please follow directions or I will dispute!!!
Please answer original forum with a minimum of 250 words and respond to both students separately with a minimum of 100 words each
page 1 Original Forum with References
page 2 Kim Response with references
page 3 Salvatore response with references
Original Forum
We have covered numerous costs that affect the transportation industry. Pick one of them and find 3 instances where you can find evidence to support your choice.
Student Response
Kim
There are many costs that affect transportation industry, and they can be categorized in different ways. Sinha & Labi (2007) classified cost by the source of cost incurrence – agency, user, and community while CSCMP et al. (2014) described as accounting cost and economic cost (opportunity cost), and/or fixed costs or variable costs. Among these different expressions of costs, and each example that are detailed in their researches, I can think of the following examples such as fuel, freight charges, carrier operating cost, transportation infrastructure (maintenance and construction), technology advance, and environmental impact.
I chose freight charges – which is one of the user costs or variable costs. Carriers charge rates to compensate their operating costs and earn profits. Where profits earned from operations (that is, operating profits) are possible, carriers must aggressively reinvest in the assets to sustain the business (CSCMP et al., 2014). Freight charges have double sides as they are considered a cost to customers who use carriers’ services, but they are revenue to carriers at the same time. Freight charges can be varied according to the miles (distance), weight, volume, commodity, value of the cargo, or transportation modes. Transportation rates are expressed in different ways, including fixed rates, variable rates, and class rates according to CSCMP et al. (2014). Fixed rates are between two points, often by the commodity, variable charges are such as bunker or fuel surcharges, and class rates are for usually LTL (less than truck load) cargoes where carriers charge by weight and commodity classes.
References
CSCMP, Goldsby, J., T., Iyengar, D, & Rao, S. (2014). The Definitive Guide to Transportation: Principles, Strategies, and Decisions for the Effective Flow. Chapter 3. [VitalSource Bookshelf]. https://online.vitalsource.com/#/books/9780133449112/
Sinha, K. C., & Labi, S. (2007). Transportation Decision Making: Principles of project Assessment and Programming. Chapter 4. Hoboken, NJ: John Wiley & Sons, Inc. [ProQuest Ebook Central]. http://ebookcentral.proquest.com/lib/apus/detail.action?docID=792589.
Pira
Salvatore
The maritime industry transports more than 90% of all goods and materials throughout the world at some point in the products life cycle – as either raw materials, finished goods, or refined or unrefined petroleum. However, the operating costs associated with shipping are not entirely indicative of the price tag on commercial seaborne trade. International trade through commercial shipping operates as a “just-in-time” method of supply chain management – meaning that the process is slow, but it is steady, consistent, and relatively inexpensive comparatively to other modes of transportation in the supply chain.
When it comes to operating costs of a ship, many different things come to mind and the compounding expenses can be enormous, let alone the costs of operating a fleet of ships. According to Sinha and Labi (2011) fuel is the most influential operating cost, accounting for anywhere between 50%-75% of the operating cost budget. When considering that ships traversing oceans load their fuel in cubic meters or long tons, and not in gallons – it’s easy to guess the price tag.
Fuel type also has a significant impact on fuel costs – as we can see in our daily lives, different grades of gasoline and diesel have different price tags associated with them. Sinha and Labi (2011) suggest that environment impacts associated with fossil fuel have led transportation industries to seek alternative energy sources. According to the 2019 Annual Report published by A.P. Moller Maersk, a global shipping leader from Denmark, new IMO (International Maritime Organization) requirements to use Low Sulphur fuel beginning in January 2020, led to an increase of 4.4% in Low Sulphur fuel prices between Q3 and Q4 of 2019. In 2019, A.P. Moller Maersk spent approximately $45.6 million on bunker costs, accounting for approximately 18% of their operating costs during 2019 (Annual Report 2019, 2020).
However, the operating costs that are unpredictable are often the most significant expense in shipping. Unexpected repairs and emergency maintenance can place a large financial drain on funds, especially when regulatory and classification society maintenance intervals and inspections are due. Sinha and Labi (2011) discuss maintenance and repair operating costs as they are associated with a vehicle, citing pavement condition, speed, speed change, grade (slope/inclination) and road curvature as elements influencing the wear and tear on a vehicle.
Ships are built heartily, however their internal components are susceptible to any number of environmental conditions. Water temperature, air temperature, air purity (free of particulate/sand), salination, and current are all elements that can influence maintenance intervals as well as inflict significant amounts of damage. Further, each specific piece of machinery or equipment also has a preferred maintenance interval from the original engine manufacturer (OEM) that should be adhered to for optimal performance. It must also be mentioned that ships cannot be maintained in a similar way as cars and trucks, where if a part breaks there’s a local Auto Zone down the street. Spare parts, equipment and tools are bought up front and stowed onboard in preparation for the “what-if” scenario.
Another element associated with operating costs is the depreciation value of a particular asset. In shipping, this is an ever-prevalent influence and, unlike the example discussed by Sinha and Labi (2011) regarding mileage as a factor of vehicle depreciation – ships depreciate based on years of service. For example, in the offshore oil industry, single-hull tankers are no longer contracted out due to the risk they present from hull damage. Industry competitors have begun constructing double-hull tankers as a response to the shift in environmental impact concerns; however, these new hulls only have a useful lifespan of 25 years from the keel-laid date!
The useful life is an industry standard to perform at a stricter time in service than what the law provides. Under Title 46 of the US Code for tank vessel construction standards, a vessel of 30,000 gross tons or more may not operate for more than 23 years if of single-hull construction (which are no longer accepted in the industry), or 28 years if of double-hull construction. (46 U.S. Code, n.d.).
Vessel operating costs – specifically fuel, maintenance and repairs, and depreciation value – play a significant role in the pricing of shipping goods. As ships age and are laid up, new construction takes over with significant improvements in technology and pollution prevention equipment – which cost significantly higher premiums to construct and operate. Since maritime trade is the backbone for trade of all goods and materials in some form, increases in operating costs would require an increase in revenue production. Ultimately, increases in shipping costs would result in increases of rail and road 3rd party logistics providers shipping costs, that would ultimately be passed on to the consumer from a higher price point of the product.
Very Respectfully,
Sal Molino
References:
46 U.S. Code § 3703a – Tank vessel construction standards. (n.d.). Retrieved August 17, 2020, from https://www.law.cornell.edu/uscode/text/46/3703a
Annual Report 2019. (2020, February 20). Retrieved August 17, 2020, from https://investor.maersk.com/events/event-details/annual-report-2019-0
Sinha, K., & Labi, S. (2011). Transportation Decision Making: Principles of Project Assessmentand Programming. In Transportation Decision Making (1. Aufl.). Wiley.
