Global vs. Domestic Supply Chains: Intermodal Transportation

Logistics Design Alternatives

Intermodal transportation essentially refers to the process of transporting passengers and cargo by means of multiple, inter-linked transportation modes. It capitalizes on the comparative advantage of the individual modes to bring about high productivity at considerably low freight costs. Intermodalism has gained prominence over recent years, and is currently an integral component of international trade and global supply chain management. The U.S. Penal Code (49 USC, Chapter 55, Sec 5501, 1998) presents the government's commitment towards delivering a National International Transportation System that is not only environmentally fit, but also economically efficient and in congruence with ongoing attempts geared at making the U.S. economy more competitive on the global front. According to David Collenette, the former Transport Minister of Canada, intermodal transportation is about efficiency and safety in transportation. Canada and Mexico are among America's leading trade partners; in fact, trade volumes between the three have risen significantly over the last decade -- a trend that has partly been attributed to intermodal transportation. So, how exactly does intermodal transportation contribute to foreign trade, particularly among the three NAFTA countries? What modalities are involved?

Before assessing the modalities involved in intermodal transportation, it would be prudent to first outline the overall impact of the same in the freight transportation industry.

The Impact of Intermodal Transportation

Higher Transportation Volumes / Economies of Density: economics of density come about if there are increases in transportation volumes (traffic), but the increases are not accompanied by proportional increases in trade inputs (Yevdokimov, n.d.). Intermodal transportation facilitates the achievement of such economies through such features as computer-guiding systems, cargo consolidation, and containerization. Computer-guiding systems have the effect of increasing labor productivity, whereas cargo consolidation and containerization would usually raise transportation vehicles' load factors (Yevdokimov, n.d.).

A perfect combination of the three is demonstrated in the Burlington Northern Santa Fe Railway (BNSF), which realized substantial increases in throughput volumes following the introduction of the Alliance Intermodal Facility into its operations between Los Angeles and Chicago (Yevdokimov, n.d.). The Optimization Alternatives Strategic Intermodal Scheduler (OASIS) computer system allowed for the handling of more operations using less labor, with consolidation and containerization resulting in higher service frequency (Yevdokimov, n.d.).

Reduced Logistics Costs: increased reliability and service frequency are some of the key features of intermodal transportation systems, a combination of which defines the JIT (Just-in-Time) technique - a service characteristic of intermodal transportation. In the JIT technique, orders are placed only when buyers make requests for the same, implying that the seller essentially eliminates holding costs, which usually account for a significant proportion of the total logistic costs (Yevdokimov, n.d.). A reduction in holding costs, therefore, translates to improved productivity because output is being produced at lower costs.

Expanded Transportation Networks and Size Economies: a transportation network is characterized by the services it provides, and the mileage between its service points (Yevdokimov, n.d.). Network expansion is brought about by the addition of new services/service points to the existing transportation network. In the case of intermodal transportation, where transportation is achieved through inter-linked modes of transportation, network expansion primarily has to do with the addition of service points (Yevdokimov, n.d.). Studies have shown that freight costs increase at an increasing rate with increases in tonnage, and at a decreasing rate with increases in mileage (Yevdokimov, n.d.). Addition of service points would have the effect of increasing mileage, which would then mean that the total transportation costs would fall as the transportation volume rises.

What are the Modalities Involved in Intermodal Transportation: Domestic vs. Global Supply Chains

Dewitt and Clinger (n.d.) express that supply chain management is more complex in the case of international trade, compared to domestic trade. This, according to Yevdokimov (n.d.) is particularly because of the differences that exist between the trade requirements and rules of different destination countries. Moreover, a number of export compliance regulations that are non-existent in the case of domestic trade have to be taken into account in the management of global supply chains. The key ones include FTR (Foreign Trade Regulations), EAR (Export Administration Regulations), and ITARs (International Traffic Arms Regulations). A 2009 report by Thomson Reuters indicates that violation of such export control regulations attracts heavy fines and penalties.

The FTR governs the procedures involved in the reporting of shipments. The FTR regulations provide guidelines on among other things, the reporting of exemptions and the requirements of the Automated Export System (AES) (Weigel & Schwartz, 2009). Further, it provides a substantive definition of export valuation, as well as information on the individual responsibilities of both the exporter and the foreign buyer. For instance, it provides guidelines on the kind of records that ought to be kept; whose responsibility it is to obtain licenses; how export commodities are classified, controlled, and regulated by the regulating agency; who makes entries to the AES, etc. (Weigel & Schwartz, 2009).

The EAR, on the other hand, deals with the statistical reporting of export shipments. It focuses on regulating goods that are not under the coverage of regulatory agencies and those that are of a dual-use nature -- goods that besides their commercial function can also be used in destinations or applications that the U.S. deems "unfit." These include nuclear materials, propulsion systems, marine, sensors and lasers, toxins, and chemicals (MIT, 2014).