by brandon lennox, timothy prichard, roger allen
TRANSCRIPT
Freight Transportation
IndustryBy Brandon Lennox,
Timothy Prichard,Roger Allen
Market Structure Demand Elasticity Economies of Scale and Scope News Vendor Problem Conclusion
Overview
Oligopoly United Postal Service Vs. FedEx Vertical Boundaries Suppliers
Market Structure
FedEx Vs. UPS
Air Vs. Ground
High demand Seasonality Recession
Demand
Transportation relies heavily on economies of scale and scope
This comes from shipping many different products from many different customers
This gives the ability to spread out overhead costs over a vast amount of items
Economies of Scale and Scope
How are shipping companies trying to use economies of scale and scope.
Building massive ships to carry more and more containers.
Mergers are also being used in shipping to support economies of scale.
Shipping
International shipping company that uses trucks, planes, and distribution centers.
They take individuals packages and ship them all over the world.
This can not be done with just a few packages, but must be done with thousands of them.
UPS
Exists when inventory or capacity expires Freight Industry – Unsold Capacity
◦ Schedules◦ Deadlines◦ Newsvendor problem for transported goods
Newsvendor Problem
Different common types of contracts◦ Customer pays flat rate for truck
Buys all capacity for that truck Newsvendor problem passed on to customer
◦ Truck waits till either it is filled or must leave to meet schedule Newsvendor problem issue of trucking firm
◦ Selling Capacity by the pallet Risk of newsvendor problem on trucking firm
Trucking
Strict schedule – very rigid Consequently suffers heavily from
newsvendor problem Collective customer needs between hubs
rarely exceeds locomotive capacity
Railroad
Shipper must pay a docking fee to harbor operators
Shipping overseas – no substitute◦ Gives shipper negotiating power◦ Allows shipper to better mitigate newsvendor risk
to customers
Shipping by Boat
Stricter the schedule = More risk of newsvendor problem
Many times shipping company must make schedule without knowing exact customer demand
Other times schedule is made based on contracts won
Strict Schedules
Depends who has negotiating power Negotiation power depends on availability
of alternatives or substitutes◦ Many available substitutes = Customer holds
negotiating power◦ Few available substitutes = Shipper holds
negotiating power
Who Covers Risk?
Oligopoly Subject to seasonality and economic
conditions Price and Income elastic Vertical boundaries The newsvendor problem
Conclusion