOT. Nonetheless, the powerful roles performed by the commissions are still subject to judicial reappraisal. The U.S courts review the actions of the commissions and give the final ruling. This is aimed at ensuring ultimate fairness and check for capricious actions.
Transportation safety and security regulations in the U.S
The most important items of transportation are the cargo or freight and people being moved. Regulations are, therefore, set towards ensuring the safety of these subjects. There are several agencies in the U.S involved in administration of safety transporting regulations. The regulations direct operations, staff qualifications, vehicles, gear, hours of service for vehicle operators, and so forth. Federal Aviation Administration (FAA) regulates operations of air carriers and airports, Federal Motor Carrier Safety Administration (FMCSA) administrates motor carrier safety regulations, and the National Highway Traffic Safety Administration (NHTSA) has jurisdiction over safety features and the performance ofmotor vehicles and their equipment among many other administration bodies. The United States has set all these bodies to come up with regulations to look after the welfare and health of its citizens.
Public promotion in transportation
Promotion essentially means encouraging or offering possible assistance. The government, as well, ought to support and provide the necessary aid to transport so that it can grow and develop. The government has engaged in promotional activities so far and they include setting up agencies to regulate transporting activities and engaging in transportation planning which involves a review on the needs or demand of a given segment to enable the development of new movement processes. Another way to promote transport is through direct cash or funding to various transport activities in the sector. The government or relevant body set by it can, therefore, know possible areas to invest regarding transportation i.e. infrastructure and other resources.
National transportation policy
The federal government plays an overall important role regarding transportation and this is through setting rules, and funding programs directed toward promoting and protecting transportation. The transportation policy, therefore, comprises of these rules, laws and regulation agencies. The policy keeps on changing every now and then to meet the new changes that happen in the transporting sector. It is the policy that guides the performance and control of this sector towards obtaining the best and efficient transport system.
But why do we need such a policy? Considering the fact that transportation gives life to a country; making it possible for movement of people and items to virtually any destination through various modes of transport available. Furthermore, this element is fundamental to the economic activities of a country such as the exchange of goods that are mass produced in one location to locations deficient in these goods. Other benefits that necessitate for a policy include employment and improved commodities (goods and services). The policy should be declared as stated in public law.
Costing and Pricing for Transportation
For a long time now, the U.S. government has engaged in transforming the transportation sector through various policies and regulations. These regulations are usually put in place to ensure a fair market free from imperfections. However, it is not easy to curtail pricing for transportation; this is the reason why the country has experienced deregulations over the past decades. Initially, ICC had a lot of powers to control virtually the whole transport sector but currently, it merely controls railroad. Motor carriers are actually free from price regulations hence they can charge any amount they want in order to raise revenues.
Prices and rates
It is important to understand the difference between prices and rates. The former implies a valueor level that is determined based on prevailing market forces whereby due to deregulation carriers impose various charges on their services. On the other hand, a rate is a lawful charge on commodity hence it is found in rate tariff books. Rates have, therefore, full backing of law and prices do not have full force of law behind them.
Market structures and the theory of contestable markets
There are various types of markets that exist in the general economy disregarding the transportation sector. There is the pure competition market characterized by a large number of sellers and buyers and their actions are not significant to impact price change. The perfect competition market also has unrestricted entry and exit, and product traded has homogeneity. Another type of market is pure monopolistic or monopoly whereby there is a lone seller with no close competitor or substitute of product. Oligopolies may also exist characterized by few large sellers and differentiated or relatively homogeneous products. Finally, there is a monopolistic competition market that is characterized by many small sellers but there is some differentiation of products.
These markets; oligopolies, monopolies, pure competition and monopolistic competition, therefore, give us the general background information regarding transportation markets. In transportation, deregulation of various modes may create a market structure that resembles that of perfect or pure competition. The airline industry is the one which previously had oligopolistic characteristics but reforms in the sector have allowed for competition. The underlying principle regarding markets then lead to the theory of contestable markets. The theory alternates potential antagonism for the active involvement of many sellers. Here, instead of many sellers, “threat of entry” from new competitors puts downward pressure on price.
Under this pricing method transport prices may be set considering either the marginal cost or the average cost. The former approach is common and with the aid of economic models one can easily understand how the participants in the sector set their prices. Here, firms set pricesat marginal or variable cost of producing each unit of output; where the marginal cost cuts the marginal revenue curves in order to maximize profits. This will, however, be adjusted if the firm wants to make supernormal profits or if there is legal regulations regarding price. Arguments against this approach suggest that under lessening cost conditions, if the firm associates marginal cost with demand, then it will demand the firm’s operating at a loss. Another challenge is calculation of marginal costs for small output quantities.
This type of pricing disregards the cost of service to ensure that possible maximum revenue is obtained. Generally, the price is set according to its value i.e. no service
should be charged a price that it will not bear when, at a lower price, the service could
be purchased. Therefore, high-valued products are assessed high prices for their movement, and low-valued commodities are assessed lowprices.There is the issue of differential pricingthat allows common and fixed costs to be spread out over large volumesof traffic.
Rate making and rate systems
Carriers usually have or employ costing people to enable determine the costs and productivity from their transportation activities. At the end of the day the carries ought to establish the specific and general rates for them. General rates can be classified into three; class rates to provide the rate of a commodity between two points, exception rates designed so that carriers in particular regions can depart from the product scale system, and commodity rates meant for specific origin– destination shipping patterns of specific commodities. Still, there are other rates used in the transportation system such as incentive rates, any-quantity rates, density rates, and Area, Location, or Route Rates among many others.
Pricing in Transportation Management
Transportation management seeks to introduce some common pricing strategies and techniques that are commonly used in other industries. This is in the consideration of customers (market), government, other channel members, and competition as the main factors that affect pricing decisions. Carriers have to respond to changes in the environment they operate. There could be competition existing from other modes or same line members e.g. the fares charged. The market is turbulent with forces of demand and so is the ever changing legal structure with regulations and deregulations, hence they ought to affect pricing decisions. Therefore, transportation management should aim at survival-based pricing, unit volume pricing, profit maximization, and finally social responsibility pricing.