Execution of Transportation and Logistics Management operations in the global market consist of many challenges that affect a firm’s ability to operate efficiently and cost effectively.
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Conversely, each of these challenges possess solutions that could potentially minimize situations that could prove detrimental to a Transportation or Logistics Management firm’s ability to maintain a certain level of service at an acceptable level of cost.
These challenges and solutions can vary based off variables in the world and the firm’s ability to adjust to them.
Challenges facing transportation management
The rise in terrorism has had impacts on nearly all forms of transportation. But maritime and air transport have been the worst hit.
The events of Tuesday 11 September 2001 are not the earliest instances of terrorism to affect transportation. During the early 19th century, Mediterranean pirates from North Africa Barber states captured merchant ships and terrorized their crews.
Ships were held in exchange for ransom. What followed has been a long protracted war pitting governments and sea pirates. In the past few decades, piracy has more than tripled in the coasts of the lawless Somalia, Nigeria and along the Malaccan straits.
Today’s pirates are not merely armed men, they are often trained fighters using state of the art weapons and speedboats and equipped with the most modern satellite phones and GPS gadgets.
Piracy today is not as simple as that of the yester years. Political agendas and ideologies are playing part making shipping a very costly endeavor.
Figure1. Shows vessel attacks in 2010
Piracy has direct economic costs on doing business. Delay in delivery of goods tops the rank. However, the costs of ransom have the highest financial implications on transportation.
In November 2010, owners of Samho Dream, a South Korean Tanker paid a total of $9.5 to Somali pirates in order to release the ship and its crew.
Figure 2.Table showing the cost of Somali piracy ransoms in the last two years
Figure 3. Cost of excess Insurance Premiums from transiting around the horn of AfricaThe cost of insurance (war risk, kidnap and ransom, cargo and hull) has increased making the cost of doing business more than triple.
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Conversely, the price of imported good could rise by 10% in the near future.The worst hit region in the world is east Africa and especially Kenya. Cost of doing trade in this region is very high with the Kenya Shipping Council estimating that piracy by the Somali increases the cost of import by up to $9.8 million per month.
Solutions to maritime terrorismFigure 4. Macroeconomic costs to selected countries per year
The private sector has no capacity to eradicate maritime terrorism. Nations must be willing to work together and help each other eliminate this evil. Transportation agencies should consider the following measures;
- Convoys: This strategy was especially applied during the World War II in North Atlantic Ocean against German U-boats. Shippers realized that their security lay in numbers if they were to survive piracy attacks. This trick is applicable but modern shippers argue that maintaining uniform speed will be costly.
- Variance: shippers vary their routines as much as possible in the hope of avoiding piracy. However, merchants find that varying schedules is at times difficult as they have to strict deadlines. The best thing that the transport are doing is removing the time and date from their cruises. This information is often available all over the internet thus endangering ships.
- Shifting cargo: To avoid possible piracy attacks, shippers have come up with a strategy where they change the cargo aboard to items less attractive to pirates. Such a move has been applied by banks in Nigeria which had branches in an island. The bank now maintains electronic transaction and has thwarted an otherwise challenge that almost drove it out of business.
- Offensive measures: Many shippers have equipped their vessels with measures to combat pirate attacks. Some of these measures include the Long-Range Acoustic Device (LRAD). LRAD is capable of producing sirens that force terrorists whose ears are not protected to back off giving ships time to gain speed. The Inventus UAV (Unmanned Aerial Vehicle) is a state-of-the-art surveillance system that’s capable of flying for long distances over water and sends photos to a ground station. This ensures real-time aerial surveillance and has been successful in thwarting maritime attacks in several cases.
- Secure-ship: This is a non-lethal electric fence that surrounds the whole ship. This special fence is supplied with a 9000-volt pulse that discourages boarding attempts.
Increased costs, familiarization of international shipping policies, and coordination of intermodal transportation assets
Modern market forces, environmental concerns, sky rocketing fuel prices, and terrorism are causing the increase in cost in transportation for the maritime, air, rail, and motor. Increased costs are transferred to consumers and this is likely to result in economic problems (Konings, Priemus & Nijkamp 89).
Table showing the percentage in the increase of the cost of transportation in 2010
Figure 5. Percentage increase in cost of transportation in 2010
Containerization was introduced sometime in 1950’s and has since resulted in significance growth of condensed cargo transport in the international trade. Ever since, there has been a considerable growth of unitized and intermodal transport due to deregulation of load units.
Technological advancement has led to the betterment of intermodal transport but at the same time, many problems have been witnessed in this chain of transport (Konings, Priemus & Nijkamp 99).
Intermodal transportation has a dozen of technical issues ranging from cargo handling technologies, vehicles, ICT, and infrastructure networks.
Planning and control of intermodal transportation assets –motor, rail road, water, pipeline, and air has become of the greatest challenges to transporters.
In the past when transportation services required by shippers were tailor made meaning that shippers were accorded the responsibility of coordinating various activities of the transportation chain. Today, there has been a shift and several parties are now involved and unless all these parties agree to cooperate, a headache arise a transport chains are broken.
Familiarization with international shipping policies which vary from country to country and from time to time presents problems to shippers. This makes shippers find themselves in problems with authority in those countries for violation although they may not be aware that they are breaking any law.
Solutions to challenge 2
To deal with the problem of increased costs, transporters should consider more economic means of transportation. They should avoid unnecessary freight as this will tend to increase costs.
Shippers could assume different routine or any other method of escaping maritime crime to avoid extra costs. If possible, outsourcing will act to cut down costs to certain margins.
Shippers could also use transport modes with lower social costs such as rail. To overcome tracking, rail and maritime transportation infrastructure should be improved to make them much better. For small distribution, shippers should adopt human powered transport especially for distribution.
Transporters will have to focus on how well different interfaces and processes in the transport chain are organized (Viale 90). Interfaces between companies and also between different activities in the transport chain should be targeted.
Rather than one company owning the whole transport chain, in could be advisable that one company own a few task while the rest of the tasks are owned by a different company. This will ensure efficiency due to specialized competency.
Data and information transmission are another solution to difficulty in coordination of intermodal transport assets. Improved collaboration at different interfaces could be a lasting solution. Collaboration should be enhanced by increased information sharing and faster feedback.
In order to attain effective global transportation, governments should strive to develop policies that address cross-border issues such as clearance, deregulation. They should co-operate and integrate local policies to fit global levels.
This could be done by for example, harmonizing regulations, homogenizing new technologies in a bid to promote unified operations, attuned training and improved information sharing.
Infrastructure plays a significant role in global transport as it influences the level of charges for freight handling, warehousing and related services. Inadequate transport infrastructure has a negative impact on transportation and trade as a whole. Geographical and operational limitations at ports and internal land present logistical challenges in the establishment of seamless transport system. Infrastructural development continues to lag behind especially in developing countries that lack financial instruments. Land transport networks in majority of these countries are skewed towards major seaports and airports. This means that better roads are concentrated at the coastal areas. Internal container deports are very few and need to be developed.
Solutions to challenge 3
To improve infrastructure, financing arrangements should be considered between the private and public sector. Comprehensive policies capable of combining transport and networks such as banking, ICT, tracking systems, customs, security and immigration should be promoted.
Developing countries need to address border crossing issues, railway gauge consistency and ICT development. Port efficiency need to be enhanced to avoid delays.
Shipping and technological advancement
Containerization has continued to impact strongly on the maritime sector globally. It has facilitated gigantic increases in trade and cargo flows from producers in majority of countries to various destinations in the world.
The massive trade in containerized goods has in turn led shippers to invent latest ships that operate in Asia-North American route and Asia-Europe routes.
The last 20 years has seen the development of large ships capable of exceeding the contemporary 2500TEU (Twenty foot Equivalent Units). In 2002, there were large ships exceeding 7000TEU in cruise.
In the near future, ships of up to 11000TEU will be in operation. A time is imminent when twin crew, twin engine ships will take over shipping operations.
Increase in size of ship justifies the investment but majority of shippers find this a very expensive venture. The building of very large ships implies that this move will exceed the output of the current large cranes found in ports. Increasing the size of ships has a potential for economy of scale.
Smaller ships have the tendency to direct costs per TEU slot to several areas including: capital costs, insurance, repair and maintenance. Therefore, with the increase in the size of ships and the accompanying costs, there seems to be no reduction in capital costs in the short term.
Crew costs will however be reduced by 50% per TEU, insurance costs will reduce. Other area of technological advancement is seen in introduction of faster ships for short distance coastal services. Faster ships mean high speed delivery services.
Shippers have to embrace the new ICT and infrastructure. Ship-shore communications are continually advancing while territorial borders are disappearing. Barriers to global trade are decreasing.
This shift means that shippers have to install these technologies into their operations as they come with certain advantages in global transportation. New methods for supervision of sophisticated system by utilization of measurement and performance reports have evolved.
This automated technology has the capability of enhancing support for improved cooperation between ships and the personnel on the shore. Nowadays, there are monitoring systems for the instantaneous assessment of hulls.
Installation of such devices ensures inspection and maintenance of hulls is done real-time. These systems ensure reduction in dry-docking and a drop in steel replacement costs.
Energy Efficiency Operation Index (EEIO) helps shippers monitor consumption continuously and therefore evaluate the saving potential and optimization of operation. Ship and shore personnel can thus pinpoint wasted energy and determine changes instantly.
A support for rule compliance is an automatic decision support tool that’s used for evaluating obedience to rules while at sea. The compliance enables shippers to be able to observe the ever increasing and more complex international and local laws.
Although shippers realize that the use of these key performance indicators and technologies are beneficial to their operation, most see them as a formalistic way of routine comparison by the leaders in a standard approach especially on fuel consumption (Zuckeman 126).
Transporters know that the embrace of these advance technologies will cost them dearly and eat into their profits. Some of these enhanced ship onshore communication have external costs catering for legal and liability reasons.
If proper research is conducted, new technology is capable of creating more efficient methods of tracking loads and will ultimately improve the overall operation. If implemented correctly, a shipping firm’s investment in new technologies eventually pays itself off with increased revenue due to improved efficiencies in service. But, it is advisable that attention first be given to the cost factor.
Economic down turns
The last few decades has shown that trade grew at a faster rate than the economy. Consequently, during financial crisis like that being experienced in Europe today, trade decline at a faster rate than the economy.
With trade comes transportation which makes it easy to buy goods and services anywhere in the world. In fact, globalization is driven by the costs of international transportation and maritime is arguably the leading global industry.
Shipping has been the hardest hit by the current financial and economic crisis which has seen reduction in the volume of goods transported by sea (Schreibfeder 56). This setback has been as a result of substantial fall in shipping demand.
The cost of container shipment has plunged from around $2800 several months ago to just $700 today. The industry has witnessed reversal where although ocean carriers were making profits in the last few years, the trend has changed to the benefit of shippers but to the economic challenges to the ocean carriers.
Figure 6. Illustrates price behavior before and during the 2008 financial crisis: freight rates are fell sharply but things improved in 2009
In order to maximize funds dedicated to operating costs, firms must utilize those funds efficient in ways such as utilizing shipping containers and other bulk shipping methods. This will allow them to consolidate loads in a secure mode of transportation and avoid
Third Party Logistics operator
Manufacturers do sometime outsource logistics activities from third party logistics operators (3PL). 3PL, who have greater expertise, enhance mobility of logistic operations thus aiding in wider geographical coverage.
Operating costs are lowered while quality of service is improved. By externalizing logistic services, manufacturers are capable of increasing the range of outsourced services while at the same time increasing the volume of goods entrusted to the third party.
Outsourcing logistics could save a company up to 30% on costs. This is more on areas relating to capital tied up in stock and in storage or warehousing. On the other hand, Third parties benefit from the economies of scale associated with the provision of a similar service to several companies.
Today, a total of 42% of businesses in Europe outsource their logistics to third party logistics while 58% do not. This is contrary to the notion that most shippers are shifting to a non-asset based business model.
Around 66% of enterprises in Europe outsource transportation activities. Less than 10% hand over inventory management to 3PLs. 34 % outsource warehousing operations. 25% outsource ICT and 13% outsource fleet management in European countries.
Fig. xxx figure 7.Share of outsourcing logistics operations
Figure 8. Outsourcing logistics operations
Manufacturing companies have for sometimes now demanded an integrated logistic service custom-made to meet their requirements. Companies are faced with hard decisions on whether to entrusts key issues to third parties they know little about.
Dealing with 3PL with low volume shipments could mean high retail pricing. Time is lost as companies look for the best 3PL, get quotes to land the best prices for a lane and so on.
Logistics firms must compare costs for utilization a 3PL or to maintain their own shipping fleets. Additionally, the luxury of reducing the shipment portion of logistics is a significant factor when making a decision on whether to maintain internal shipping assets, or to outsource to a 3PL.
If a customer is capable of voluminous shipping, it would be advisable that they maintain their own shipping fleets so as to benefit from the economies of scale.
When making a decision on use of 3PL, companies should shop for the most trustworthy third party who can accept damage claims and allow for returns.
For local and regional shippers, it is advisable that they outsource to smaller 3PLs while a large shippers should look for her equal. This will serve to reduce operational costs.
Partnering with a 3PL is beneficial when the logistics of the company are not the core competency and when the supply chain is not assimilated internally or with other trading partners.
By this I mean when a company’s supply chain is decentralized which implies that; the company uses decentralized sources, many transportation managers, large inventories lying at rest, low stock, numerous distribution centers, and a lengthy reaction to customer’s demands.
If a company is dissatisfied with inventory levels/locations/turns, cost of inventory, logistics costs and quick access to logistics information like transportation, warehousing and logistic labor, it could opt for a 3PL to avoid all these hustles.
Warehousing is increasingly becoming a core competency and a strategic weapon that firms are utilizing to gain competitive advantage. However, it has become more costly and firms have to monitor forecasted demands in a close range to make sure that they do not stock excessive and low demand inventory.
Due to increased cost of intermodal transportation, firms choosing to warehouse must consider either a decentralized or a centralized system (Tompkins & Smith 243). A centralized warehouse serves the firm’s whole market, while the decentralized warehousing is applicable where a firm divides its market into different zones each served by a small warehouse.
Majority of warehouses are operated on strategic master planning which is a tool designed protect warehouses against predictable change in requirements. This design engages in forecasting future warehousing needs in advance of the real requirements allows considerable time for the firms to competently and successfully meet those needs.
Forecasting is a risky business. Warehouses operated on forecasts are hard to maintain and often run into troubles (Tompkins & Smith 12). Forecasting require a lot of information inform of data to be successful.
Logistical challenges are brought about by a significant number of stock keeping units, increased requirements for customer service, demands for inventory reduction, demands to raise efficiency in warehouse operation and utilization of space, demands for intensified customized products.
Additional logistic challenges occur when there is a considerably increase in demands for responsiveness to address the issues of quick response, cross docking, just-in-time, and customer response efforts.
There are needs to integrate warehouse within the total logistic system and emphasize on global marketplace and challenges that arise from diversity of shipping needs. Intensive investment and high operating costs are incurred to meet the cost of space, labor and equipment.
Firms can reduce monitoring costs by developing goals for accuracy of total inventory levels and customized stock keeping units.
Companies should develop warehouse master plans that do not consist simply of ideas, thought, possibilities, and desires nonchalantly recorded on paper. It should be a formal set of document created, collected, edited, precisely as a plan to be acted upon.
A quality warehousing workable strategic master plan should compose a set of documents that details the implementation plan, descriptive narrative, supporting economic costs and justifiable data.
A forecasting strategy should be action-oriented and time phased. It should depict a step-by-step action plan to be taken to meet demands rather than detailing the alternatives accessible to meet those requests. Logistics should establish master plans build on premises concerning future production volumes, levels of inventory, labor, technology available etc.
Planning, managing and enhancing improvement in warehouse operations necessitate a better professional approach and increased costs. The cost savings can be achieved by concentrating the flows of goods across all warehouses.
Decentralized ware housing should be applied If the majority of the customer base is in a different region or country, it may be more beneficial to establish storage facilities in closer proximity. This will decrease transportation costs and justify establishment and operation of multiple distribution centers.
Identifying demands, maintaining adequate inventory and coordination of transportation
In increasing globalization of economic activity and prompt of ICT, businesses are endeavoring to develop and organize strategic, efficient and world-wide networks which aim at assimilating product sourcing, production and distribution.
The development of global logistic networks by companies produces different needs for value added logistics management.
Logistics create a large number of information and materials flows across supply chains from producers to consumers. These flows extend beyond national borders. Logisticians manage and optimize on these flows as an integrated process.
They must be able to identify various logistics for a firm or otherwise they will be deemed useless. They understand that identifying demands, maintaining adequate inventory and coordination of transportation are all significant challenges for firms.
Growth in freight transport is among the most obvious display of logistics activities due to witnessed worldwide trade expansion. Companies nowadays have realigned the supply chain and concentrate more on core competencies while sub-contracting non-core, ancillary activities to third parties (Levy, kaminsky & Levy 233).
As a result, transport has become intensified in the process of production. In the process of realigning supply chains, international transport has been increasingly concentrated at smaller hub ports and airports so as to benefit from economies of scale.
Increasing use of the ICT is refining transportation. Selective use of global transportation modes has become common in personal computers where parts are transported by air or sea.
These modes of transport now depend on the value of the items with those having added value finding their way into air transport before they are processed. Such a move, although highly appropriate to companies, have an entirely novel challenge transport coordination logistics. Changes in vehicle and handling technologies have equally resulted into transport coordination problems.
To handle complicated issues to do with demand, coordination of transportation and other core competencies that global logistics have to deal with, firms must be willing to engage experts to help monitor and analyze the global logistic posture in order to create initial blueprint and standard operating procedures that clearly lay out solid plan.
Experience and education
The field of logistics keeps on changing and has important consequences on employment and labor. Some firms rely on high skills, information technologies and other standards necessary for logistics. Other firms depend on low product price and competition and thus exert pressure on salaries and working conditions.
Companies can employ the above two strategies quite comfortably without affecting quality. This is applicable where the organization rules on core logistics system while non-core services are delegated to outside providers.
For systems depending on skills and high information technologies, a higher level of training is needed to operate tracking, tracing and other complicated ICT devices essential to modern transport and logistics services.
Developments in logistics in turn lead to changes in demand for skills and this requires more highly educated employees. To satisfy their customers with complete, custom made integrated distribution services, distributors must be willing to engage logistics personnel who possess skills and are capable of evaluating the complex distribution needs of customers.
The skilled specialist should also be able to device for the customer the best transportation option and design the essential distribution and information system (OECD 45). The secret in achieving all these lies in obtaining people who possess such skills.
Logistics firms transport commissions are considering several tactics to evaluating the skills level of young logisticians in an attempt to accelerate training to address the problem of skills shortage in the industry.
However, some argue that fast-tracking can be criticized on the road safety ground because not even a careful selection of fast-track candidates can be sufficient enough to compensate totally for the higher crash risk carried by inexperienced drivers of heavy commercial trucks.
In many third world countries, there is lack or limited logistic knowledge. To achieve better performance, it is the logistics firm’s best interest to invest time and money into the development of their experts.
Human resource education and training should be stressed if firms intend to strength then their logistics. Many developed countries are nowadays dispatching logistic experts to start and develop training courses in logistics.
Implementation of Transportation and Logistics Management operations in the global market consist of many challenges that affect a firm’s ability to operate efficiently and cost effectively. Terrorism comprises the most costly challenge facing transportation today.
This is more serious in the Indian Ocean where ship owners continue to incur huge losses due to paying ransoms. Poor infrastructure, coordination of intermodal transport, the current financial crisis and the need to keep up with technological advancement affect businesses equally.
Firms that are able recognize and execute good problem solving procedures will be able to expand their customer base. Additionally, the ability to customize transportation and supply chain solutions to meet the exact needs of the customer is imperative in this highly competitive filed.
Flexibility is one of the most importation aspects of global Transportation and Logistics Management and businesses that are able to identify and solve problems are the firms that enjoy the most success in the industry of global Transportation and Logistics Management
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