Tag: logistics

OM in the News: High-Speed Rail in China and the U.S.

Why is high-speed rail an important topic in OM?  The New York Times (June 23,2011) writes of  “the very real economic benefits that the world’s most advanced fast rail system is bringing to China–and the competitive challenges it poses for the U.S. and Europe”.  Just as the interstate highway system Eisenhower built out 60 years ago made modern, national commerce more feasible in the U.S., China’s ambitious rollout of  high-speed rail is integrating that sprawling nation–though on a faster timetable at much higher speeds than anything we envisioned here.

Do we have a problem in the U.S.? After I spent 4 1/2 hours driving 90 miles from Orlando to Tampa on  a jammed interstate last week , I think we do. The last Amtrak run between the 2 cities died a decade ago. The high-speed rail proposed by the present administration (offered with a full $2 billion-plus incentive) was turned down by our new governor who feared the trains would draw few riders.

Meanwhile the new Beijing-to-Shanghai line will run at 190 miles per hour (going to 220 mph next year) and take 5 hours –while a comparable trip, say from Atlanta-to-New York– takes 18 hours on Amtrak. The Chinese railroad plans to run 180 trains a day on the route.

Work crews of  100,000 per line have built about half of the 10,000 mile network in China so far, often ahead of schedule. As the 200 mph trains link China’s provinces and cities that were previously 24 trips by road or rail, the country’s “manufacturing might and global export machine are likely to grow more powerful”, writes the Times. This makes it more convenient to base businesses in places like Hunan Province, previously isolated from the economic mainstream, but where land, electricity, and labor are cheaper.The other plus of high-speed passenger travel: older rail lines are freed up for freight. This has allowed coal mines and shippers to switch to rail from trucks.

Discussion questions:

1. Do we need bullet trains in the U.S.?

2. What are the implications of the Chinese rail plan for Europe and the U.S.?

OM in the News: Megaships as Part of the Supply Chain

There may be a (post) recession here in the US, but as Asian trade swells, the demand for massive container ships is booming. “Megavessels–ships longer than the 1,063 foot-high Eiffel Tower”, writes today’s Businessweek , “are in demand again”. Shipping lines are preparing for the 2014 completion of the $5.25 billion expansion of the Panama Canal, plus the recovery of global trade. It takes about 3 years to build a new “big” ship–one that can move more than 8,000 20-foot containers. The Canal can only handle ships with up to 5,000 containers now, but will accomodate vessels with up to 12,600 containers in 3 years.

Global trade is expected to expand 11% percent this year and 7% next year, recovering from an 11% drop in 2009. Currently there are 61 ships in operation that can carry more than 6,000 boxes, with 144 more on order to begin service starting in 2014. All except 12 come from South Korean shipyards, especially leader Daewoo Shipbuilding, in Seoul. Daewoo is even taking calls for ships that can carry 20,000 containers, double the current capacity of most megaships.

Manufacturers who ship from several continents–think consumer electronics or appliances–like the massive ships because they can lower transportation costs. One 20-foot container can hold 1,000 42″ LCD TVs. LG Electronics’ Logistics head states: “Although sea transportation is already the most energy-efficient mode of transportation, we are constantly studying…efficiencies…that save money”. Adds an industry analyst: “The trend is big ships. Its not a choice but a must. Its going to be a fight of who can carry more at lower costs”‘.

Discussion questions:

1. Why do the Koreans dominate this industry? Who are US competitors?

2. Why are megaships supply chain and OM issues?

3. Are government policies a part of this industry?

OM in the News: Which is Better–Electric Cars or Electric Trucks?

My blog on Oct.31, 2010 dealt with forecasting the demand for electric cars. Who doesn’t  love the idea of electric vehicles (EVs)?  But as we wrote: “everybody feels that everybody else should be driving environmentally-friendly vehicles”. With gas hovering under $3/ gallon, does it really pay financially for you or me to invest in a $40,000 Chevy Volt?

Maybe not, but logistics managers at such firms as Staples, Frito-Lay, FedEx, and AT&T have come to find that electric trucks make a lot of sense for their commercial delivery fleets. As The Wall Street Journal (Dec.8,2010) writes:” electric delivery trucks…make more sense in many ways than electric cars”. That’s because delivery trucks generally drive  short, defined routes each day–better suited to the limits in range of EVs. And  EVs have lower maintenance costs, a big concern to companies with large fleets.

“We’re a business here”, says  Staples’ VP-Fleet  Services. “They have to justify themselves”. Staples just bought  41 trucks from Smith Electric Vehicles, in Kansas City, and plans to double the order. The trucks have a top speed of  50 mph, and can carry 16,000 lbs. They cost about $90,000, which is $30,000 more than a diesel, but Staples expects to recover that expense in 3.3 years. The EVs have no transmissions; need no fluids, filters, or belts (which cost around $2,700/year); have “regenerative” brakes that last 4-5 years, vs. 1-2 on regular trucks; save $700/year because there is no exhaust system  to maintain; and cut fuel costs by $6,500/year. It all adds up to $60,000 savings over the 10 year life of a truck.

Frito-Lay, with an order for 176 Smith trucks, plans to convert 2,000 more delivery vehicles to EVs. Similarly, FedEx, which has 19 EVs in London, Paris, and LA, expects a proliferation of electric trucks. Its not a “good deed for the sake of a good deed. There is a great return on that investment”, adds a Frito-Lay OM exec.

Discussion questions:

1. Do you think use of electric trucks will spread faster than electric cars? Why?

2. What limits the proliferation of electric trucks?

3. Make the case for the USPS to switch to an EV fleet.

Teaching Tip: Global Trade, Deficits, and Logistics

If the trade deficit is a topic that arises in your OM class, a visual image of the Port of New York and New Jersey is worth 1,000 words. Fortune (Nov.15,2010,pp.14-15) discusses the “Container City” one passes in driving on the NJ Turnpike.

In the first 8 months of 2010, 70,000 more full cargo containers entered the Port  than left it.  In other terms, 45% of the containers exported from the Port are empty, a reflection of the US trade imbalance. Yet a 3rd statistic: 1.80 to 1 is the ratio of imports to exports, up from 1.75 to 1  last year.

Six of the world’s largest ports are now in China, up from two just a decade ago. The largest port in the US in the Port of Los Angeles, the world’s 16th biggest, down from 8th ranked a decade ago.

What all of this means, of course, is that we are running a huge trade deficit, of which the logistics imbalance is one surrogate measure. Who benefits? My cousin Bob is the only one I know. He ships scrap metal to China for recycling and pays only a fraction of the shipping charges he would if he were sending  from China to the US.