UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The potential of air freight in relation to British Columbia economy and trade Tapiero, Michel 1973

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1974_A4_5 T36.pdf [ 9.03MB ]
Metadata
JSON: 831-1.0099881.json
JSON-LD: 831-1.0099881-ld.json
RDF/XML (Pretty): 831-1.0099881-rdf.xml
RDF/JSON: 831-1.0099881-rdf.json
Turtle: 831-1.0099881-turtle.txt
N-Triples: 831-1.0099881-rdf-ntriples.txt
Original Record: 831-1.0099881-source.json
Full Text
831-1.0099881-fulltext.txt
Citation
831-1.0099881.ris

Full Text

THE POTENTIAL OF AIR FREIGHT •IN RELATION TO BRITISH COLUMBIA ECONOMY AND TRADE by MICHEL TAPIERO Economics C e r t i f i c a t e , Universite de Montpellier, France, 1967 B. Comm. Ecole des Cadres du Commerce, France, 19 69 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION Faculty of Commerce and Business Administration We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA July 1973 In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the r equ i r emen t s f o r an advanced degree at the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I ag ree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and s tudy . I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y pu rposes may be g r a n t e d by the Head o f my Department o r by h i s r e p r e s e n t a t i v e s . It i s u n d e r s t o o d tha t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be a l l owed w i thou t my w r i t t e n p e r m i s s i o n . Department o f G®\\Kk\\ P Y ?* £ The U n i v e r s i t y o f B r i t i s h Co lumbia Vancouver 8, Canada Date JOt A/I kjJSJJd / / CMl-{ i . ABSTRACT Transportation of commodities by a i r during the past decade has experienced the f a s t e s t growth of a l l modes of transport. Although a slowdown had been predicted by shippers and c a r r i e r s a l i k e , the economic recession of 1969 has had only mild e f f e c t s on the a i r f r e i g h t industry. In t h i s study, the p o t e n t i a l for a i r f r e i g h t has been examined i n terms of the concept of t o t a l d i s t r i b u t i o n cost. The study has focused on the p o t e n t i a l for a i r f r e i g h t within B.C. but more p a r t i c u l a r l y on B.C. external trade with Japan and on the means whereby this p o t e n t i a l may best be r e a l i z e d . Cost analysis f o r s p e c i f i c commodities by a i r transport as compared to sea container transport i l l u s t r a t e s the application of the Tot a l D i s t r i b u t i o n Cost Concept. B r i e f mention i s made of the back-haul f r e i g h t problems faced by B.C.- based a i r c a r r i e r s . P o t e n t i a l for a i r f r e i g h t i n the containerized commo-dity market i s examined i n the l i g h t of present and future a i r c r a f t capacity and performance, together with possible a i r / surface transport coordination. The conclusions of tfte study aire as follows : 1 - the convenience and cost savings derived from the use of a i r transport do not appear, as yet, to compensate for the p r e s e n t a i r t r a n s p o r t a t i o n c h a r g e s ; a i r - f r e i g h t r a t e r e d u c t i o n s may not n e c e s s a r i l y r e s u l t i n i n c r e a s e d f r e i g h t volume u n l e s s the p r e s e n t p o t e n t i a l i s more f u l l y e x p l o i t e d and c o u p l e d w i t h a t l e a s t a 30% r a t e r e d u c t i o n i t i s u n l i k e l y t h a t demand f o r a i r f r e i g h t s e r v i c e s w i t h i n B.C. and on t r a n s - P a c i f i c r o u t e s w i l l i n c r e a s e d r a m a t i c a l l y i n t h e n e a r term. T h i s i s p a r t i c u l a r l y t r u e f o r ea s t b o u n d t r a f f i c , b o t h from Japan and from B.C.; however, advanced t e c h n o l o g y , l o w e r o p e r a t i n g c o s t s t h r o u g h use o f l a r g e r a i r c r a f t , w i d e s p r e a d c o n t a i n e r i z a t i o n and improved u n d e r s t a n d i n g o f the i m p l i c a t i o n s o f an e f f i c i e n t use o f a i r f r e i g h t i n a g i v e n d i s t r i b u t i o n s ystem would a l l appear t o augur w e l l f o r t h e f u t u r e o f a i r f r e i g h t . i i i . TABLE OF CONTENTS CHAPTER PAGE INTRODUCTION Objective . 1 Thesis organization 2 Limitations 3 I STRUCTURES AND GENERAL CONFIGURATION OF THE TRANSPORTATION NETWORK IN B.C. Geographical considerations . 4 Socio Economic considerations < , . . . . 5 In d u s t r i a l a c t i v i t y . . . . . 6 Network transportation 10 Irtter-modal competition factors i n B.C. . . . . . '20 II B.C. TRADE BY MODE OF TRANSPORT AND THE SITUATION OF THE REGIONAL AIR CARRIER B.C. trade ' . . 31 Japanese trade 38 Situ a t i o n of regional a i r c a r r i e r 41 III THE AIR FREIGHT DECISION AND ITS POTENTIAL Operating costs of a i r c a r r i e r s i n Canada . . . . 55 Who are the users of a i r f r e i g h t service . . . . 59 Cha r a c t e r i s t i c s s p e c i f i c to the use of a i r f r e i g h t 60 General demand function i n a i r f r e i g h t 61 The t o t a l d i s t r i b u t i o n concept 6 3 S p e c i f i c advantages of a i r d i s t r i b u t i o n over surface d i s t r i b u t i o n 69 Surface transportation versus a i r transportation: a p p l i c a t i o n and analysis of the t o t a l d i s t r i b u t i o n cost concept . . 73 i v . CHAPTER IV POTENTIAL AIR FREIGHT IN THE CONTAINER MARKET A i r cargo containerization . • 88 Containers and a i r c r a f t 89 Capability and capacity of a i r c r a f t 91 Po t e n t i a l of a i r f r e i g h t container i n the surface container market 9 4 Air/truck coordination 9 5 Air/sea competition and coordination 96 Land-bridge concept applied to a i r f r e i g h t . . . 97 V COrCLUSIONS AND RECOMMENDATIONS 101 BIBLIOGRAPHY 104 APPENDICES 108 V. LIST OF TABLES TABLE PAGE 1.1 B.C. economic a c t i v i t y 1960-1970 7 1.2 Annual index of employment i n B.C 8 1.3 Railway f r e i g h t i n B.C 12 1.4 Cargo handled through B.C. ports 14 1.5 Aerodrome i n B.C. and Canada i n 1968 . 17 1.6 Scheduled International and domestic t r a f f i c at Vancouver a i r p o r t 18 1.7 Intra-modal competitive factors 21 1.8 Inter-modal competitive factors 23 2.1 Ten leading commodities exported through B.C. custom ports 32 2.2 Ten leading commodities imported through B.C. custom ports 33 2.3 Exports of B.C. products to major markets . . . . 35 2.4 Imports through B.C. ports by p r i n c i p a l market o r i g i n 36 2.5 Value & mode of transport for exports through B.C. ports 37 2.6 Japanese exports to Canada 40 2.7 P . W .A. bulk operation revenues . . , 44 v i . TABLE PAGE 2.8 P.W.A. growth and volume of bulk operations . . . 45 2.9 P.W.A. operating r a t i o s and f r e i g h t load factors 47 2.10 Ton/miles produced i n B.C. by P.W.A 4 8 2.11 D i r e c t i o n a l c h a r a c t e r i s t i c s of cargo movement for P;W.A. selected routes 49 3.1 D.O.C. per type of a i r c r a f t 56 4.1 Composition of a i r f r e i g h t by type of container i n the free world 88 v i i . LIST OF FIGURES FIGURE PAGE 3.1 Demand curve for a i r f r e i g h t when a i r and sea rates are the same . . . . . . . . . 80 3.2 Demand curve f o r a i r f r e i g h t with application of t o t a l d i s t r i b u t i o n cost concept . 81 4.1 Cost comparison f o r p a l l e t i z e d and containerized shipment on 3,000 mile f l i g h t . . . 92 INTRODUCTION OBJECTIVE OF THIS STUDY The objectives of the present study are to examine whether the p o t e n t i a l demand for a i r f r e i g h t within B.C. and on the t r a n s - P a c i f i c routes can be r e a l i z e d by means of the many advan-tages offered by a i r transport over those of surface transport and the e f f e c t of a i r rates on t h i s demand. The e f f e c t s of a reduction i n a i r f r e i g h t rates on the volume transported are tested on s p e c i f i c shipments and s i t u a t i o n s , i n order to determine whether t o t a l cost d i s t r i b u t i o n o f f ers s u f f i c i e n t advantages to o f f s e t the higher transportation charges of shipping by a i r . The concept of Total D i s t r i b u t i o n Cost i s applied i n t h i s study to the measurement of comparative d i s t r i -bution cost by surface and a i r modes. The study attempts to i d e n t i f y the p o t e n t i a l of a i r f r e i g h t i n the surface container market, and analyze the implica-tions of an integrated cooperation and coordination between a i r and surface modes, both, of which could play an important part i n the development of air. freight:. THESIS ORGANIZATION The introductory chapter outlines the bases of the B.C. economy and the nature of i t s transportation network. The i n t e r -modal competitive factors relevant to the choice of a mode of transport i n B.C. are also described. Chapter Two examines the nature of B.C. exports and imports by mode of transport, with, p a r t i c u l a r reference to trade with Japan. In addition, the chapter discusses the s i t u a t i o n of the B.C. regional a i r c a r r i e r and the nature of i t s operations i n the North. Chapter Three discusses the advantages, disavantages, c h a r a c t e r i s t i c s and rate structures of a i r transport. The Total D i s t r i b u t i o n Cost Concept i s discussed at length and includes a cost analysis comparison between surface and a i r transportation i n respect of s p e c i f i c commodities (also i n Appendix C). The intention of this chapter i s to indicate the means available to a i r c a r r i e r s of increasing f r e i g h t volume and whether a i r f r e i g h t p o t e n t i a l can i n fact be r e a l i z e d by the a i r f r e i g h t industry. Chapter Four examines the p o t e n t i a l of a i r f r e i g h t i n the container market i n the l i g h t of rapid technological changes i n the aeronautics and container i n d u s t r i e s . Surface and a i r transport coordination i s also b r i e f l y mentioned as means for further development of a,ir f r e i g h t , F i n a l l y , Chapter Five presents the summary of recommend-ations and conclusions. 3. LIMITATIONS The cost analysis made with respect to shipments from four d i f f e r e n t companies should i d e a l l y have involved a thorough analysis of t h e i r d i s t r i b u t i o n system. The firms interviewed were however unable to supply information on inventory costs, p i l f e r a g e , damages, packing and warehousing costs, and other pertinent data. The Total D i s t r i b u t i o n Cost Concept takes into conside-ration such intangible factors as r e l i a b i l i t y , customer s a t i s f a c t i o n and company prestige, a l l of which play a secondary role i n the decision of whether or not to use a i r f r e i g h t . These factors, even i f they were av a i l a b l e , would be extremely d i f f i c u l t to i n t e r p r e t , and therefore were not taken i n t o consideration i n computing the comparative cost analysis between a i r and sea modes. Accordingly, the factors considered i n the analysis are the value and size of the shipment, handling, loading, wharfage, containerization, f r e i g h t and insurance charges, c a p i t a l costs on goods i n t r a n s i t , i n inventory and t h e i r depreciation. CHAPTER I STRUCTURE AND GENERAL CONFIGURATION  OF THE TRANSPORTATION NETWORK IN BRITISH COLUMBIA GEOGRAPHICAL CONSTDERATIONS B r i t i s h Columbia i s the most westerly province of Canada, bounded on the south by the 49th p a r a l l e l and the U.S. border, on the north by the Yukon T e r r i t o r y and Alaska, on the east by the Rocky Mountains and on the west by the P a c i f i c Ocean. The r e l i e f of B.C. i s generally mountainous and extensively covered by coniferous forests. The numerous ranges of mountains i n the province are mostly p a r a l l e l to the. coastline, 8,C, has very r i c h mineral resources, not f u l l y exploited, and a high p o t e n t i a l for the development.of hydro e l e c t r i c i t y . Nearly 60% of the province i s covered by commercial for e s t s , yet only 5% of the surface area of the province i s suitable for ag r i c u l t u r e . Crops include grain, f r u i t , berries and vegetables. There are also areas of dairy farming and c a t t l e ranching i n the south and southeast of the Province. The economic l i f e of the province of B r i t i s h Columbia i s 5. conditioned by widely d i v e r s i f i e d c l i m a t i c f a c t o r s . B a s i c a l l y , there are three c l i m a t i c regions : - The P a c i f i c : coastal area v/hich constitutes 5% of the province i s warm and humid ( r a i n f a l l i s heavy) ; - The South Mountain : valleys and plateaus on the south and southeast represent one t h i r d of the area of the province ; - Th,e North, fountain ; colder i n the north and north-east ; represents- nearly two-thirds of the area of the province. As a r e s u l t of these geographical c l i m a t i c f a c t o r s , B r i t i s h Columbia i s mostly populated along the coast, Vancouver Island and i n the v a l l e y s , such as Fraser, Columbia, Kootenay, Skeena, Peace and Okanagan Rivers. Most of the population i s located i n the southern h a l f of the province with nearly 55% i n the Vancouver area and the Fraser Valley. SOCIO --ECONOMIC CONSIDERATIQNS . POPULATION A basic element of the economic a c t i v i t y i s r e f l e c t e d by i t s population and where secondary manufacturing and services or trade are concerned. On June 1966, B.C. population was 1,873,700 (up 34% from 1956). Population as of June 1, 1970 was 2,137,000 and the 1971 preliminary census reported 2,180,000. The B.C. population, as shown by the l a s t census, has the second highest growth rate i n Canada. Much of t h i s increase of popula-6. tion i s a t t r i b u t a b l e to net immigration rather than natural increase. The Gross P r o v i n c i a l Product (G.P.P.), which i s the market value of goods and services produced within the province and depends upon the pro d u c t i v i t y and the number of people employed, increased by 7.3% from 1969 to 1971. Although the l a s t couple of years show a marked slowdown i n economic a c t i v i t y i n Canada, the United States and the rest of the world, B r i t i s h Columbia stands now as one of the wealthiest provinces i n Canada, i n economic terms. Table 1.1 shows comparative figures for population growth, labour force, G.P.P. and income per capita f o r the years 1960, 1965 and 1970. Table 1.2 shows the index of employment i n seven selected areas i n the B.C. i n d u s t r i e s . A high degree of automation i n the primary industry has given high labour productivity while the demand for u n s k i l l e d workers has been decreasing. INDUSTRIAL ACTIVITY An increase i n population implies a corresponding increase i n i n d u s t r i a l a c t i v i t y and i n job opportunities. Yet, as shown by past experience and by the s t a t i s t i c s outlined i n Tables 1.1 and 1.2, i n spite of substantial development i n a l l sectors of industry, fewer workers were employed i n primary industries -mining, logging, f i s h i n g and a g r i c u l t u r e - than were employed ten years ago. For the most part, employment i n these industries TABLE 1.1 BRITISH COLUMBIA ECONOMIC ACTIVITY 19 60 - 19 70 FACTORS 1960 1965 1968 1969 1970 Population growth Labour Force G.P.P. ($ millions) Income per capita ($) 1,600 ,000 565 ,000 3,933 1,856 1,800,000 667,000 5,794 2 ,334 2,007,000 797,000 7,708 2,833 2,067,000 836,000 8,640 3,121 2,137,000 877,000 9 ,250 3,264 Source : B.C. F i n a n c i a l and Economic Review, June 1971 Department of Finance, V i c t o r i a , B.C. TABLE 1. 2 ANNUAL INDEX NUMBERS OF EMPLOYMENT IN  SELECTED BRITISH COLUMBIA INDUSTRIES 1961 = Index 100 1962 1964 1966 1968 1969 1970 Forestry 105.0 110.7 118.9 111.5 120.4 116.0 Mining 104.1 106. 7 126. 7 131.5 130. 4 151.0 Manufacturing 103. 8 109.2 123.0 118. 8 125.1 124.0 Construction 103. 7 120.2 176.6 158. 3 164.9 140.0 Trade 100.2 109.9 125.5 135. 4 146.4 150.0 Service 101.9 116. 7 146.3 163.6 187.2 199.0 I n d u s t r i a l Composite 102.1 109.4 126.1 128.8 137.6 139.0 Source : B.C. Summary^ of Economic A c t i v i t y , December 1970. Department of In d u s t r i a l Development, Trade and Commerce, V i c t o r i a , B . i * estimates. C O has been affected by extensive use of automation. At the same time, however, the increase i n exploration programs and the e x p l o i t a t i o n of mineral resources during the pas decade have influenced the development and further u t i l i z a t i o n of a i r transport p a r t i c u l a r l y i n the North. The p r o v i n c i a l government and the business community are well aware of the p o t e n t i a l of these resources and are attempting to encourage the development of a secondary industry to further i n d u s t r i a l i z e the province. The wood and paper product industries dominate manufac-turing i n B.C., accounting for almost 50% of factory shipments, and i t seems the f o r e s t industry w i l l remain i n the foref r o n t f o r many years."'' However there has been recently a trend toward expansion of a secondary manufacturing industry to supply the needs for primary industry such as mining, logging and transpor-tati o n equipment which i s favored by the present p r o v i n c i a l government. 2 The figures outlined i n Table 1.1. and Table 1.2 indicate that the province of B.C. has the means to meet the demands of an ever-increasing consumer market which has the second highest per capita income i n Canada. The recent completion by the B.C. p r o v i n c i a l government, of the extension of r a i l tracks of the former P.G.E., now B.C.R., up to Fort St.John shows the increasing concern of developing the northern part of B.C.. and i n areas where there are natural 10. barriers to p e n e t r a t i o n and to i n d u s t r i a l development, one of the modes of t r a n s p o r t which w i l l benefit most from th i s s i t u a t i o n w i l l be a i r transport. E x t e r n a l trade through B r i t i s h Columbia custom ports w i l l be discussed l a t e r i n more d e t a i l . We w i l l turn now to the transportation s e c t o r . NETWORK T R A N S P O R T A T I O N RAIL T R A N S P O R T A T I O N Presently, there are 4,900 miles of mainline railway i n B r i t i s h Columbia, representing over 10% of the Canadian t o t a l . The Canadian National. Railway (C.N.R.) with 1,450 miles of track i n the province, enters B.C. through the Yellowhead Pass. I t turns west to Red Pass and then divides i n t o north and south branches. The North branch follows the Fraser River to Prince George and then along the Bulkley and Skeena Rivers to Prince Rupert. The South branch follows Thompson River to Kamloops and then along the Fraser River to Vancouver. The Canadian P a c i f i c Railway (C.P.R.) with 2,000 miles of track i n the province, enters B.C. through the Kicking Horse Pass. I t runs to Golden, Revelstoke, Kamloops and then, p a r a l l e l to C.N.R,, to Vancouver, The B r i t i s h Columbia Railway, with 1,450 miles of track, represents an important l i n k between the south and central area, and the south and the northern area of the province. The B.C.R. operates 865 miles of mainline track between North Vancouver and i t s most northerly' terminal, Fort St.John. The B.C. Railway has access to the North American railway network and a large deep-sea bulk loading f a c i l i t y , located at Squamish, became operative i n mid-1972.3 The rapid expansion i n f o r e s t r y , mining, natural gas and agr i c u l t u r e , together with the r i s e of the secondary industry serviced by the B.C. Railway have have led to a growth i n popula-t i o n , which i n turn has l e d to increased economic a c t i v i t y throughout the area serviced by the railway. Freight t r a f f i c f o r B.C.R. accounts f o r almost 90% of i t s t o t a l revenue, with the f o r e s t product commodities contributing more than h a l f of the t o t a l f r e i g h t revenue. The development of new areas serviced by the B.C.R. system w i l l have the e f f e c t of increasing the propor-ti o n of a i r f r e i g h t by creating new services and needs f o r these population centres. Table 1.3 shows the figures of f r e i g h t volume handled at r a i l stations i n B r i t i s h Columbia for 1967, 1968, 1969, 1970. WATER TRANSPORTATION . Coas f a I Shipping The B.C. coastline i s u t i l i z e d year around by coastal f r e i g h t e r s , tugs, barges for general cargo and passenger movements. TABLE 1.3 RAILWAY FREIGHT IN BRITISH COLUMBIA (thousands of tons) Originated or loaded Terminated or unloaded 1967 18,868 22,422 1968 19 ,568 24,201 1969 20,716 23,550 1970* 21,800 24,100 Source : B.C. Facts and S t a t i s t i c s , 1970, Economics and S t a t i s t i c s Branch, Government of B.C., V i c t o r i a , B.C. * estimates. ro 13. P r a c t i c a l l y a l l of the bulk materials moving by water along the coast i s c a r r i e d by barges. Extensive ferry services are opera-ted between the Mainland and Vancouver Island and the Gulf Islands by the B.C. F e r r i e s , a company owned by the p r o v i n c i a l government. Deep-sea shipping Although the number of foreign s a i l i n g s to and from B r i t i s h Columbia ports has decreased over the past decade, the volume of cargo exported for the same period has increased by over 120%, from 12 m i l l i o n tons i n 1960 to 27 m i l l i o n tons i n 1970 and out of this amount, 17 m i l l i o n tons have been exported through the port of Vancouver alone. Rapidly expanding exports and imports, the d i v e r s i t y of bulk product shipments, and long-term sale contracts for coal to Japan, have a l l created the need for larger deep-sea f a c i l i t i e s i n Vancouver. R a i l loops, bulk storage, deep-sea berths and automatic r a i l - c a r loading f a c i l i t i e s have been i n s t a l l e d at Roberts Bank Super port. Presently, the port of Vancouver can 4 handle up to 35,000 units annually at the container terminal. Table 1.4 indicates the volume of cargo handled through B.C. ports for the years 1966 to 1970. ROAD TRANSPORTATION In recent years, trucking has come to be recognized as the mode of transport suited to l o c a l d i s t r i b u t i o n . The p r o v i n c i a l government has acknowledged the r e s p o n s i b i l i t y of the province TABLE 1.4 CARGO HANDLED THROUGH BRITISH COLUMBIA PORTS 1966 - 1970 (Thousands of tons) COASTAL TRAFFIC INTERNATIONAL TRAFFIC Year 1966 1967 1968 1969 1970* Loaded 20,977 20,233 19,587 19,808 17,564 Unloaded 21,043 20,196 19 ,581 19,796 17,568 Loaded 20,533 22,194 24,150 20 ,724 25,296 Unloaded 3,657 3,843 4,457 4,511 2 ,882 Source : Shipping report, 1970. D.B.S. 54-206 Dominion Bureau of S t a t i s t i c s , Ottawa. Figures f o r 19 70 are estimates, to provide access road to areas under development or p o t e n t i a l l y r i c h i n mineral resources. The B r i t i s h Columbia Highway system now t o t a l s 28,000 miles of highways of which 7,100 miles are 5 paved. Commercial vehicle r e g i s t r a t i o n for 1969 was 197,800 units, which transported 85 m i l l i o n s tons of cargo, one t h i r d of which was registered as.shipments within the province.^ Today, most l o c a l i t i e s i n B.C. are serviced by road. The trucking indus try within B.C. i s more than competitive with a i r f r e i g h t on haul between 400 and 800 miles, o f f e r i n g regular schedules to major c i t i e s and towns within 2 4 hours at the most. Highways play an important part i n the penetration and the development of the northern regions i n the north of the province. AIR TRANSPORTATION There are 75 a i r c a r r i e r s based i n B.C.- transcontinental, t r a n s p a c i f i c , regional, supplemental and charter. There are eleven companies o f f e r i n g h e l i c o p t e r services (contract and charter). Vancouver International A i r p o r t can handle up to 30 commercial a i r c r a f t on the ground at a time. The o l d Vancouver International A i r p o r t Terminal has been transformed and i s u t i l i z e d as cargo terminal a i r p o r t for regional and i n t e r n a t i o n a l routes. With d i f f i c u l t access to so many areas within the province, the past years have been the scene of "bush-pilot" operations. Numerous lakes and sheltered coastal seaports have provided a i r p o r t f a c i l i t i e s i n spite of mountainous and forested t e r r a i n . As a ' r e s u l t , B r i t i s h Columbia has n e a r l y 20% of a l l aerodromes r e g i s t e r e d w i t h the m i n i s t r y of Transport. Table 1.5 (overleaf) l i s t s aerodromes operated by the Federal Department of Transport, the m u n i c i p a l i t i e s and the p r i v a t e o p e r a t o r s , both f o r B.C. and Canada. But out of 29 8 aerodromes, only 15 of the land aerodromes ca r r y r e g u l a r scheduled t r a f f i c . The r e s t are operated by p r i v a t e . 7 i n d u s t r i e s , or are f o r r e c r e a t i o n or emergency use. Vancouver I n t e r n a t i o n a l A i r p o r t i s the t h i r d l a r g e s t Canadian a i r p o r t i n terms of t r a f f i c and volume of cargo handled. Table 1.6 i n d i c a t e s the a c t i v i t y of Vancouver I n t e r n a t i o n a l A i r p o r t ( i n c l u d i n g cargo terminal) f o r 1969 and 1970 f o r passen-gers, m a i l and cargo s e r v i c e s . The f i g u r e s show an i n c r e a s e i n passenger (+ 10%) and cargo (+ 20%) t r a f f i c , w h i l e m a i l t r a f f i c dropped by 41. P a c i f i c Western A i r l i n e s , the r e g i o n a l c a r r i e r f o r western Canada, c a r r i e d , f o r the periods of 1969 and 1970 r e s p e c t i v e l y , 7,260 and 8,180 tons. More than 50% of the t o t a l volume came from t h e i r c h a r t e r and c o n t r a c t o p e r ations i n the Northwest and Yukon T e r r i t o r i e s . This shows tha t i n s p i t e of a l a r g e r number of a i r p o r t s i n the p r o v i n c e , the amount of a i r f r e i g h t moved by the r e g i o n a l c a r r i e r i s very s m a l l . But during the past decade the demand f o r a i r t r a n s p o r t - passenger and f r e i g h t s e r v i c e s -inc r e a s e d f o u r f o l d . The P.W.A. network i n B.C. r e f l e c t s t h i s s i t u a t i o n accura-g t e l y . One f a c t o r , p e c u l i a r to Canada, and more s p e c i f i c a l l y to 17. TABLE 1.5 AERODROMES IN BRITISH COLUMBIA AND CANADA IN 1968 B.C. CANADA LICENSED AERODROMES Heliports 12 34 Water 64 385 Land 44 342 UNLICENSED AERODROMES Heliports 5 8 Water 52 244 Land 119 494 MILITARY AERODROMES . 2 57 TOTAL 298 1,564 Source : Canadian Aerodrome Directory, A p r i l 196 8 Ministry of Transport, Ottawa. TABLE 1.6 SCHEDULED INTERNATIONAL AND DOMESTIC TRAFFIC  AT VANCOUVER INTERNATIONAL AIRPORT ( i n thousands) PERIOD YEAR ARRIVING LOAD DEPARTING LOAD January 1 , to December 3 1 . Passenger Mail tons Cargo tons Passenger Mail tons Cargo tons Domestic 1969 1970 831 938 - 3.20 3.00 11.00 12. 70 841 940 3.10 2. 80 12. 70 16.90 International Transborder 1969 1970 277 295 .72 .63 3.10 4.00 280 297 .38 .58 1.22 1. 15 International Other 1969 1970 36 37 . 32 .52 1.12 1.04 20 21 .10 .09 . 38 . 39 Total International 1969 1970 314 332 1.04 1.15 4.22 5.04 300 319 .48 .62 1. 60 1.54 A l l services 1969 1970 1,144 1,270 4.24 4.15 '15.22 17.77 1,143 1,261 3.60 3.46 14. 30 18.54 Sources : D.B.S. S t a t i s t i c s supplied by the Vancouver Airport , C., December 1971.. T r a f f i c O f f i c e . Vancouver, B. CO 19. the province of B.C., must be borne i n mind : f r e i g h t operations are more cost oriented in view of the back haul problems current*--l y faced by the regional a i r l i n e : cargo rates must r e f l e c t the pattern of unbalanced t r a f f i c since shipments are north and east 9 bound from Vancouver with uneconomic payloads on return t r i p s . On the other hand, the development of resources i n the north has created a s i t u a t i o n which involves service-oriented operations for passengers and more e s p e c i a l l y for emergency ship-ments which constitute most of the volume of scheduled a i r f r e i g h t moving within the province. PIPELINES Long distance p i p e l i n e s are a r e l a t i v e l y recent development i n B r i t i s h Columbia. They are used for the transportation of petroleum and gas products. They represent a good proportion of the t o t a l ton mileage of f r e i g h t i n inventory t r a f f i c . From Alberta, the Trans-Mountain O i l P i p e l i n e c a r r i e s crude o i l to Vancouver and Washington State. The Westcoast Transmission Pipeline carries natural gas from Fort Nelson and Fort St.John, down to the U.S. border (serving at the same time the i n t e r i o r of the province) while B.C. Hydro supplies Vancouver and the Lower Fraser Valley area with natural gas. Presently, i n B.C. there are over 8,700 miles of natural gas and petroleum pipelines with a production of 280 b i l l i o n cubic feet of natural gas (+ 9.3% over 1969) and the production of crude 20. o i l has r i s e n to 25.8 m i l l i o n barrels (+ 2.1% over 1969J.1^ INTERMODAL COMPETITION FACTORS IN BRITISH COLUMBIA We have seen how B r i t i s h Columbia i s well serviced by i t s transportation network both i n regard to i n t e r n a l and external trade. Studies conducted every two years for the Canadian  Transportation and D i s t r i b u t i o n Management Magazine by the Research Bureau of Southam Business Publications, i s o l a t e the factors that condition and a f f e c t the judgement and the decision of the persons responsible for the movement of goods. T r a f f i c and d i s t r i b u t i o n managers are responsible for s e l e c t i n g the mode of transport which s u i t s his needs, or company's needs, best and within the mode, the c a r r i e r . Questionnaires were sent to selected companies. Twelve factors were selected as having an e f f e c t on the choice of the c a r r i e r s , and the p a r t i c i p a n t s were asked to rank these factors when se l e c t i n g c a r r i e r services. Table 1.7 l i s t s the twelve factors considered within a mode of transport. The l e f t column i s the rank of these factors at the national l e v e l , the r i g h t hand column at the regional l e v e l for the province of B r i t i s h Columbia. I t i s i n t e r e s t i n g to note that, i n B.C. time i n t r a n s i t ranks t h i r d , while ranking f i r s t at national l e v e l . This can be explained either by a l i m i t e d market and few suppliers or by low 2 1 . TABLE 1.7 INTRA-MODAL COMPETITIVE FACTORS NATIONAL RANK F A C T O R S B.C. RANK 1 Time i n t r a n s i t 3 2 Freight charges 1 3 On time performance 2 4 Shipment tr a c i n g 10 5 Frequency of service 5 6 Door-to-door service 9 . 7 Promptness of claims ^ settlement 8 A v a i l a b i l i t y of ^ standard equipment 9 Loss and degree of damage 6 10 Information service 8 11 Competence of s o l l i c i t o r s 11 12 A v a i l a b i l i t y of s p e c i a l equipment 12 Source Southam Business Publications Ltd : Ca r r i e r and Equipment Preference. Study of Canadian I n d u s t r i a l shippers, 1970. 22 . or medium value commodities. But p r i o r to the choice of a c a r r i e r , the decision as to the mode of transport must be made. In contrast to intra-modal competition, inter-modal competition has more l i m i t s : geographic s i t u a t i o n , l e v e l of technology, i . e . a v a i l a b i l i t y of standard and s p e c i a l equipment, size and weight of shipment. Of the twelve factors l i s t e d i n Table 1.7, the s i x considered of importance for intermodal competition are l i s t e d i n Table 1.8. Time i n t r a n s i t (calculated on the normal vehicle speed) i s important to the shipper i n several d i f f e r e n t ways : i f goods are of high value, low t r a n s i t time would have preference. For perishable or s h o r t - l i f e items, such as flowers, vegetables, f r u i t , f i s h , meat, newspapers, low t r a n s i t time i s important to avoid spoilage , i t i s also important to shippers i n a competi-t i v e industry i n which customers require and expect f a s t service. Time i n t r a n s i t i s also very important for reducing inventories or f o r emergency s i t u a t i o n s . Improvements i n roads and motor vehicles have considera-bly reduced time i n t r a n s i t for road transport. Shorter t r a v e l l i n g time i s the most important competitive factor - for an inter-modal commodity - between road and r a i l transport within the province and towards U.S.A. markets. Freight charges for r a i l and road are very s i m i l a r with a l i t t l e advantage for r a i l transport. Road transport i s ranked second, a f t e r a i r , but before r a i l . 1 1 This i s because several r a i l inter-changes may be TABLE 1.8 INTER-MODAL COMPETITIVE FACTORS AND  RANK ORDER OF SHIPPERS WHEN SELECTING A MODE MODE OF TRANSPORT / RANK FACTORS WATER RAIL ROAD • . AIR Time i n t r a n s i t 4 3 2 1 Freight charges 1 2 3 4 Frequency of service * 2 1 1 Door-to-door service 3 2 1 * Loss and degree of damage 3 3 2 1 Re s t r i c t i o n on siz e and weight of shipment 1 2 ' 3 4 * not a c h a r a c t e r i s t i c of the mode per se. Sources : Southam Business Publications Ltd : Ca r r i e r and Equipment Preference. Study of Canadian I n d u s t r i a l Shippers, 1968. CO necessary from o r i g i n to destination and very often, inter-change, requires up to two days of operations. Water transport i s the cheapest, but also the slowest. To stay i n business, water c a r r i e r s have had to improve t h e i r perfor-mance because the water coastal t r a f f i c , p a r t i c u l a r l y i n recent years, i s progressively s h i f t i n g to road transport. A i r transport, for the movement of goods within the province i s pri m a r i l y used for emergency shipment of supplies and parts replacement for high value equipment. A i r cargo i s also concerned with small s i z e shipments. To reduce the t o t a l t r a n s i t time, P.W.A. offered the following terms : providing that a ship-ment were received at the cargo terminal t h i r t y minutes before take-o f f , i t would be available for pick-up immediately a f t e r the a r r i v a l of the a i r c r a f t . For instance, i f a shipment i s at the a i r p o r t at 10 a.m. , i t w i l l be available the same day at Prince George 12 Ai r p o r t at 1 p.m. I f the time i n t r a n s i t can be reduced i n thi s way, more shipments may be induced to switch to a i r f r e i g h t . Freight charges The mode o f f e r i n g the lowest f r e i g h t charges i s water transport. Freight charges become more s i g n i f i c a n t when low value commodities are involved. I f the rank order i n Table 1.8 for f r e i g h t charges i s correct for long-run t r i p s and large size shipments, i t has to be modified for short-run t r i p s and small si z e shipments, because of the handling costs involved i n trans-f e r r i n g from one mode to another. For the medium haul, a i r f r e i g h t would rank at the same l e v e l as road transport, and for the short 25. h a u l , road t r a n s p o r t would rank b e f o r e a i r , r a i l and water t r a n s p o r t . U s u a l l y , f o r s h o r t d i s t a n c e s r a i l t r a n s p o r t i s more ex-pensive than road, and the break-even p o i n t i s l o c a t e d at about 150 m i l e s . Of the s i x in t e r m o d a l c o m p e t i t i v e f a c t o r s l i s t e d i n t a b l e 1.8, F r e i g h t charges i s the only one t h a t can be v a r i e d without changing the p h y s i c a l aspects o f the c a r r i e r s ' o p e r a t i o n . Frequency of s e r v i c e Frequency of s e r v i c e i s a f u n c t i o n o f the t o t a l volume of commodity o f f r e i g h t moved, the s i z e o f shipments and the number of competitors on the same ro u t e . Water, road and a i r t r a n s p o r t have some l i m i t a t i o n s w i t h r e s p e c t to t r a f f i c c o n g e s t i o n a t t e r -minals and on the routes t r a v e l l e d . R a i l t r a n s p o r t i s l i m i t e d by the s i n g l e t r a c k r a i l w a y system, but a i r cargo t r a f f i c i s much more f l e x i b l e , because f r e i g h t can be c a r r i e d on schedu l e d passengers f l i g h t s , as w e l l as on a l l cargo f l i g h t s . Door-to-door s e r v i c e Each mode of t r a n s p o r t has developed i t s own " p e r s o n a l i z e d " door-to-door s e r v i c e . Water t r a n s p o r t has g e n e r a l i z e d the use of int e r - m o d a l c o n t a i n e r s which can be t r a n s f e r r e d to t r u c k s o r t r a i n s . Door-to-door s e r v i c e by water t r a n s p o r t i s o f f e r e d o n l y to l a r g e i n d u s t r i e s and f o r the ex p o r t o f raw m a t e r i a l s . For c o a s t l i n e t r a f f i c , c a n n e r i e s are u s u a l l y l o c a t e d on t i d a l waters, and logs c u t i n the c o a s t a l r e g i o n are towed d i r e c t l y to s a w m i l l s . A s u b s t a n t i a l p r o p o r t i o n of packaged f i s h , lumber, pulp and paper 26. i s exported from the production s i t e by deep-sea vessels without re-routing v i a Vancouver. Large manufacturers own r a i l sidings adjacent to t h e i r main plant to reduce handling costs. Another p r a c t i c e , which i s now widespread i n surface transportation i s the use of piggy-back or Trai l e r - o n - F l a t - C a r (T.O.F.C.). This mode of shipping i s commonly used i n r a i l t r a f -f i c moving between the U.S.A., B.C. and Eastern Canada. Loss and degree of damage The incidence of loss and degree of damage i s often regarded as lowest for a i r f r e i g h t , with truck transportation the next"lowest, followed by water and r a i l transport. Loss through t h e f t has been d r a s t i c a l l y reduced because many commo-d i t i e s subject t o - t h e f t are well packed and sealed in'containers. Loss of shipments i s infrequent because shippers and c a r r i e r s take care to indicate c l e a r l y on the package d e t a i l s of destina-. t i o n , o r i g i n and other p a r t i c u l a r s . Losses are rare i n a i r f r e i g h t "because of .shorter time i n t r a n s i t and also because the ' 13 consignee" or i t s agent w i l l pick up the shipment upon a r r i v a l . Damages to goods i n t r a n s i t i n any mode i s becoming less and less important because of the improvement i n modernizing handling equipment, storage techniques, packaging materials and i n package design. Unitized and p a l l e t i z e d shipments are very common, e s p e c i a l l y i n a i r f r e i g h t transport. P a l l e t and unit are easy to handle for loading, unloading and storage and are easier to transfer from one vehicle to another or from one type of a i r c r a f t to another, without the need of any further packaging 27. to the o r i g i n a l one. Re s t r i c t i o n on size and weight of the shipment This i s the second most important factor a f t e r f r e i g h t charges as far as a i r f r e i g h t i s concerned. Deep-sea vessels and barges carry b u l k i e r and heavier loads than any other mode. Size and weight of the shipment on water transport can be li m i t e d only by the capacity of the ship i t s e l f . R a i l transport ranks second because of obstructions such as tunnels, bridges, grades, two or one-way t r a f f i c tracks, strength of bridges and r a i l s . For road transport, the l i m i t a t i o n s are s i m i l a r to r a i l but road transport is, i n addition, subject to p r o v i n c i a l govern-ment regulations. A i r transport i s ranked l a s t f o r r e s t r i c t e d maximum siz e and weight because the maximum loads that can be c a r r i e d on a i r c r a f t are l i m i t e d by the capacity of the type of a i r c r a f t , the design of the doors (an Argosy i s designed to handle the loading of small European car s ) , and the available a i r p o r t f a c i l i t i e s . Table 1.8 l i s t s the intermodal competitive factors and the rank of importance given by the shippers considering which mode of transport best suited t h e i r needs. The rank order would require some f l e x i b i l i t y when a shipment i s involved i n more than one mode of transport. We can see that there i s no single mode which has a marked preference over the others. When a choice e x i s t s , the s e l e c t i o n of a mode for any p a r t i c u l a r shipment must be based upon weighing up these factors operating under p a r t i c u -28. l a r circumstances. Such decisions are s t i l l subjective and d i f f e r e n t t r a f f i c managers may make d i f f e r e n t decisions under i d e n t i c a l circumstances. 29. FOOTNOTES CHAPTER I 1. B.C. S e l l i n g Value of the Factory Shipments by Major Manufacturing Industries - B.C. F i n a n c i a l and  Economic Review, Department of Finance, V i c t o r i a , B.C. 19 71 2. Declaration of Mr. A . McDonald, Minister of In d u s t r i a l Development Trade and Commerce - The Province, March 3, 1973 Vancouver, B.C. 3. Transportation - B.C. Summary of Economic A c t i v i t y , Department of In d u s t r i a l Development Trade and Commerce, V i c t o r i a , B.C., 1970. 4. Ibid, Shipping 5. Ibid, Highways 6. Ibid. 7. Canadian Aerodrome Directory, A p r i l 196 8 Ministry of Transport, Ottawa. 8. See Appendix P.W.A., network, routes. 9. See Appendix P.W.A., general cargo rates. 10. Op. C i t . , P i p e l i n e s . 11. See Table 1.8 12. Conversation with P.W.A. Cargo Supervisor, Vancouver I n d u s t r i a l A i r p o r t , March 1972. 13. Mentioned several times during interviews with both a i r f r e i g h t forwarders and shippers. 14. Study of Canadian I n d u s t r i a l Shippers, Southam Publications Ltd, Toronto 19 70, pp. 3,4. CHAPTER II BRITISH COLUMBIA TRADE BY MODE OF TRANSPORT AND THE SITUATION OF THE REGIONAL AIR CARRIER The previous chapter indicated heavy concentration on primary industry i n B r i t i s h Columbia's economic a c t i v i t y . This chapter w i l l be concerned with trade flow to and from B.C. for leading commodities and t h e i r value by mode of transport. More than 60% of. B.C. production (excluding the value of construction) i s sold to foreign markets because the Canadian market i s incapable of absorbing a l l B.C. resource products. Exports through B.C. customs ports;include products from other provinces of Canada and part of the imports are shipped to the P r a i r i e s and Eastern provinces of Canada. BRITISH COLUMBIA TRADE 1 The p r i n c i p a l market area for the products exported through B.C. customs ports are U.S.A., Japan, U.K. and European Economic Community which together account for more than 80% of exports. Forest products and mineral resources are among the top export commodities. Table 2.1 presents the top ten leading 31. commodities exported through B.C. ports. I t has to be pointed out that the f i r s t commodity, wheat, i s a P r a i r i e product and almost e n t i r e l y exported to the Southeast Asia countries. Table 2.2 l i s t s the ten leading commodities imported through B.C. customs ports for the periods 1968, 1969 and 1970. Tables 2.1 and 2.2 r e f l e c t accurately the trends i n B r i t i s h Columbia trade. The figures show the need for this province to encourage the development of secondary industry. The top ten exported commodities, accounting for 60% of the t o t a l exports, were raw material or p a r t l y f i n i s h e d products l i k e news-p r i n t or natural gas, while 30% of the imported products were equipment and f i n i s h e d products - cars and trucks. By i t s geographical s i t u a t i o n B.C. trade i s turned toward P a c i f i c Rim countries and the United States. Over the past ten years, Japan and the Common Market Countries have increased t h e i r importance while the U.K. figures show a continued decrease i n trade with Canada and the Commonwealth countries. This trend can be expected to increase now that the U.K. has become a f u l l member of the E.E.C. Imports from the P a c i f i c Rim countries follow the same pattern as the exports. The f i r s t supplier and customer i s the U.S.A. and the second, Japan. Since Japan replaced the U.K. as the second largest supplier of goods through B.C. customs ports (1964) , 70% of the t o t a l B.C. trade is'done with the U.S.A. and Japan ; and since 1967, the gap between the U.S.A. and Japan trade with B.C. on the one hand, and the r e s t of the world and B.C. on the other, continues to TABLE 2.1 TEN LEADING COMMODITIES EXPORTED THROUGH B.C. CUSTOM PORTS FOR 1968, 1969 and 1970 (value i n m i l l i o n s of dollars) 1 9 6 8 1 9 6 9 1 9 7 0 COMMODITY VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOTAL Wheat 334 14. 8 247.9 10. 8 264.5 1.0. 3 Crude Petroleum 16 8.5 7.5 212.5 9.3 229. 4 8.9 Newsprint 147.6 6.6 178.7 7.8 180.4 7.0 Woodpulp 144 6.4 171.6 7.5 174.1 6.8 Hemlock 134.5 6.0 126.1 5.5 161.4 6.3 Copper i n Ores 96.1 4.8 10 8. 4 4.7 141.1 5.5 Natural gas 108. 4 4.3 121.2 5.3 132.0 5.2 Douglas f i r 81.6 3.6 78.0 3.4 71. 4 2.8 Sulphur * 63. 3 3.6 48.0 2.1 57.0 2.2 Aluminum 81.1 2.8 45. 8 3.7 54.5 2.1 Total above commodities 1,359.1 60.4 1 ,338.2 58.4 1,465. 8 5 7.1. Total a l l commodities 2,248.7 100 2 ,289.1 100 2,566.4 100 Sources : External Trade Through B.C. Custom Ports. Department of I n d u s t r i a l Development, Trade and Commerce, Government of B.C. , 1968, 1969, 1970 * In 1970, Sulphur was replaced by Rapeseed i n the ten leading commodities. TABLE 2.2 TEN LEADING COMMODITIES IMPORTED THROUGH. B.C. CUSTOM PORTS FOR 1968, 1969 and 1970 (value i n m i l lions of dollars) 1 ! 9 6 8 1 9 6 9 1 9 7 0 COMMODITY VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOTAL Automobile 88. 3 9.5 111.2 9.8 118.2 10. 2 C i v i l a i r c r a f t 57.0 6.1 48.8 4.3 56.7 4.9 Alumina 33.5 3.6 38.4 3.4 32. 3 2.8 Trucks and chassis 29. 8 3.2 34.0 3.0 29.5 2.6 Parts of motor vehicles 18.8 2.0 25. 8 2.3 24.5 2.1 Tractors and parts 8.3 0.9 13.0 1.1 24.5 2.1 Nickel i n Ores * 16. 8 1.8 9.4 0.8 24.2 2.1 Coffee, green 3.9 0.4 ' 17.1 1.5 20.0 1.7 Plates, Carbon, S t e e l * 10.0 1.1 12.7 1.1 11.5 1.0 Motor vehicles engines 6.2 0.7 12.4 1.1 11.5 1.0 Total above commodities 272.6 29. 3 322. 8 28.4 352.9 30.5 Total a l l commodities 930.1 100 1,135.9 100 1,156.0 100 Sources : External Trade Through B.C . Custom Ports, Department of I n d u s t r i a l Development, Trade and Commerce, Government of B.C., 1968, 1969, 1970 * In 19 70, Nickel i n ores and Plates, Carbon Steel have been respec-t i v e l y replaced by Copper and Fuel O i l . widen. However, imports from the U.S.A. i n 1970 d e c l i n e d by 3.5% i n d o l l a r v a l u e (see Tables 2.3 and 2.4). Tables 2.3 and 2.4 give a l s o the value of exports and imports f o r the p r i n c i p a l p a r t n e r s of B.C. t r a d e . As we can see from these f i g u r e s and those i n Tables 2.1 and 2.2, the type of commodities imported and exported determines the s u i t a b l e mode of t r a n s p o r t . I t i s obvious t h a t each of these commodities i s moved by s u r f a c e t r a n s p o r t a t i o n because of i t s p h y s i c a l reasons, high volume and r e l a t i v e l y low v a l u e . Nearly three q u a r t e r s of the commodities exported through B.C. p o r t s use water t r a n s p o r t . The r e s t use r a i l and road t r a n s p o r t and i s d e s t i n e d almost e x c l u s i v e l y f o r the U.S.A. However, althouah a i r t r a n s p o r t ' s share i s very low - l e s s than 1% - i t has s t e a d i l y i n c r e a s e d over the p a s t seven years and i t s continued expansion seems assured. Table 2.5 shows the t r e n d by mode of t r a n s p o r t f o r exported commodities from 1964 to 1970. U n f o r t u n a t e l y , the same data f o r imported commodities were not a v a i l a b l e from p r o v i n c i a l and f e d e r a l p u b l i c a t i o n s and i t proved i m p o s s i b l e to gather any i n f o r m a t i o n through the customs o f f i c e ' s way b i l l s . These data f o r the p e r i o d 1964 to 1970 (Table 2.5) show 2 the trends f o r d i f f e r e n t modes of t r a n s p o r t a t i o n : Road, A i r and Others ( p i p e l i n e s ) show a f a v o r a b l e upward t r e n d , w h i l e r a i l seems to remain at 10% of the t o t a l value ; water t r a n s p o r t a t i o n , 3 on the other- hand, shows a s l i g h t downward tr e n d . As these f i g u r e s represent the value of the commodities and not the volume, TABLE 2. 3 EXPORTS OF B.C. PRODUCTS TO MAJOR MARKETS (value i n millions of dollars) 1 9 6 8 1 9 6 9 1 9 7 0 MARKET VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOTAL U.S.A. 1,044.2 56.7 1.148.4 58.0 1,031.0 51.0 Jap an 297.6 16.2 315.3 15.9 387.0 19.2 United Kingdom 188.3 10.2 180.2 9.1 207.0 10. 3 E. E • C. 144.8 7.9 174.2 8.8 190.6 9.4 A u s t r a l i a 39.7 2.2 39.7 2.0 45.6 2.3 Others 126.3 6.8 123.5 6.2 158.1 7.8 TOTAL 1,840.0 100 1,981.3 100 2,020.3 100 Sources : B.C. Fi n a n c i a l & Economic Review, Department of Finance, Government of B r i t i s h Columbia, V i c t o r i a , B.C. 1970. U) TABLE 2.4 IMPORTS THROUGH B .C. PORTS BY PRINCIPAL MARKET ORIGIN (value i n m i l l i o n s of dollars) 1 9 6 8 1 9 6 9 1 9 7 0 MARKET VALUE % OF TOTAL VALUE % OF TOTAL VALUE % OF TOr U.S.A. 548.9 59.0 643.7 56.7 613.9 53.1 Japan 131.8 14.2 183.9 16.2 235.5 20.4 United Kingdom 53.2 5.7 64.0 5.6 52.1 4.5 E. E. C. 42. 7 4.6 51.1 '4.5 47.4 4.1 A u s t r a l i a 22.9 2.5 30.8. 2.7 55.0 4.8 Others 130. 7 14.0 162.4 14. 3 152.0 13. 1 TOTAL 930.2 100 1,135.9 100 1,156.0 100 Sources : B.C. F i n a n c i a l & Economic Review, Department of Finance, Government of B r i t i s h Columbia, V i c t o r i a , B.C. 19 70. TABLE 2. 5 VALUE AND MODE OF TRANSPORT FOR EXPORTS THROUGH B.C. PORTS (value i n thousands of d o l l a r s ) WATER ROAD RAIL AIR OTHERS Y E A R . : VALUE % VALUE % VALUE % VALUE % VALUE % TOTAL 1964 1,194,946 73. 6 48,242 3.0 160,056 9. 9 5,091 0 . 3 217,758 • 13. 3 1, 626.093 1965 1,161,148 71. 3 63,847 3.9 176 ,146 10. 8 6.694 0 .4 227.741 13. 9 1, 635,576 1966 . 1,281,856 72. 0 76 ,901 4.2 191,917 10. 7 10 ,151 0 .5 243,128 13. 6 1, 803,952 1967 1,486,235 73. 0 74 ,476 3.6 181,466 9. 0 8,672 0 .4 286 ,246 14. 0 2, 037,095 1968 1,629,661 72. 4 114,898 5.1 217,990 9. 6 9 ,909 0 .4 281,000 12. 5 2, 253,459 1969 1,558,851 68. 1 148,789 6.5 231,195 10. 1 13,735 0 .6 336,492 14. 7 2, 289 ,062 1970* 1,773,700 69 . 1 164,250 6.4 251,800 9. 8 15,300 0 .6 361,800 14. 1 2, 566,900 * t o t a l f o r 19 70 has been estimated by S t a t i s t i c s Canada. Sources : B.C. Summary of Economic A c t i v i t y , Department of I n d u s t r i a l Development, Trade and Commerce, 1970, V i c t o r i a , B.C. co 3 3 . i t seems that more products which f a l l within the medium range value per weight, w i l l be shipped by road and a i r , while natural resources products such as f o r e s t products, minerals, o i l and natural gas w i l l use water, r a i l and p i p e l i n e transportation exclusively. The share of a i r freight, (in terms of value of shipments) doubled during the period 1964-1970, while the t o t a l value of exported commodities by a l l modes during the same period increased by 50%. Although s t i l l very small (0.6%), the prospects of further u t i l i z a t i o n of a i r transport for the move-ment of commodities seem very promising when one considers that during ,the l a s t ten years there has been a r a p i d increase i n the diverse range of goods shipped by a i r . Because of incomplete and i n s u f f i c i e n t data p r i o r to 1964, i t has not been possible to use a regression analysis to confirm the apparent trends for each mode of transport. We w i l l now consider b r i e f l y the B.C.-Japan trade, before analyzing the s i t u a t i o n of the regional a i r c a r r i e r i n B.C. Japanese Trade As Japanese imports are i n a dominant p o s i t i o n i n Canadian trade and account for a large part of a c t i v i t y i n the port of Vancouver, i t seems appropriate to give a b r i e f analysis of t h i s i trade. From 1967 to 1969, Japanese exports to Canada increased i n value by 75% from $ 21A m i l l i o n s to $ 481 m i l l i o n s . Major increases were noticeable i n heavy and chemical i n d u s t r i a l pro-ducts. Moderate increases occured i n l i g h t industry products and t e x t i l e s . The switch toward more sophisticated products r e f l e c t s the willingness of Japanese exporters to abandon cheap industry to Korea, Hong-Kong and Singapore. If we compare the value of Japanese exports i n Table 2.6 to the volume of exports to Canada, i t i s very noticeable that, while the volume increased by 10% for the period. 1967 to 1969 , t h e i r value during the same period of time increased by 75%.^ Most consumer goods ( t e x t i l e s , l i g h t i n d u s t r i a l products, chemical and pharmaceutical products, instruments and machinery) are moved i n containers. The categories of commodities moved in sea containers show s i m i l a r i t i e s to those shipped by a i r . Japanese commodities using containers are divided i n t o four categories : - Perishable goods, e.g. foodstuffs, - High value seasonal goods, - High value goods (T.V., Video-tape, e l e c t r o n i c equipment), - Dense commodities (engines, parts, motor c y c l e s ) . For these items t r a n s i t time i s very valuable because of spoilage, seasonal market or tied-up c a p i t a l . The elapsed time from the order placement to delivery has been reduced to s i x to eight weeks under normal conditions when containers are used f o r shipments from Japan to the West Coast. Occasionally, due to production delays or i n s u f f i c i e n t cargo capacity, a Canadian importer has to wait up to four months for delivery. Under these conditions, t r a n s i t time does not have any further s i g n i f i c a n c e . The problem seems to be on the exporters' side.^ Although TABLE 2.6 JAPANESE EXPORTS TO CANADA (millions of dollars) COMMODITY 1967 196 8 1969 Foodstuffs 11.6 11.6 ' 12.6 Raw material, f u e l 2.1 1-7 2.1 Te x t i l e s 5 8.1 • 69.9 82. 4 Mineral Products 9.4 10.6 13.6 Light Industry Products 46.0 57.3 65.2 Chemical & Pharmaceutical 6.5 7.8. 9.0 Metal Products 55. 8 51.3 81.6 Machinery & Instruments 84.5 135.2' 214.3 TOTAL 274.2 346.3 481.0 Source : Foreign Trade of Japan, Japan External Trade Organization, Tokyo, 19 70. 41. Japanese industry i s v/orking at f u l l capacity, i t cannot s a t i s f y the increased demand for shorter delivery times for t h e i r exports. THE SITUATION OF THE REGIONAL AIR CARRIER IN B.C. In 1966, Mr. J. P i k e r s g i l l , then Federal Minister of Transport, made the following statement : " The 'role of the regional a i r c a r r i e r i s to operate l o c a l or regional routes to supplement the domestic mainline operation of A i r Canada and Canadian P a c i f i c A i r l i n e s i n order to provide regular and scheduled services into the North." 6 This view was confirmed by the terms of the National Transpor-t a t i o n Act : " ... an economic, e f f i c i e n t and adequate transportation system, making the best use of a l l available modes of transportation at the lowest cost i s e s s e n t i a l to protect the int e r e s t s of users of transportation and to maintain the economic well-being and growth of Canada."7 Although regional a i r c a r r i e r s received o f f i c i a l recog-n i t i o n of t h e i r role and a c t i v i t i e s , they faced, and are s t i l l facing d i f f i c u l t i e s a f f e c t i n g the e f f i c i e n c y of t h e i r route operations. A glance at P.W.A. routes (see P.W.A. map i n Appendix) make this s e l f - e v i d e n t . The problem i s defined by short haul routes, low t r a f f i c density, unstable t r a f f i c flow and small scale operations. The length of haul i n the short run a f f e c t s the costs of operations and i n the long run, the choice of equipment. The " j e t revolution" has only recently affected the regional a i r c a r r i e r s . They cannot make f u l l use of technologically advanced a i r c r a f t - the c a p i t a l i s lacking - because they face a high unit cost when t r a f f i c volume i s i n s u f f i c i e n t . In Br i t i s h . Columbia, short haul operations for a i r c a r r i e r s are associated with high unit costs and competitive road service g i s r e a d i l y available throughout the province. On the other hand, u n a v a i l a b i l i t y or s c a r c i t y of other modes of transport makes high a i r f r e i g h t charges acceptable by the users e s p e c i a l l y where i s o l a t e d or northern destinations are concerned. The general cargo rates applied by P.W.A. from Vancouver r e f l e c t this s i t u a t i o n and the importance of the t r a f f i c on s p e c i f i c routes ; fo r example (the two destinations mentioned are 9 both 350 miles distant) : - Vancouver - Ocean F a l l s , 26C per l b , - Vancouver - Castlegar, 11C per l b . (see P.W.A. cargo rates i n Appendix). In order to be more e f f i c i e n t over long hauls, P.W.A. introduced Hercules a i r c r a f t on northern routes to Inuvik, Cambridge Bay and Resolute Bay fo r t h e i r charter and- contract cargo operations. These s p e c i a l i z e d a i r c r a f t , which can land on any type of runway, have been, since 1967, a source of appre-ciable' revenue f o r P.W.A.10 Also, more e f f i c i e n c y was achieved through route transfers from CP.A. and from the merger with B.C. A i r l i n e s . Transcontinental c a r r i e r s used to receive only marginal revenues from these regional routes but, when transferred to the regional a i r c a r r i e r there has been a marked improvement in the service offered to the t o t a l t r a f f i c . If a l l the i n t e r r e g i o n a l routes presently serviced by transcontinental a i r c a r r i e r s , were to be transferred e x c l u s i v e l y to regional a i r c a r r i e r s , government objectives, v i z : " ... to serve the p u b l i c i n t e r e s t and help... economic development, by advancing the development of a i r cargo services i n more populated a r e a 1 1 would be achieved i n an e f f i c i e n t manner. The regional c a r r i e r s and, to a considerable degree, P.W.A. are dependent f o r t h e i r f r e i g h t revenues on charter•and contract operations i n the north. Table 2.7 shows the importance of bulk operations i n r e l a t i o n to t o t a l revenue. Table 2.8 shows the growth, the volume and size of bulk operations for P a c i f i c Western A i r l i n e s from 1966 to 1970. We can see that the remainder ton/miles volume i n Table 2.8 i s supplied by mainline operations i . e . scheduled operations. The volume of cargo ca r r i e d on the mainline services during 19 70 was double the volume ca r r i e d i n 1964, reaching 18,730,000 lbs, i . e . 8,500 metric tons. This volume applies to B.C., Alberta and Mackenzie D i s t r i c t operations. From Table 2.8, i t can be assumed that revenues from bulk t r a f f i c are very important to the regional a i r c a r r i e r and provide an optimum u t i l i z a t i o n of i t s equipment a l l the year round and more p a r t i c u l a r l y i n off-peak periods. The revenues of the regional a i r c a r r i e r tend to fluctuate over a period of time, due to changes i n exploration a c t i v i t i e s , seasonal climates.and regional economic and p o l i t i c a l f a c t o rs. Their operating costs are also subject to f l u c t u a t i o n . In Tables TABLE 2,7 P.W.A. BULK OPERATIONS REVENUES (in thousands of dollars) YEAR TOTAL REVENUE BULK REVENUE HERCULES REVENUE BULK REVENUE AS % OF TOTAL 1966 1967 1968 1969 1970 12,280 14,974 17,659 33,944 43,509 1,803 3,078 2 ,789 7,934 9,084 N. A. 48% 70% 79% 78% 15% 20%* 16% 24% 21% * Introduction of Hercules Sources : Dominion Bureau of S t a t i s t i c s , Transportation, C i v i l Aviation. D.B.S. 51 - 202 P.W.A. F i n a n c i a l Reports 1966 to 1970. TABLE 2.8 P.W.A. GROWTH AND VOLUME OF BULK OPERATIONS (ton/miles i n thousands) YEAR TOTAL CARGO TON/MILE BULK (CHARTER & CONTRACT IN-CLUDING HERCULES BULK IN % OF TOTAL TON/MILES HERCULES TON/MILES IN % CHARTER TON/MILE ONLY IN % 1966 1967 1968 1969 1970 5,700 9 ,600 9 , 800 18,500 26,600 2,000 5,800 6,600 13,700 21,300 35% 60% 65% 74% 81% N.A. 53% 55% 62% 73% 35% 7% 10% 12% 8% Sources : Dominion Bureau of S t a t i s t i c s , Transportation. A i r C a r r i e r s F i n a n c i a l Statement, D.B.S. 51 - 206 P.W.A. F i n a n c i a l Reports 1966 to 1970. 2.8 & 2.9, weight load factors have been computed as useful in d i c a -tions of measuring u t i l i z a t i o n of the available cargo space and the operating r a t i o for the f i n a n c i a l s i t u a t i o n . Table 2.10 indicates the t o t a l volume of ton/miles pro-duced i n B r i t i s h Columbia which i s very low, compared to the t o t a l ton/miles of P.W.A. operations. Another major problem faced by the regional c a r r i e r i s that of d i r e c t i o n a l cargo movements, which greatly a f f e c t s the economics of northern operations. Whereas passenger services show an o v e r - a l l balance, the cargo services show a preponderance of north-bound movements. I t must be pointed out that there are no all-cargo a i r c r a f t nor all - c a r g o f l i g h t s , except for charter and Hercules operations. A l l general cargo i s moved by passenger-cargo combination a i r c r a f t or i n b e l l y container. The d i r e c t i o n a l c h a r a c t e r i s t i c s of cargo movement for selected routes are shown i n Table 2.11 In 1969, only one route (Vancouver - Calgary) was accep-tably balanced with respect to the cargo c a r r i e d . In 19 70, there were three routes : Vancouver - Prince Rupert, Vancouver - Calgary, and Vancouver - Edmonton, with a balanced cargo movement i n both d i r e c t i o n s . From a l l these tables and fig u r e s , we note that the growth of a i r f r e i g h t i n Western Canada, and more s p e c i f i c a l l y i n B.C., i s very slow, except f o r charter and contract operations. The t o t a l volume of cargo moved does not require an a l l cargo service even on well balanced routes. The p o t e n t i a l market for scheduled a i r cargo services does not appear to be the prime concern of the TABLE 2.9 P.W.A. OPERATING RATIOS AND FREIGHT LOAD FACTORS 1966 1967 1968 1969 1970 Operating revenues ($000) 12,280 14,975 17,660 33,945 43,500 Operating expenses ($ 000) 11,330 13,860 16,550 30,360 38,950 Operating r a t i o * 1.08 1.07 1.06 1.12 1.11 Freight c a r r i e d (lbs 000)** 12,430 12,150 11,400 15,980 18.730 Weight load factor (%) 44.7 48.2 46.4 43.4 47.3 * operating r a t i o : operating revenues 4- operating expenses ** f r e i g h t c a r r i e d on mainline services only. Sources : Dominion Bureau of S t a t i s t i c s , Transportation. A i r Carriers F i n a n c i a l Statement, D.B.S. 51 - 206 P.W.A. F i n a n c i a l Reports 1966 to 1970. TABLE 2.10 TON/MILES PRODUCED IN B.C. BY P.W.A. SERVICES* West Coast Stampeder South west Vancouver - Seattle ** Total a l l P.W.A. routes 1 9 6 9 224 ,500 71,700 43,600 N.A. 5,028,000 1 9 7 0 281,100 107,800 96 ,900 N.A. 5,555 ,000 1 9 7 1 ( f i r s t 6 months) 161,000 77,800 90 ,000 35,60 0 3,200,000 (est.) * These figures show only cargo ton/miles produced on mainline scheduled f l i g h t s , excluding charter and Hercules operations. ** Vancouver-Seattle has been transferred to P.W.A. from A i r Canada and started to operate on January 19 71. Sources : figures supplied by P.W.A., Head O f f i c e , Vancouver International A i r p o r t , February 1972. 00 49. TABLE .2,11 DIRECTIONAL CHARACTERISTICS" OF CARGO MOVEMENT FOR P.W.A. SELECTED ROUTES (Scheduled f l i g h t s from Vancouver) Cargo c a r r i e d (lbs) Unbalance Index Cargo c a r r i e d (lbs) Unbalance Index Van - Port Hardy 774,000 740,200 Port Hardy - Van 145 ,000 5. 3 123,200 6.0 Van - Sandspit 374,500 430 ,600 Sandspit - Van 73,400 5.1 87,500 5.0 Van - Prince Rupert 49,100 63,000 Prince- Rupert - Van 8,700 5.6 46 ,200 1.3* Van - Cranbrook 32,400 94,000 Cranbrook - Van 9 ,200 3.5 20 ,000 4.7 Van - Calgary 101,400 130,000 Calgary - Van 53,400 1.9* 144 ,000 0.9* Van - Edmonton 108,300 147,000 Edmonton - Van 47,400 2.2 82,000 1.6* Van - Kamloops 61,500 95 ,000 Kamloops - Van 13,800 4.4 24 ,200 4.0 Van - Penticton 35,000 56 ,000 Penticton 7,800 4.4 11,800 4.7 ' * indicates that there i s a s a t i s f a c t o r y t r a f f i c balance. Unbalance Index has been computed by div i d i n g Northbound t r a f f i c by Southbound t r a f f i c . Source : figures obtained from P.W.A., Vancouver International A i r p o r t , February 19 72. 50. regional a i r c a r r i e r f o r the very reason that the market i n B.C. is not s u f f i c i e n t l y d i v e r s i f i e d and i s geographically too concen-trated. To i t s c r e d i t however, the regional a i r c a r r i e r i s making every e f f o r t to promote the use of a i r f r e i g h t service : f o r example, P.W.A. i s presently transporting livestock to Japan by B-707 f r e i g h t e r and, following the example of C P . and C.N., P.W.A. has recently d i v e r s i f i e d i t s transportation operations by the a c q u i s i t i o n of a trucking company i n 19 70. Thus, P.W.A. can 13 now o f f e r shippers an integrated transport service. I t has been argued that regional routes, as well as a l l regional a i r cargo routes, should be transferred to the regional a i r c a r r i e r . This p o s i t i o n offers both advantages and inconve-niences. I t i s understandable that as technological innovations are introduced at a f a s t rate and p a r t i c u l a r l y i n the area of i n d u s t r i a l transport, a c a r r i e r ' s e f f i c i e n c y can be achieved only through f u l l u t i l i z a t i o n of the equipment and through an i n t e -grated intermodal system. The arguments against using such a system would e n t a i l a regional monopoly s i t u a t i o n with a l l the consequences. C P . and C.N. are a good i l l u s t r a t i o n of thi s 14 problem. As mentioned i n the National Transportation Act, i t i s considerations of public i n t e r e s t that determine the character of the national and regional transportation system. To compensate for u n p r o f i t a b i l i t y on ce r t a i n routes and small scale operations, a regional c a r r i e r may be encouraged to develop a l l cargo routes within i t s t e r r i t o r y , under s p e c i f i c conditions and without d i s -rupting the cargo t r a f f i c of the two main c a r r i e r s . By comple-menting the truck c a r r i e r s ' services, a regional c a r r i e r w i l l be able to o f f e r better service to the public with both economic e f f i c i e n c y and p r o f i t a b i l i t y . This chapter has analyzed the c h a r a c t e r i s t i c s of B.C. trade by mode of transport and the s i t u a t i o n of the regional c a r r i e r . I t seems that most of e x i s t i n g a i r f r e i g h t t r a f f i c i n B.C. r e s u l t s from exploration programmes and settlements esta-blished i n the North. The nature of commodities which are imported and exported 15 through B.C. explains why surface transport i s lar g e l y used. Although very small, a i r f r e i g h t volume generated to and from B.C. i s becoming s i g n i f i c a n t with respect to the t o t a l value of commodities c a r r i e d . "The next chapter w i l l analyze the c h a r a c t e r i s t i c s of a i r f r e i g h t transport applied to s p e c i f i c cases. 52. FOOTNOTES CHAPTER II 1. B.C. Summary of Economic A c t i v i t y , Department of In d u s t r i a l Development, Trade and Commerce, 1970 V i c t o r i a , B.C. pp. 10-12. 2. Ibid. , p. 49. 3. Ibid. , p. 52. 4. Foreign Trade of Japan, Japan External Trade Organization Tokyo, 19 70. 5. Interview with R. Jameson, David Bros. Shipping agent. 6. Statement of P r i n c i p a l f or Regional A i r C a r r i e r s , tabled i n the House of Commons by Mr. P i k e r s g i l l , then Minister of Transport, Ottawa, 1966. 7. National Transportation Act, Ottawa. Queen's P r i n t e r February 1967. 8. Stunicki-Gizbert, K. W., The Regional A i r C a r r i e r s ' Problems, Study prepared for the A i r Transport Board, 1966 9. P.W.A. General Cargo Rates, 1972. 10. P.W.A. F i n a n c i a l Statement, 1972. 11. Op. c i t . Mr. P i k e r s g i l l . 12. Interview with a i r l i n e executives, 1972. 13. P.W.A. F i n a n c i a l Statement, 1971. 14. Heaver, T.D., Multi-modal ownership - The Canadian  Experience, Transportation Journal, Volume 11, no.l, 19 71. 15. Tables 2.1, 2.2, 2.5 CHAPTER III 5 THE AIR FREIGHT DECISION AND ITS POTENTIAL A i r f r e i g h t i s no longer considered as a luxurious mode of transport by shippers. Most of the volume of f r e i g h t i s c a r r i e d on passenger a i r c r a f t but, since the mid-and late s i x t i e s a l l - c a r g o f l i g h t s increased i n frequency. Capacities ranging between 100,000 and 200,000 pounds on cargo a i r c r a f t are now very common. In con-t r a s t to the f i f t i e s , a i r f r e i g h t i s no longer confined to emer-gency and/or perishable shipments. During the s i x t i e s , the demand for a i r f r e i g h t grew at a rate beyond a l l expectations. The a i r l i n e industry has become increasingly conscious of the advantages of speed and p a r t i c u l a r -ly of i t s implications for d i s t r i b u t i o n . Revenues from f r e i g h t are increasing at a higher rate than passenger revenues. A i r fr e i g h t for the major c a r r i e r s i n the free world accounts, on the average, for 25% of the t o t a l revenue. By 1980, c a r r i e r s optimis-t i c a l l y expect to receive 50% of t o t a l revenues from a i r f r e i g h t operations. Projections for the P a c i f i c routes seem even more opt i m i s t i c and foresee a yearly increase of 30% i n the t o t a l t r a f f i c , compared to an 18% on the A t l a n t i c r o utes. 1 In examining the c h a r a c t e r i s t i c s of a i r f r e i g h t transport, one should be aware of two factors p e c u l i a r to t h i s mode of trans-port : - i t i s the f a s t e s t and - i t i s the most expensive. The speed factor represents a plus over the other modes of transport ; therefore, a shorter t r a n s i t time should also reduce the t o t a l delivery time. This i s true when we come to compare t o t a l t r a n s i t time ; but the s t a t i c time, i . e . the time when a shipment i s i d l e e i t h e r i n t r a n s i t warehouses, on trucks or at ai r p o r t s , i s nearly i d e n t i c a l f or a l l modes of transport. Thus, operations such as loading, unloading, handling, pick up and delivery must be e f f i c i e n t i n r e l a t i o n to t r a n s i t time. The second factor i s of c r i t i c a l importance i n a t t r a c t i n g p o t e n t i a l customers to use a i r transport. Below, as i l l u s t r a t i o n , i s l i s t e d a rate per ton-mile f o r shipment of cl o t h i n g from eastern Canada (Montreal) to the west coast (Vancouver), for the 2 four modes of transport : Delivery time Mode Cost per ton/mile 1 day A i r 2 3* 5 days Truck 9C 7 days R a i l 7* 2 - 3 weeks * Ship 4C * * informant's o r a l estimate. These figures r e f l e c t not only the cost but the distance, the size of shipment, the type of commodity and i t s value. The high cost of a i r f r e i g h t puts t h i s mode into the category of "premium" transportation. At t h i s point, one may well ask why more and more shippers are ready to pay t h i s premium for the transport of t h e i r goods. We w i l l try to answer th i s question by showing the advantages to the shippers of using a i r f r e i g h t rather than surface transportation, and how the decreasing costs to the c a r r i e r s enable them to o f f e r shippers more and more a t t r a c t i v e rates. OPERATING COSTS OF AIR CARRIERS IN CANADA Technological progress has been the key to the success of a i r transport. Although operating costs were reduced i n r e l a -t i v e terms over the years with an ever increasing volume of t r a f f i c , f a s t technological progress also has put a burden on the c a r r i e r s ' operating expenses ; and these operating costs are clo s e l y r e l a t e d to the present p r i c i n g system p o l i c y . They f a l l under two categories widely accepted by a l l a i r l i n e s and the International C i v i l Aviation Organization (I.C.A.O.). 3 1 - Direct operating costs These include expenses i n r e l a t i o n to : - F l y i n g operations : - Crew s a l a r i e s , - Fuel and o i l , - F l i g h t equipment, - Landing fees. - Maintenance and overhaul of f l i g h t equipment, - Depreciation of f l i g h t equipment and i t s r e n t a l . Direct operating costs vary with the type of a i r c r a f t , length of haul and type of route (either transcontinental, regional or inter n a t i o n a l ) . Table 3.1 shows d i r e c t operating costs (D.O.C.) by type of a i r c r a f t , which increase per mile with cargo capacity, but decrease with available ton/mile. TABLE 3.1 D.O.C. PER TYPE OF AIRCRAFT TYPE LOAD CAPACITY (metric tons) SPEED D.O.C. PER D.O.C. PER AVAI-MILE ($) LABLE TON-MILE (<?) DC-6 DOUGLAS DC-8F B-707-320 C B-747 L-500 (1971) •Military 16 43 44 90 375 282 550 555 625 N.A. 1.28 1.92 2.06 2.50 N.A. 7.75 3.64 3.68 2.75 to 3.0 0 2.25 (est.) Source : Brewer, Stanley, H., The Nature of A i r Cargo Costs Graduate School of Business Administration, University of Washington, 1968, and updated from various p e r i o d i c a l s . Frequency of u t i l i z a t i o n i s an important variable which aff e c t s D.O.C. U t i l i z a t i o n of an a i r c r a f t i s dependent upon average length of haul, management c a p a b i l i t y , weather conditions ground equipment, performance and r e l i a b i l i t y of a i r c r a f t . The longer the time spent at c r u i s i n g speed, the lower the D.O.C.per a i r c r a f t / m i l e . The weight load factor can be a useful i n d i c a t o r i n regard to optimum a i r c r a f t u t i l i z a t i o n . As a i r c r a f t capacity i s increasing, c a r r i e r s are facing the problem of fin d i n g as much as twice the volume of cargo c a r r i e d i n a DC-3F for example, to f i l l up a B-74 7, i n order to keep up t h e i r present load f a c t o r the average weight load factor for a l l cargo jets i s i n the low. f i f t i e s . Also the backhaul i n many routes has an impact on the average weight load factor and therefore, on the t o t a l operations In Canada, and more p a r t i c u l a r l y i n B r i t i s h Columbia, because of economic, topographic and c l i m a t i c conditions, a i r fr e i g h t t r a f f i c i s characterized by a westbound flow f o r trans-continental routes, northbound for regional routes and eastbound for t r a n s - P a c i f i c routes. This d i r e c t i o n a l ( i . e . one-way) 4 t r a f f i c i s r e f l e c t e d by the rates now i n e f f e c t . 2 - Indirect operating costs The following costs,, which cannot be d i r e c t l y traced to the operation of the a i r c r a f t , are i d e n t i f i e d as i n d i r e c t operating costs, (I.O.C.) : - Direct maintenance of ground property and equipment, - Depreciation of maintenance equipment and ground property equipment, - Passenger service, cabin crew s a l a r i e s (not applicable to al l - c a r g o f l i g h t s ) , - A i r c r a f t and t r a f f i c s e r v i c i n g ~ s t a t i o n and regional cost -- Promotion and sales, 58. - General and administration costs, - Interest expenses. In cargo operations, the I.O.C. accounts for 35% of the '. 5 t o t a l operating costs versus 50% for passenger operations. According to Canadian P a c i f i c A i r l i n e s (CP.A.), the proportion of d i r e c t to i n d i r e c t costs i s as follows : % d i r e c t cost % i n d i r e c t cost Total Domestic operations 60 40 100 International operations 52 48 100 Total operations 55 45 100 I t i s d i f f i c u l t to assess the r e l a t i v e proportion a l l o c a -ted to i n d i r e c t costs (such as administrative, depreciation, s t a t i o n expenses) and i n what proportion passenger, cargo or mail service - should bear these expenses. Hence, i t i s u n r e a l i s t i c to compare a i r l i n e unit cost per type of s e r v i c e , route and equipment when every a i r l i n e has i t s own method of a l l o c a t i n g these i n d i r e c t costs. I t i s thus important from an economic standpoint to deter-mine an optimum rate which relates to the operation of an a i r l i n e i n terms of a i r c r a f t u t i l i z a t i o n rather than the operation of a i r c r a f t themselves. This "operation of a i r c r a f t " attitude and strong competi-t i o n from surface c a r r i e r s - which have also improved t h e i r mar-keting methods - can be one explanation of the problems faced by the a i r l i n e s with respect to cost a l l o c a t i o n and p r i c i n g p o l i c i e s . With better e f f i c i e n c y i n operations and management, the trend of rates i n a i r f r e i g h t transport has been marked by a s u b s t a n t i a l continuous decrease. The a i r c a r r i e r s themselves have agreed to o f f e r more a t t r a c t i v e r a t e s f o r u n i t i z e d or c o n t a i n e r i z e d shipments. WHO ARE THE USERS OF AIR FREIGHT SERVICE ? C u r r e n t users of a i r f r e i g h t s e r v i c e s can be d i v i d e d i n t o f o u r groups : 1 - Customers u t i l i z i n g a i r t r a n s p o r t on a r e g u l a r b a s i s , 2 - Customers s h i p p i n g h i g h - v a l u e commodities, 3 - Customers f o r emergency shipments, 4 - Customers u t i l i z i n g a i r t r a n s p o r t on an o c c a s i o n a l b a s i s . C a t e g o r i e s (2) and (4) of customers are by f a r the most important p o t e n t i a l customers f o r a i r cargo b u s i n e s s . A f u r t h e r a n a l y s i s by the a i r c a r r i e r s o f these two c a t e g o r i e s of s h i p p e r s would serve two o b j e c t i v e s ^ : - to i n c r e a s e the range and the number of r e g u l a r would-be users of a i r f r e i g h t , - to l o c a t e and to induce o c c a s i o n a l a i r s h i p p e r s to use a i r f r e i g h t t r a n s p o r t on a permanent b a s i s . A c c o r d i n g to a i r l i n e e x e c u t i v e s , the f o u r t h c a t e g o r y , " o c c a s i o n a l s h i p p e r s " , although p r o v i d i n g s u b s t a n t i a l l y i n c r e a s e d revenues i n cargo o p e r a t i o n s , should be g i v e n every c o n s i d e r a t i o n 7 from a i r cargo agents , s i n c e they w i l l be more e a s i l y persuaded to use a i r t r a n s p o r t f o r a l l t h e i r d i s t r i b u t i o n needs. These o c c a s i o n a l users a y a i l themselves of a i r f r e i g h t s e r v i c e s only "under s p e c i a l c ircumstances" e.g. to a v o i d s u b s t a n t i a l l o s s e s i n c u r r e d by f a i l u r e t o meet e i t h e r term c o n t r a c t s or p r o d u c t i o n 60. schedules. These s p e c i a l circumstances are also ascribed i n many instances to i n e f f e c t i v e inventory control methods. I t has been i l l u s t r a t e d by s p e c i f i c examples gathered during field-work that an e f f i c i e n t inventory control system i n close r e l a t i o n to the transportation department within an organization, can be a source of substantial savings when a i r g transport i s used. CHARACTERISTICS SPECIFIC TO THE USE OF AIR FREIGHT Factors of time and place are c r u c i a l i n the modern bus i -ness world and the transport of commodities by the f a s t e s t mode - v i z . a i r - plays a major role i n the d i s t r i b u t i o n system. In addition to speed, on which almost a l l a i r f r e i g h t c h a r a c t e r i s t i c s depend, a i r transport o f f e r s a r e l i a b i l i t y and a v a i l a b i l i t y of service which i n turn have an e f f e c t on the general d i s t r i b u t i o n function. R e l i a b i l i t y of service i s one c r i t i c a l consideration i n determining the choice of suitable modes of transport and/or c a r r i e r ; and i n very many instances, the a b i l i t y to maintain established schedules i s superseded by considerations of speed. A v a i l a b i l i t y of service ( i . e . frequency and a c c e s s i b i l i t y ) , i s another key element. U n t i l the early s i x t i e s , except on a few routes, frequency of a i r cargo service was c l o s e l y r e l a t e d to the 9 frequency of passenger services, since cargo space was available only i n the b e l l y or fuselage (or both) of passenger a i r c r a f t . Recently however, with the increasing volume of a i r cargo moved, a i r c a r r i e r s are introducing a l l - c a r g o f l i g h t s for two reasons : - Total volume, range and type of commodities are increasing. - I t has been found that a i r f r e i g h t o r i g i n s and destinations do not have, i n many instances, any r e l a t i o n to passenger routes. In this sense, a i r c a r r i e r s have been helped by a i r c r a f t manufacturers who are producing planes with fuselage and door a c c e s s i b i l i t y better adapted to meet the demand for transport of bulky and larger size cargo, which would maximize u t i l i z a t i o n of the available a i r c r a f t cargo space. The Lockheed L-100 Hercules i s a good i l l u s t r a t i o n . Before dealing with, the implications of a i r f r e i g h t transport f o r the d i s t r i b u t i o n system, a b r i e f analysis of the demand f o r a i r f r e i g h t i s i n order. GENERAL DEMAND FUNCTION IN AIR FREIGHT A i r f r e i g h t demand since the beginning of the s i x t i e s has changed r a d i c a l l y . Commodities and shipments moved by a i r are increasing i n range, volume and density, e s p e c i a l l y i n respect to lower cost goods. Yet, the t o t a l volume of goods represents a very small part of the t o t a l f r e i g h t moved by surface transport. In a microeconomic sense, the transportation function ( i . e . in this context, a i r f r e i g h t transport) i s only one aspect of the d i s t r i b u t i o n system. The demand for a i r f r e i g h t can be considered as a second degree demand function because i t i s dependent on the nature of the commodity shipped, which in turn i s dependent on the market demand for a p a r t i c u l a r commodity. The demand f o r a i r transport i s the t o t a l sum of various functions including : the value of the commodity, i t s competitive s i t u a t i o n on the market, the competitive s i t u a t i o n of the a i r and surface c a r r i e r s i n respect to routes, length of haul, rates, and f i n a l l y the general economic a c t i v i t y . From information c o l -lected during interviews with a i r c a r r i e r executives and shippers (users and non-users of a i r freight) the following inferences can be made : x® - The general demand f o r a i r cargo i s more e l a s t i c f or most commodities characterized by high value, small s i z e , or emergency need. - The.general demand for a i r f r e i g h t i s more e l a s t i c on short and medium haul distances up to 500 miles because of competition from surface carriers.. In B r i t i s h Columbia, a l l main centres can be "door-to-door serviced" within 24 hours by road transportation. - In regard to the northern t r a f f i c , the demand for a i r f r e i g h t transport presents an i n e l a s t i c aspect because of the lack of al t e r n a t i v e modes of transport. But i n the long run, the growing economic development of the north w i l l generate an increased volume of a i r f r e i g h t which w i l l change the aspect of the demand, rendering i t less i n e l a s t i c . - On the P a c i f i c route, demand for a i r f r e i g h t i s more price e l a s t i c on eastbound routes than on westbound routes. The d i r e c t i o n a l imbalance on the P a c i f i c routes (due to the nature of the trade) i s four to one i n favor of eastbound routes. I t has been mentioned that the demand for a i r f r e i g h t i s also a function of the rate structure. This f a c t i s v a l i d at the i n t e r n a t i o n a l as well as the regional l e v e l . But i t seems that the rate factor has a more noticeable e f f e c t at the regional l e v e l on the general demand for a i r f r e i g h t transport, because of pro-v i n c i a l and federal regulations, competition from the three other modes operating on many routes, and the s p e c i a l s i t u a t i o n of the regional c a r r i e r s i n Canada. We w i l l turn now to the Total Cost D i s t r i b u t i o n Concept and i t s r e l a t i o n with a i r f r e i g h t transport. THE TOTAL DISTRIBUTION CONCEPT As has been stated at the beginning of t h i s chapter, a i r f r e i g h t transportation i s one of the key elements i n the lengthy process of the d i s t r i b u t i o n function. A Total D i s t r i b u -t i o n Cost System includes a l l the functions and costs involved i n moving goods from producer to consumer. Over the past f i f t e e n years, d i s t r i b u t i o n costs have increased at a rapid rate and for most of the products (particu-l a r l y consumer products), they account f o r as much as 5<K of the consumer d o l l a r . Thus, any reduction i n d i s t r i b u t i o n costs would generate substantial savings. Because the d i s t r i b u t i o n system affects almost every organizational function of a company, few managers are aware of the importance of the d i s t r i b u t i o n function to t h e i r business operation. The a i r c a r r i e r s , by necessity and not by choice, have become s p e c i a l i z e d i n d i s t r i b u t i o n system analysis, and have i n i -t i a t e d a new marketing approach t o t a l l y d i f f e r e n t from that which placed emphasis on speed only. Although the importance of speed i s not questioned, a i r c a r r i e r s have estimated that the use of a i r f r e i g h t as a mode of transport a f f e c t s the. p h y s i c a l d i s t r i b u t i o n system d i r e c t l y by reducing i t s t o t a l c o s t s . x x The following components of the physical d i s t r i b u t i o n function'have been found to be i n d i r e c t 12 r e l a t i o n to the choice of the mode of transport : - Inventory and warehousing, .-. C a p i t a l invested and i n t e r e s t charges, - Packing, packaging and cr a t i n g , - Freight charges, - Customer service. If a l l these functions were managed with e f f i c i e n c y (which does not imply minimizing c o s t s ) , the whole d i s t r i b u t i o n system might generate more revenue and improve p r o f i t s . The benefits of a t i g h t control of the d i s t r i b u t i o n system are not f e l t immediately but within a medium-term period (one to three years), which i s perhaps, one of the reasons why so l i t t l e attention has been given to the di s t r i b u t i o n , function by corporate management i n recent years. Another explanation of thi s s i t u a t i o n i s that d i s t r i b u t i o n functions and costs are allo c a t e d to d i f f e r e n t company departments, which are a l l attempting to reduce t h e i r respective costs regardless of the impact of these costs reductions on the other departments. The various elements of the formal d i s t r i b u t i o n should be placed under the control of a physical d i s t r i b u t i o n manager responsible for each decision that the company must take to meet customer's service requirements and standards."^ In other words, the d i s t r i b u t i o n function should be coordinated through formal d i s -t r i b u t i o n organization and the r e s p o n s i b i l i t y of one i n d i v i d u a l who i s also responsible for the t o t a l cost of d i s t r i b u t i o n , e s p e c i a l l y as a f f e c t s transportation. I t must be kept i n mind that the choice between d i f f e r e n t modes of transportation i s also, a choice between d i f f e r e n t modes of physical d i s t r i b u t i o n . Therefore, a decision taken with respect to a mode of transport may be v a l i d i n the short run and no longer v a l i d when considered from a long-term point of view. We w i l l look now at the components of the physical d i s -t r i b u t i o n function and t h e i r r e l a t i o n to a i r f r e i g h t transpor-t a t i o n . Inventory and warehousing functions High speed transportation allows a company to carry smal-l e r inventories and thus reduce t h e i r costs. The inventories can be of two kinds : t r a n s i t or storage warehousing. The savings on storage and warehousing inventories are less obvious than savings on t r a n s i t warehousing costs, since the former are more d i f f i c u l t to evaluate. Although the c h a r a c t e r i s t i c s of an indus-try vary from one another, i t i s evident that the faster and more r e l i a b l e the d e l i v e r y , the smaller the stock which must be carried. By the same token, i f the delivery system i s slow, a safety-margin stock i s needed, when there i s a f a s t turn over. Therefore, the warehousing costs increase as do also the costs of having c a p i t a l t i e d up f o r a longer period : i n t e r e s t s , insu-rance, obsolescence and d e t e r i o r a t i o n . The use of a i r f r e i g h t w i l l e f f e c t cost-reductions i n the functions of inventory and ware housing, thereby generating p r o f i t centres ; f o r example, elimina-tion or reduction i n the number of warehouses or d i s t r i b u t i o n cen-tres and penetration of new markets with minimum inventories.-But, as inventory and warehousing functions are dependent on so many variables (such as type of product, market location and competition, and sales volume), many companies do not have accu-rate figures with respect to t h e i r inventory and warehousing costs Studies and research i n t h i s f i e l d have demonstrated that these costs reach 5% of the t o t a l sales revenues ; and for large corpo-rations, a reduction of 50% of these costs could mean savings i n -volving hundreds of thousands of d o l l a r s . C a p i t a l invested and i n t e r e s t charges In the d i s t r i b u t i o n system, there i s constantly present the c r i t i c a l problem of working c a p i t a l t i e d up i n goods en route or i d l e i n stock. By reducing warehouse space, and thereby the amount of inventory, a larger amount of working c a p i t a l can be released i n a shorter period of time and be reapplied to other purposes. Preference of a i r f r e i g h t transport over other surface modes (esp e c i a l l y on long-haul distance), should be based also on f i n a n c i a l considerations. When goods are i n t r a n s i t , the rate of c a p i t a l turnover and the carrying charges on borrov/ed c a p i t a l constitute two c o s t l y elements i n the d i s t r i b u t i o n - f u n c t i o n . Thus, rapid d e l i v e r y also implies f a s t e r c a p i t a l turnover, larger sales volume, more e f f i c i e n t production and therefore, higher p r o f i t s . The decision to use a i r f r e i g h t instead of any other given surface mode would necessitate balancing a l l the c a p i t a l costs involved when the goods are en route. Packaging and c r a t i n g In view of the increased volume of goods shipped by a l l modes of transport, manufacturers of paper, cardboard, f i b e r g l a s s and aluminum are now o f f e r i n g new packaging systems - a new depart ure i n the sense that the new packing materials w i l l reduce both labour and handling costs and t o t a l package weight - thus f a c i l i t -ating more, e f f i c i e n t handling operation. In view of the shorter t r a n s i t time and higher f r e i g h t rates i n a i r transport, simple and l i g h t weight packaging w i l l reduce the tare weight of the shipment Bulky items are usually f i x e d on p a l l e t s and wrapped i n p l a s t i c sheeting. Transportation costs are i n many instances less expensive by a i r p a r t i c u l a r l y when s p e c i a l packaging and c r a t i n g i s required by truck on long and even medium haul distances. Moreover, p i l f e r a g e , t h e f t and damages have the lowest incidence of occurrence i n a i r f r e i g h t transport. Since the late s i x t i e s , a i r c a r r i e r s have introduced 68. the concept of contai.neriza,tion in conjunction with the t o t a l d i s t r i b u t i o n cost concept. This containerization concept has a double implication. F i r s t , the a i r c a r r i e r w i l l use to optimum e f f i c i e n c y the a v a i l a -ble cargo space i n the a i r c r a f t . Second, inter-modal containers w i l l ease the problem of compatibility of transfer shipment between two modes or more. Containerization w i l l , i n the foreseable future, present a p o t e n t i a l means of reducing the t o t a l d i s t r i b u t i o n costs by a i r . At present, containerization i n a i r f r e i g h t has been successfully accepted on i n t e r n a t i o n a l routes but i t s use on regional routes i n Canada i s s t i l l very l i m i t e d . Freight charges For a i r f r e i g h t , charges are assessed on gross weight and/or density and are applicable from a i r p o r t to a i r p o r t only. Door-to-door service can be offered at an extra charge. For a given shipment, a' s t r a i g h t rate comparison w i l l always be favou-rable to surface transport. As i n other modes of transport, a i r f r e i g h t rates are a r e f l e c t i o n of volume of t r a f f i c , competition between c a r r i e r s operating the same type of commodity and especia-l l y the o r i g i n and destination of shipments. In the case of the regional a i r c a r r i e r , rates are based upon the weight of shipment and the route (see P.W.A. t a r i f f s from Vancouver to Yukon, B.C. centres, Alberta and Northwest T e r r i t o r i e s , Appendix C). Customer service While i t i s d i f f i c u l t to estimate the f i n a n c i a l return on improved customer service, one way to measure approximately i s by examining the volume of sales. The points discussed above are considered to be the most important elements i n the d i s t r i b u t i o n system. Undoubtedly, there are "other factors involved, such as handling equipment and market forecasting. Although these may be considered of secon-dary importance, they also contribute to a successful d i s t r i b u t i o n system. The d i s t r i b u t i o n function i s usually considered as a cost centre. I f e f f i c i e n t l y managed, i t can become a p r o f i t generating centre, which maximizes p r o f i t s but which does not necessarily minimize costs. To ensure p r o f i t a b l e returns from the d i s t r i b u -t i o n function, a l l i t s elements should perform i n harmony one with another. Unfortunately, the d i s t r i b u t i o n function i s more complex since i t i s intermeshed with s t r u c t u r a l system of an organization i . e . purchasing, production, maintenance and sales functions. Resolving d i s t r i b u t i o n problems within an organiza-tion would, involve restructuring the d i f f e r e n t functions, s e t t i n g up goals and subgoals compatible and i n coordination with every functional operation, In other words, an e f f i c i e n t d i s t r i b u t i o n system implies an e f f i c i e n t and capable management organization. SPECrFrC 'ADVANTAGES OF AIR DISTRIBUTION OVER SURFACE DISTRIBUTION When considering a l t e r n a t i v e modes of transport, d e t a i l e d 70 . cost-comparisons which include f r e i g h t and non-freight charges are a very useful t o o l when the time of decision-making i s at hand. Unfortunately, non-freight charges are eithe r intangible or d i f f i -c u l t to all o c a t e and compile. Many interested and p o t e n t i a l users of a i r f r e i g h t are f i r s t discouraged by the task of undertaking a cost analysis comparison of air/surface transportation, based on the Total Cost D i s t r i b u t i o n Concept. I t i s recognized that a t o t a l cost d i s t r i b u t i o n ' a n a l y s i s i s co s t l y i n terms of time and money. Shippers w i l l consider undertaking such an analysis•only i f there i s strong j u s t i f i c a t i o n that a change i n the mode of transport w i l l a f f e c t the whole.picture of costs and revenues. To this end, the Stanford Research I n s t i t u t e , at the request of Emery A i r Freight Corp. has developed a technique f o r i d e n t i f y i n g s i t u a t i o n s presenting p o t e n t i a l advantages i n the use of a i r f r e i g h t . 1 4 The technique i s based on interviews, and on actual case studies of successful users of a i r f r e i g h t . The merit of th i s technique i s that i t i s not based on a p a r t i c u l a r industry or type of commodity, but i s rela t e d to the c h a r a c t e r i s t i c s of the f o l l o -wing general elements : - Commodity c h a r a c t e r i s t i c s , - Demand c h a r a c t e r i s t i c s , - Physical problems of d i s t r i b u t i o n , - P o t e n t i a l for market expansion. Moreover, these c h a r a c t e r i s t i c s are cl o s e l y r e l a t e d to thirteen s p e c i f i c reasons ( l i s t e d i n the study) for the use of a i r f r e i g h t . These thirteen reasons can be reduced to three cate-gories : 71. - Use of speed reduces t r a n s i t time, increases sales i n a time l i m i t e d s i t u a t i o n , meets unpredictable demands, and reduces investment i n goods i n t r a n s i t ; - Speed also reduces inventory investment, r i s k of obso-lescence and operating expenses associated with inventory f a c i l i -t i e s and services ; - Superior conditions of carriage reduce costs incurred by l o s s , damage, p i l f e r a g e of shipments, whereas time for preser-ving goods i n t r a n s i t and for handling operations are shortened. These reasons seem-also to be a l o g i c a l consequence of the advantages of a i r f r e i g h t , and may be l i s t e d as follows : - Speed reduces time i n t r a n s i t and inventory costs, - R e l i a b i l i t y and a v a i l a b i l i t y of service, - Superior condition of carriage. The method evolved by the Stanford Research I n s t i t u t e has been applied here, as an i l l u s t r a t i o n to the case of two Vancouver organizations : (a) Simpsons-Sears Ltd, which i s using a i r f r e i g h t on a non-regular basis ; and (b) Vancouver Fancy Sausage, which uses a i r f r e i g h t to serve i t s regional and national markets (goods are a i r freighted as f a r as Toronto). This method of i d e n t i f y i n g p o t e n t i a l use of a i r f r e i g h t i s use'ful and allows for s e l e c t i v e use of a i r f r e i g h t f o r s p e c i f i c situations while, at the same time, i d e n t i f y i n g s i t u a t i o n s i n which a i r f r e i g h t would probably not be advantageous. The method does not i n d i c a t e , however, that a i r f r e i g h t w i l l i n f a c t r e s u l t i n a net cost saving over surface transportation i n any p a r t i c u l a r 72. s i t u a t i o n . If the. preliminary study indicates that a i r f r e i g h t can be used advantageously, then shippers are advised to conduct a detailed comparative t o t a l d i s t r i b u t i o n analysis for a i r trans-port versus surface transport, to determine i f a i r f r e i g h t use w i l l r e s u l t i n a net gain. The method of the Total D i s t r i b u t i o n Cost Concept i s used by most a i r f r e i g h t c a r r i e r s as a marketing t o o l to s e l l a i r cargo space. Problems arise because i t i s d i f f i c u l t , i f not often im-possible, to quantify every advantage of a i r f r e i g h t since the transportation system i s not a homogeneous product. Thus i n the late s i x t i e s , some a i r c a r r i e r s made s l i g h t modifications i n t h e i r marketing methods. Rather than merely s e l l i n g the idea that the use of a i r f r e i g h t w i l l reduce d i r e c t d i s t r i b u t i o n costs, c a r r i e r s are also attempting to demonstrate the t o t a l benefit of the use of a i r transport i n r e l a t i o n to q u a l i t y , p r o d u c t i v i t y and e f f i - . ciency functions. T r a f f i c managers are becoming aware of the importance of an e f f i c i e n t transportation system which w i l l improve d i s t r i b u t i o n functions and organizational operations. They no longer hold the view that "there i s nothing t o choose between one form of trans-portation and another." I In this respect, a i r f r e i g h t c a r r i e r s o f f e r a complete service to t h e i r customers by meeting not only t h e i r transporta-tion needs but also t h e i r marketing operations. For instance, c a r r i e r s w i l l seek to open up new channels for trade or to bring shippers and suppliers into contact. The following section w i l l analyse the Total D i s t r i b u t i o n Cost Concept, comparing d i s t r i b u t i o n costs for s p e c i f i c commodi-t i e s between a i r and surface transport. SURFACE TRANSPORTATION VERSUS AIR TRANSPORTATION : APPLICATION  AND ANALYSIS OF THE TOTAL DISTRIBUTION COST CONCEPT. Selection of route and commodities This analysis focuses on B.C. imports from Japan. This country has been selected for three main reasons : f i r s t , Japan i s B.C.'s most important trading partner a f t e r the U.S.A. ; secondly, most of the situations and problems encountered i n t h i s analysis can be applied to other P a c i f i c Rim countries which trade with B.C. ; t h i r d l y , Vancouver i s the regional head o f f i c e for several shipping companies and a i r l i n e s as well as an important d i s t r i b u t i o n centre i n Canada for Japanese imports. The various concerns are a l l d i r e c t l y involved i n the movement of f r e i g h t between B.C. and the P a c i f i c Rim countries. The four commodities (Auto spare parts, Typewriters and Sewing machines, T.V. sets and E l e c t r o n i c Equipment, and Textiles) have been selected because : a) t h e i r volume (and value shipments) i s constantly increasing i n B.C.- Japanese trade and b) they a l l have the common c h a r a c t e r i s t i c of being shipped by a i r , but only on an emergency basis. The companies interviewed were the Canadian s u b s i d i a r i e s or wholesale d i s t r i b u t o r s of the parent Japanese companies. Owing to the r e p e t i t i o u s nature of much of the material, i t has been relegated to Appendix C, together with a l l the information p e r t i -nent to the computation of the t o t a l d i s t r i b u t i o n cost. The r e s u l t s of comparative cost analyses, t h e i r c h a r a c t e r i s t i c s and t h e i r implications for a i r f r e i g h t are discussed i n the following section. A i r versus Surface D i s t r i b u t i o n As was mentioned above, these analyses are based on the comparison of physical d i s t r i b u t i o n costs and the r e l a t i v e advan-tages and disadvantages of a i r and surface transportation for the four types of commodities. Naturally a i r f r e i g h t charges a premium rate and t h i s extra cost must be j u s t i f i e d , e i t h e r by extra benefits or by associated reduced costs. A change i n mode of transport (in t h i s case, sea to air) i s translated into increases or decreases i n variable costs related to d i s t r i b u t i o n . The costs which could be measured i n terms of d o l l a r s appear i n the t o t a l cost comparison. Others which could not be measured during the f i e l d work (since they were unavailable or c l a s s i f i e d ) have been e i t h e r estimated on the basis of past experience (e.g. c a p i t a l costs) or not considered at a l l i n the t o t a l cost analysis. For comparative cost computations, i t has been assumed that for an i d e n t i c a l commodity the volume (or weight) of the shipment i s 15% less by a i r than by sea container (except i n the case of E l e c t r o n i c Equipment where the volume i s from 40 to 60% smaller by a i r transport). The explanation of t h i s assumption, agreed i n the course of f i e l d work by shippers and c a r r i e r s a l i k e , i s that l i g h t e r packaging i s required for a i r transport, and also the volume charged by sea container i s higher than the actual volume of the shipment (a sea container i s r a r e l y packed to capa-c i t y to ensure v e n t i l a t i o n and to avoid breakage and spoilage). A i r f r e i g h t charges were ei t h e r based upon S p e c i f i c Commodity Rates (S.C.R.) or Unit Load Device Rates (U.L.D.R.), whichever were' lower, according to the weight/volume r a t i o of each p a r t i c u l a r shipment. Packing, crating and warehousing costs were not taken in t o account, since the companies interviewed were unable to supply the required information, but they a l l agreed that the use of a i r transport would reduce these costs, p a r t i c u l a r l y i n the case of Auto Spare Parts and E l e c t r o n i c Equipment. These three costs re-present approximately 12% of the t o t a l d i s t r i b u t i o n costs, which can be reduced by 50% i f a i r f r e i g h t i s used (Typewriters and E l e c t r o n i c Equipment seem l i k e l y to benefit most from these reduc-tions) . ANALYSIS OF THE TOTAL DISTRIBUTION COST APPLIED TO SPECIFIC CASES  Transportation charges These show the highest figures f o r a i r f r e i g h t charges, which are from four to s i x times higher than those by sea and include wharfage, loading, unloading, handling and c o n t a i n e r i -zation charges. The f r e i g h t charges on e i t h e r mode are influenced by the weight and volume of shipment. A i r f r e i g h t rates are calculated on the weight of the shipment unless the volume/weight r a t i o exceeds 19 4 cubic feet per pound, i n which case rates are calcu-lated on the volume. Sea container rates have a volume/weight r a t i o l i m i t of 34 cubic feet per pound. In the shipments considered, only s i x were charged on a volume basis by a i r f r e i g h t , whereas the t h i r t y shipments were a l l charged on a volume basis by sea container. A i r f r e i g h t rates do penalize bulky but not l i g h t weight shipments, as i s i l l u s t r a t e d by the computation of fr e i g h t charges for T e x t i l e s and E l e c t r o n i c Equipment. (See Appen-dix C.) . Insurance charges Insurance costs represent a n e g l i g i b l e f r a c t i o n of.the: t o t a l a i r cost. Since insurance premiums take into account the value of the shipment, t r a n s i t time and handling operations, the costs are much higher f o r surface transportation. A i r insurance rates never exceed 0.30% of the value of the shipment, whereas for the same route and the same shipment, sea container insurance rates may run from a low of 0.50% to a high of 1.50% of the value of the shipment (Cf..Insurance rates, Appendix C). Capi t a l costs Owing to the reticence on the part of d i s t r i b u t o r s i n giving accurate information i n regard to the costs involved i n holding'inventory, i t has been assumed that, because the companies placed orders on a three to four month cycle, the length of time of maintaining t h i s inventory should be based on t h i s period cycle (less t r a n s i t time). The value of the inventory must therefore be equal to the value of the shipment. The p o s s i b i l i t y of f a s t replacement d e l i v e r i e s by a i r decreases the requirement on the minimum inventory : thus i t was assumed that the period cycle could be reduced to three or four weeks when a i r transport i s used, thereby reducing inventory costs. Depreciation cost estimates, were based on the same assump-tions. C a p i t a l costs figures - which include costs of c a p i t a l on goods i n t r a n s i t , i n inventory, depreciation and obsolescence costs - are, for each shipment, much lower for a i r transport. C a p i t a l costs by surface transport are s i x to ten times higher than those by a i r because of slow delivery and longer t r a n s i t time. Each company interviewed stated that the use of a i r f r e i g h t would indeed allow a reduction of the c a p i t a l costs but might involve more c l e r i c a l work, since shipments by a i r would be more numerous. Transportation managers interviewed favoured a more frequent use.of a i r f r e i g h t , which would reduce t r a n s i t time and control inventory more e f f i c i e n t l y , give better service and r e s u l t i n benefits accruing from cost differences i n maintaining large warehouses (e.g. two auto parts warehouses were not at the same loc a t i o n ) . In p a r t i c u l a r Auto Spare Parts, T.V. sets and E l e c -t r o n i c Equipment, firms were unanimous on these points but the i n d i v i d u a l managers were, i n neither case, i n a p o s i t i o n to i n i t i a t e major changes In the transportation system of the company. Their recommendations for an e f f i c i e n t and frequent use of a i r 78. f r e i g h t were favourably received but have not yet been acted upon. Cost analyses conducted for each shipment show the addi-t i o n a l cost of a i r f r e i g h t over the present cost of sea container transportation, which may represent the amount by which t o t a l tangible and intangible costs i n the d i s t r i b u t i o n function must be reduced i f s u f f i c i e n t costs savings are to be r e a l i z e d to o f f s e t higher costs for a i r transport. For the firms interviewed (and e s p e c i a l l y for Auto Spare P.arts) , f a s t service i s the key factor i n the demand for a i r f r e i g h t services, no matter how i r r e g u l a r t h i s demand may be : high cost of a i r f r e i g h t i n g e s s e n t i a l spare parts i n small compari-son to possible revenue losses occasioned by production breakdowns. The intention of this study i s not to explain how the p o t e n t i a l for a i r f r e i g h t can best be r e a l i z e d but rather to state i f such a r e a l i z a t i o n i s possible. Two methods, however, appear 17 useful i n attempting to r e a l i z e p o t e n t i a l a i r f r e i g h t : the f i r s t i s to educate p o t e n t i a l users i n the advantages of a i r f r e i g h t and the Total D i s t r i b u t i o n Cost Concept as applied i n the cases studied. The second i s to lower the a i r f r e i g h t rates. In r e a l i t y , a combination of both methods appears desirable. The effectiveness of either of these methods i n r e a l i z i n g p o t e n t i a l a i r f r e i g h t i s d i f f i c u l t to estimate although, according to cargo sales represen-t a t i v e s , some success has been already achieved with the f i r s t method. A reduction of a i r f r e i g h t rates w i l l probably r e s u l t i n a major increase i n volume and value of consumer goods shipped by a i r . 79. Assuming that a i r f r e i g h t can increase, or at lea s t maintain i t s present advantage over surface transportation, there i s every reason to believe that as the number of secondary indus-try outputs increase . a d d i t i o n a l demand f o r a i r f r e i g h t services w i l l r e s u l t . Reduced a i r f r e i g h t rates, combined with the a p p l i c a t i o n of the Total D i s t r i b u t i o n Cost Concept, w i l l r e s u l t p r i m a r i l y , as each transportation manager confirmed, i n " s u b s t a n t i a l " reduction of inventory costs. However, on the assumption that there i s no reduction of inventory and r e l a t e d costs r e s u l t i n g from the use of a i r f r e i g h t then some shippers, as was made cl e a r i n interviews with depart-18 ment stores T r a f f i c and Transportation managers , w i l l use a i r transport only when a i r f r e i g h t and sea containers charges become more comparable. In t h i s case, as i l l u s t r a t e d by Figure 3.1, the demand curve would be i n e l a s t i c at e x i s t i n g a i r rates and e l a s t i c when a i r rates are more competitive with sea rates. The demand f o r a i r f r e i g h t w i l l increase when a new rate structure i s designed f o r higher density and lower value commodity (see Appendix C). However, the continuing education of those who d i r e c t transportation and d i s t r i b u t i o n p o l i c i e s of a company i n under-standing the p o s i t i v e advantages and long term implications of a i r f r e i g h t may allow a i r f r e i g h t rates to continue at the present high l e v e l . I t i s the task of each Transportation manager to assess the p a r t i c u l a r s i t u a t i o n and the needs of the company BO. FIGURE 3.1 Present Rate $ A i r Sea DEMAND CURVE FOR AIR FREIGHT WHEN AIH AND SEA RATES ARE THE SAME Present A i r Freight Quantity of A i r Freight (lbs) with respect to the d i s t r i b u t i o n function and to decide which a i r f r e i g h t rate w i l l b e n e f i t him most. In this instance, the demand curve, from being i n e l a s t i c would become almost e l a s t i c (Figure 3.2). Probably i n th i s case, a small decrease i n a i r rates might proportionately increase revenues, provided that p o t e n t i a l shippers are vjell informed and. knowledgeable i n respect to Total D i s t r i b u t i o n Cost Concept. According to regression analysis and graphs (See Appendix C., regression analysis and graph) f o r the t o t a l d i s t r i b u t i o n 19 cost of the t h i r t y shipments , i t i s evident that wxth the 81. FIGURE 3.2  DEMAND CURVE FOR AIR FREIGHT WITH APPLICATION OF TOTAL DISTRIBUTION COST CONCEPT Present Rate $ A i r Sea l i s \ ' \ 1 \ 1 \ i i i ^ ^ ^ ^ • i » i » i i • Present A i r Freight A i r Freight with reduced rate Quantity A i r Freight present rates i n force, i t i s more economical to use a i r f r e i g h t for shipments under 1,250 lbs and with a value of $ 7,300 or less i f a i r f r e i g h t rates were to decrease by 30%, shipments under 5,500 lbs with a value of $ 16,000 or l e s s , should be using a i r transport. (See Appendix C., re s u l t s of regression analysis graph) Considering the weight and value of each of the t h i r t y shipments, i t appears that, with the present a i r f r e i g h t rates i n effect,, none of these shipments would r e a l i z e cost savings through the use of a i r transport. With a 30% a i r f r e i g h t rate 82. reduction, only eight shipments effected by a i r transport w i l l show a net advantage i n terms of cost. I t must be pointed out that, whereas the impact of the value of the shipment does not appreciably a f f e c t the t o t a l a i r d i s t r i -bution costs, i t does a f f e c t the t o t a l d i s t r i b u t i o n cost figure v i a surface transportation (owing mainly to high inventory costs). These findings do not deny the p o s s i b i l i t y df p o t e n t i a l growth i n the demand for a i r f r e i g h t service, but suggest rather that growth w i l l come from companies able to pay high premium transportation charges i n order to acquire the services they need to operate with most e f f i c i e n c y . From th i s analysis the question arises : should a i r c a r r i e r s reduce f r e i g h t rates on the P a c i f i c routes i n order to increase the volume of f r e i g h t ? We must answer th i s question i n the nega-ti v e for various reasons : any rate reduction w i l l require a corresponding increase i n volume i f present revenues are to be maintained. In the cases studied, a 30% rate reduction would re-s u l t i n a 9% increase i n volume of f r e i g h t , most of which consists of small s i z e and high value shipments. A 60 to 70% rates reduction, which seems extremely u n l i -kely, would be required to equalize a i r and sea container d i s t r i b u t i o n costs. Even a small reduction (10 or 15%) i n a i r rates would not change present demand for a i r f r e i g h t , since the increased volume of a i r f r e i g h t would be i n s i g n i f i c a n t i n compa-ris o n to possible l o s t revenues. Moreover, since sea c a r r i e r s on the P a c i f i c routes have 83. already increased the container rates as of November 19 72, and since a general adjustment rate i s expected to take e f f e c t i n A p r i l 1973, a i r c a r r i e r s would be well advised to maintain t h e i r present . rate structure and at the same time improve service and reduce costs involved i n ground handling operations. However, only when the present a i r f r e i g h t p o t e n t i a l i s more f u l l y exploited within the framework of the e x i s t i n g structure, can a rate reduction be considered. As mentioned previously, the products of B.C. primary industry cannot be transported economi-c a l l y i n e x i s t i n g types of a i r c r a f t , since most of the advantages offered by a i r transport are d i f f i c u l t to r e a l i z e with bulky and low value commodities. Thus i t seems that the present s i t u a t i o n , (viz. unbalanced a i r f r e i g h t t r a f f i c on the P a c i f i c routes) w i l l p r e v a i l i n the near future. The shortage of back haul f r e i g h t on these routes implies that a i r f r e i g h t rates must be high enough to cover the cost of the return f l i g h t . The p o s s i b i l i t y of some small measure of regular back haul f r e i g h t , even at reduced rates, would c e r t a i n l y improve the o v e r a l l average load factor and eventually lead to reduced f r e i g h t rates i n both d i r e c t i o n s . This s i t u a t i o n also applies i n chartering a i r c r a f t on the Vancouver-Tokyo run (see Appendix on A i r Freight Rates) .• . Sea c a r r i e r s are faced with the same back haul problems but to a l e s s e r extent : eastbound f r e i g h t i s characterized by bulky and large tonnage commodity (minerals), while westbound f r e i g h t i s characterized by r e l a t i v e l y smaller tonnage and higher 84. value commodity (consumer products). Analyses of a i r versus sea container d i s t r i b u t i o n costs y i e l d the following conclusions : - A i r c a r r i e r s should not reduce t h e i r rates i n an attempt to increase volume of f r e i g h t , since such a reduction may lead to a corres-ponding decrease i n total.revenue ; - The volume of back haul f r e i g h t from B.C. i s very l i m i t e d , owing to the absence of secondary export industry ; - Reduced inventory costs, which may account for as much as 35% of the t o t a l d i s t r i b u t i o n costs, can be a source of cost saving which would tend to equalize a i r and sea container f r e i g h t costs. 85. FOOTNOTES CHAPTER III 1. I.A.T.A. A i r l i n e s S t a t i s t i c s , 19 71. 2. Comparative costs, for t y p i c a l shipment of clothing, supplied by Simpsons-Sears D i s t r i b u t i o n Manager, 1972. 3. Brewer, S.H., The Nature of A i r Cargo Cost. Graduate School of Business Administration, University of Washington, 1967. 4. See Appendix C., P.W.A. General Cargo Rates. 5. Brewer, S.H., Op. C i t . , Indirect Costs. 6 Gorham, James, E., How to Identify P o t e n t i a l A i r Freight., a paper prepared for Emery A i r Freight Corporation, Southern C a l i f o r n i a Laboratories, Stanford Research I n s t i t u t e , South Pasadena, C a l i f o r n i a , 1963 - pp. 13, 14. 7. Information supplied during interview with CP.A. Cargo Sales Representative. 8. See Appendix B., Vancouver Fancy Sausage case. •9. See Table 2.11 10. These inferences have been corroborated by Mac K i n n e l l , H. A., An Econometric Analysis of U.S. A i r Freight Market., Ph.D. Thesis, Graduate School of Business Administration, Stanford University, December 196 8, p.38. 11. Groenewege, A.P., A i r Freight Key to Greater P r o f i t s . Aerad Published, London, 1968. 12. Ibid., p. 43. 13. S t o l l e , John, F., " How to Manage Physical D i s t r i b u t i o n " Harvard Business Review, 45 July 1967, 93-100. 14. Gorham, J.E., Op. C i t . , p. 7 15. Ibid., p. 18 16. See Appendices A, & B,, Vancouver Fancy Sausage and Simpsons-Sears cases. 86 17. Ottawa, Economic Int e l l i g e n c e Unit. ' A t l a n t i c Provinces  Transportation : A P o t e n t i a l A i r Cargo Service., Ottawa, Queen's P r i n t e r , 1967, p. 11 18. Interview with the Bay and Eaton Department Stores, T r a f f i c and Transportation managers. January 1972, February 1973. 19. See Appendix C, Total D i s t r i b u t i o n Cost Concept applied to t h i r t y s p e c i f i c shipments. CHAPTER IV POTENTIAL AIR FREIGHT IN THE CONTAINER MARKET In a study made by the Research Department of Reynolds Metal Company i n 1961, containerization was defined as : ... the p r i n c i p l e of using a physical envelope..., to consolidate a number of i n d i v i d u a l small packages or units for shipment."1 This d e f i n i t i o n applies both to surface and to a i r transport. Although a i r cargo shipments are increasing both i n size and volume, at the present they are not yet comparable to shipments made v i a surface modes. With the exception of coal, wheat and o i l , almost a l l commodities are moved by truck, r a i l or ship containers. .The breakdown of a i r f r e i g h t by type of contai-ner s t i l l shows a market concentration on bulk shipments, i . e . small, loose commodities not consolidated. From the figure given i n Table 4.1, i t would appear that, within the next three years, u n i t i z e d and containerized a i r ship-ments w i l l represent 80% of t o t a l a i r f r e i g h t , while the remaining 20% w i l l be bulk shipment ; 25% of the t o t a l a i r f r e i g h t w i l l be shipped i n inter-modal containers. 88. TABLE 4.1 COMPOSITION OF AIR FREIGHT  BY TYPE OF CONTAINER IN THE FREE WORLD 1965 1970 1975** 1980** (% of tons of a i r f r e i g h t handled) - Bulk shipments 74% 4 3 % 23^ - P a l l e t s , Igloos, Bellys 12% - Unitized at terminal 24% • 32% 27% 25% 17% - Unitized by shipper 1% 25% 25% - Van Container - 8x8x10 and 20 * ' * 18% 32% - 8x8x over 20 n.a. n.a. 7% 14? * less than 1%. ** estimates. Sources : Stoessel Robert, F., A i r Freight - From Acorn to Oak, Lockheed - C a l i f o r n i a Company, 1968. AIR CARGO CONTAINERIZATION Advantages and disadvantages of containerization Containerization i s an added advantage i n a i r f r e i g h t service, a f f e c t i n g a l l d i s t r i b u t i o n costs by reducing handling costs, t r a n s i t time, warehousing, packaging, breakage, p i l f e r a g e , insurance and inventories. Customer service i s also improved. Moreover, containerization f a c i l i t a t e s inter-modal transfer. For the a i r c a r r i e r , as loading and unloading time are reduced, a i r c r a f t u t i l i z a t i o n can appreciably increase. Whereas the average a i r c r a f t u t i l i z a t i o n time i s ten hours per day, Br a n i f f International has achieved fourteen. 89. At the present time, the following factors make f o r i n h i -b i t i n g the expansion of the use of van containers : the cost of 2 containers (from $ 2,500 to $ 6,000 for a i r container) , tare weight, s p e c i a l handling equipment and above a l l , rate structures which do not provide for van container rates. As there i s often an unbalanced movement of f r e i g h t , the cost or returning empty the containers or t h e i r temporary i d l e use have to be considered. CONTAINERS AND AIRCRAFT Containers used by a i r l i n e s There are now over two hundred registered non-standard I.A.T.A. containers. Because of this p r o l i f e r a t i o n of containers i n size and number, the a i r c a r r i e r s i n an e f f o r t toward standardization and intra-modal c a p a b i l i t y have set up, with the help of the I.A.T.A., seventeen standard s i z e (up to 600 cubic-foot capacity) i n the P a l l e t , Igloo, B e l l y and Van-sized container categories. 3 Pallets and Igloos (or Unit Load Device) • They are the most commonly shipping means for containerization employed by a i r f r e i g h t services. The goods are f i x e d on p a l l e t s , wrapped with p l a s t i c cover and nets. Since the p a l l e t s are made of wood (or f i b e r g l a s s i n the case of the cover s h e l l of the igloo) and are r e l a t i v e l y t h i n - 3/4 inch, tare weight (less than 600 lbs) -t h e i r cost i s i n s i g n i f i c a n t but t h e i r service l i f e , up to two years, i s r e l a t i v e l y short. Their advantages are that they can be loaded and unloaded from any side and may assume a l l d i f f e r e n t 90. shape according to the nature of the commodity (except the iglo o type). The maximum capacity for these two types of containers i s 550 cubic foot and 8,000 l b s . 4 B e l l y containers. Their maximum cubic space has been achieved at the expenses of interchangeability, because t h e i r shape i s patterned on the a i r c r a f t fuselage. They are only i n t e r -changeable between the same type of a i r c r a f t . I t should be noted that i n each of these three categories, (viz. p a l l e t s , igloos and b e l l y containers), i n d i v i d u a l models vary i n s i z e , volume, density and material. Van containers. They present d i s t i n c t p o s s i b i l i t i e s for use i n inter-modal transport. The Society of Automotive Engineers (S.A.E.) and the International Standards Organization (I.S.O.) are working to provide van containers with standard s p e c i f i c a t i o n s -dimensional and s t r u c t u r a l - for a i r / l a n d cargo containers, which can be dismantled. The I.S.O. inter-modal containers have a cross section of 8'x8' and a length of 6 ' to 4 0'. The dimensions of the van container most l i k e l y to be used by a i r f r e i g h t are 8 ' x 8 ' x l 0 ' or 20' (and"occasionally 4 0 ' ) . Lufthansa A i r l i n e s i s carrying i n the B-747 f r e i g h t e r 8 ' x 8 ' x l 0 ' and 20' van containers on the Frankfurt - New York route. Van containers i n the 19 80's w i l l be to a i r f r e i g h t what a i r f r e i g h t i n the 1960's was to a i r transport. I t i s estimated that the number of containers used by a l l I.A.T.A. a i r l i n e s w i l l i n - . , crease from 50,000 i n 1970 to 177,000 i n 1975, 5 by which time, more than 80% of the anticipated volume of a i r cargo w i l l be moved i n containers. CAPABILITY AND CAPACITY OF AIRCRAFT The introduction of the Jumbo j e t f r e i g h t e r has raised the question whether i t i s more economical to ship by p a l l e t s or by van containers. A study made i n 19 69 by Lockheed-Georgia^ showed that for shipping an S'xS'xlO' van container on a 3,000 mile f l i g h t , the breakeven costs occur at a lower f r e i g h t load factor (33%) for van containers than for p a l l e t s (38%) due to lowe 7 terminal labour costs. This study shows that containerization produces cost savings which can be passed on to the customer i n the form of more a t t r a c t i v e container rates. Figure 4.1 represents g r a p h i c a l l y comparative costs for p a l l e t i z e d and containerized shipments and t h e i r .relation to the load -factor. I t i s i n t e r e s t i n g to note that while the trend of the cost per ton/mile for u n i t i z e d and contai-nerized a i r cargo i s decreasing, i t seems that costs for sea transport are on the increase, i n view of recent rate increases. However, the recent introduction of large-capacity container ships has affected s i g n i f i c a n t economies of scale which may o f f s e t cost increases due to situations beyond the control of the c a r r i e r s (e.g. longshoremen s t r i k e s ) . D i r e c t operating costs of 3.25 cents f o r the B-707 or DC-8 are expected to drop to a l e v e l of 2.50 cents per ton/mile f o r the B-747 f r e i g h t e r with a payload capacity of 2 30,000 pounds. Furthermore, Lockheed i s a n t i c i p a t i n g for the L-1101, a 2 cent FJGURE 4.1 COST COMPARISON; FOR PALLETIZED AND CONTAINERIZED SHIPMENTS ON 3,000 MILE FLIGHTS 20 33 38 6.0 % LOAD FACTOR 80 100 Source C o n t a i n e r i z e d A i r F r e i g h t B u l l e t i n , Lockheed-G e o r g i a Company, M a r r i e t t a , G e o r g i a , 1969. d i r e c t o p e r a t i n g c o s t p e r t o n / m i l e f o r a p a y l o a d c a p a c i t y o f 360,000 pounds. The c u r r e n t f r e i g h t e r s now i n s e r v i c e , s u c h as the DC-8, the DC-8-62 s t r e c h e d ^ v e r s i o n , and t h e Br-707-320 C have no p r o v i s i o n f o r h a n d l i n g v a n - s i z e d c o n t a i n e r s . The Lockheed H e r c u l e s L-100, the B-747 and l a t e r , t he Lockheed L-500 and the Mc D o n n e l l Douglas DC-10-C-4 make, o r are p l a n n i n g t o make, p r o v i s i o n f o r c a r r y i n g van c o n t a i n e r s . The B o e i n g B-74 7 f r e i g h t e r can c a r r y up t o 2 8 van c o n t a i -n e r s 8 ' x 8 ' x l 0 ' i n the main deck (17,000 c u b i c f e e t o f space) and accommodates up t o 30 b e l l y c o n t a i n e r s below the main deck. The Lockheed L-100 H e r c u l e s , w h i c h may use m a k e s h i f t r u n -ways, can c a r r y up t o 45,000 pounds o f cargo and can h a n d l e , thanks t o the shape o f i t s f u s e l a g e , an 8 ,x8'x40' van c o n t a i n e r . The Lockheed L-500 c i v i l v e r s i o n o f the C-5A w i l l accommo-date two rows o f f o u r t e e n 8 ' x 8 ' x l 0 ' van c o n t a i n e r s (15,000 c u b i c f e e t ) i n the main compartment and an o p t i o n a l row o f r a i l s mounted f o r h a l f s i z e c o n t a i n e r s 4'x4'xl0 (60,000 c u b i c f e e t ) , the upper deck b e i n g l o a d e d w i t h p a l l e t , o r i g l o o - t y p e c o n t a i n e r s . I t s t o t a l c a p a c i t y w i l l be 33,000 c u b i c f e e t o r a p a y l o a d c a p a c i t y o f 160 m e t r i c tons.. The Douglas DC-10-C-4 w i l l have a p a y l o a d c a p a c i t y o f 200,000 l b s and w i l l c a r r y up t o twenty f o u r S'xS'xlO' van c o n t a i -n e r s . A l t h o u g h i t s c a p a c i t y i s n o t i m p r e s s i v e , i t has been d e s i g n e d t o o p e r a t e on l o n g - r a n g e h a u l s (3,500 m i l e s non-stop) w i t h a c r u i s i n g speed o f 630 m.p.h., and t o be l o a d e d o r u n l o a d e d w i t h i n m i n u t e s . The twenty f o u r 8 ' x 8 ' x l 0 ' van c o n t a i n e r s w i l l be p l a c e d s i d e by s i d e i n . r o w s t o f a c i l i t a t e ground o p e r a t i o n s . E x c e p t f o r the D O 1 0 - O 4 , a l l t h e s e j e t f r e i g h t e r s can be l o a d e d and u n l o a d e d o f t h e i r t o t a l c a r g o w i t h i n t h i r t y m i n u t e s . F o r the DC-10-O4, t h i s - t i me wi;!! be h a l v e d , As t e c h n o l o g y i s i n t r o d u c i n g more and more s o p h i s t i c a t e d types of a i r c r a f t and therefore more expensive, the buying decision is a s t r a t e g i c component i n the future of the i n d i v i d u a l a i r l i n e company, as also for the a i r f r e i g h t industry as a whole (c-f. the recent Pan-Am purchase of twenty-four B-747's in a passenger version only). A i r c a r r i e r s i n general assumed the larger the a i r c r a f t , the lower the operating costs are ; by the same token, increased capacity implies a correspondingly greater r i s k of i n c u r r i n g losses through operating a i r c r a f t at the breakeven load factor.over a longer haul with increased payload. However, the growth of the movement of a i r containers i s governed not only by the c h a r a c t e r i s t i c s of the a i r c r a f t or i t s operating costs, but also by the weight, volume of the shipment, rate structure, the nature of the commodity involved and es p e c i a l l y i t s inter-modal compatibility, since more than one -and at l e a s t two - modes of transport w i l l be used, p a r t i c u l a r l y for medium and long haul shipments. POTENTIAL OF AIR FREIGHT CONTAINER IN THE SURFACE CONTAINER MARKET A i r f r e i g h t i s gradually making inroads into the market previously monopolized by surface modes. Part of a i r f r e i g h t has already been diverted from sea and truck f r e i g h t , while a sub-s t a n t i a l amount represents shipments f e a s i b l e only by a i r . A i r f r e i g h t competes with motor c a r r i e r s when, there i s good land transport a v a i l a b l e and. wirth sea c a r r i e r s Con a much more li m i t e d scale) i n trans-ocean f r e i g h t . In view of improved techniques i n a i r c r a f t manufacturing and the widespread . . containerization programme now underway i n the U.S.A., a competi-tive s i t u a t i o n may arise between a i r and surface c a r r i e r s which would r e s u l t i n closer coordination, between the two modes. Interchangeability w i l l thus become a r e a l i t y . AIR/TRUCK COORDINATION The interchange of shipments between a i r and truck i s s t i l l of r e l a t i v e l y small scale i n comparison with the motor c a r r i e r s ' t o t a l f r e i g h t . In the U.S. thi s interchange of ship-9 ments accounts for about 10% of the t o t a l a i r f r e i g h t volume. This low percentage r e f l e c t s the s i t u a t i o n of a i r cargo t r a f f i c concentrated on a few major a i r routes without connecting services to smaller centres. This s i t u a t i o n i s even more noticeable i n Canada where most of the Canadian centres are located along the U.S. border on a hundred mile wide s t r i p and where road transport offers more f l e x i b i l i t y and a d a p t a b i l i t y , with p r o f i c i e n t door-to-door service. The elements which favor e f f i c i e n c y i n ai r / t r u c k coordi-nation are that, commodities shipped by truck over medium and long haul distance present many s i m i l a r c h a r a c t e r i s t i c s to a i r f r e i g h t shipments ; e.g. comparability i n value per pound of shipment, low or medium density and l i m i t e d packaging because of mimimum handling operations, short t r a n s i t time and f a s t delivery service. Moreover, both modes of transport o f f e r comparable advantages i n a v a i l a b i l i t y and r e l i a b i l i t y of service and schedules. The factors which appear to i n h i b i t the growth of a i r / truck coordination are : rate structure of a i r f r e i g h t , l i g h t e r a i r shipments on long haul distance and containerization whose p o t e n t i a l has not yet f u l l y been exploited. However, as a i r c r a f t capacity i s increasing and operating costs are decreasing for a i r transport, increased coordination w i l l be necessary between a i r and truck on medium and short haul distances, whereas over long haul distances a i r and motor c a r r i e r s w i l l be i n competition. Differences with respect to volume, density and type of commodity c a r r i e d are narrowing for a i r and motor c a r r i e r s . Cooperation has already begun between the two modes : motor car-r i e r s are often a i r f r e i g h t forwarders and are also involved i n pick up and delivery or a i r f r e i g h t shipments. J o i n t development of interchangeable containers w i l l accelerate and complete a i r / truck coordination. AIR/SEA COMPETITION AND COORDINATION While interchangeability of containerized shipments i s • u n l i k e l y to happen between a i r and r a i l , the following facts seem to be i n favour of a i r / s e a coordination. During U.S. dock s t r i k e s i n 1967, i n 1969 and 1971 on the East and West coasts which lasted for several months., U.S. airborne exports increased by 40% while U.S. airborne imports doubled i n volume. Yet,, at the end of 1971, just over 1% of the t o t a l volume of exports and imports was airborne though value from 1967 to 1971, owing to three long dock s t r i k e s increased by 42% which represented 17.4% of the t o t a l value of exports and imports. Even when the s t r i k e ended, some occasional users continue to use a i r f r e i g h t on a regular basis. Thus a small f r a c t i o n of the sea f r e i g h t market seems l i k e l y to be cornered by a i r f r e i g h t cargo container. This i s not to say that a i r transport w i l l become, even i n the near future, a serious compe-t i t o r f o r the sea f r e i g h t container market with respect to volume moved, since the former w i l l always be l i m i t e d by obvious physical factors. As the sea mode i s presently undergoing fundamental change (e.g. s p e c i a l container ships, container-handling i n s t a l l a t i o n s at major ports, vessels capable of higher speed), problems may arise f o r a i r f r e i g h t c a r r i e r s faced with tougher competition from surface c a r r i e r s . THE LAND-BRIDGE CONCEPT APPLIED TO AIR FREIGHT Tr a d i t i o n a l l y , the land-bridge concept implies the u t i l i z a t i o n of land transport f o r part of what would normally be an ocean voyage'. " Since truck transport i s generally more expen-sive than other surface modes, i t i s more economical, when moving goods, to u t i l i z e water transport as much as possible, providing t r a n s i t time i s not of c r u c i a l "importance. Containerization has reduced the costs of transfer from one surface mode to another. In any land-bridge movement the lowest cost of land transport has always been and s t i l l i s , r a i l transport, e s p e c i a l l y i n unit t r a i n s . Since the advent of increased aircr-aft capacity and a i r c o n t a i n e r i z a t i o n , the 98. t r a d i t i o n a l land-bridge concept i s faced with a problem, v i z : "... the p o s s i b i l i t y of an attack on the land-bridge concept by the growing capabi-l i t i e s of a i r cargo... What this means (speed, c a p a b i l i t y , capacity of the a i r c r a f t ) i s a subtraction of some container volume ( p a r t i c u l a r l y of high value commodities) from surface routes and.therefore, a diminution of available cargo." 11 Therefore, a i r f r e i g h t may represent a threat to surface f r e i g h t f o r high value commodity shipments. To a large extent, surface movement could be l e f t with bulky and low-value contai-nerized commodities, which i s . f a r from being the case at the moment. However, a combination of the two modes of transport - sea and a i r - from Japan to Europe has been successfully i n i t i a t e d on a l i m i t e d scale. Commodities were being shipped by sea from Japan to Vancouver and thence by a i r to d i f f e r e n t destinations i n Europe, Canada being used as an ". a i r bridge Costs for the combined use of the two modes of transport, sea - a i r route, are approximately h a l f of a l l a i r costs but s t i l l higher than a l l - s e a costs. However, the delivery time from Japan to Europe has been reduced to 23 days, a saving of more than three weeks on the t r a d i t i o n a l land-bridge, for which few commodities 12 w i l l pay a higher premium rate. I f the predicted trend i s r e a l i z e d , by the mid-1970's large s i z e a i r f r e i g h t e r s with i n t e r n a t i o n a l c a p a b i l i t y w i l l . b e operating at minimal cost, and a f a r greater amount and variety of commodities from the sea container market w i l l be e l i g i b l e f o r a i r f r e i g h t . Containerized f r e i g h t may enable a i r c a r r i e r s to provide shippers with a more complete personalized service than i s presently offered by a i r f r e i g h t . The cargo sales Director of A i r Canada, Mr, Hugh<Johnston sees the future development of a i r cargo as a part of an integra-ted transport system and "... not only f l y i n g b.etween two points, but i n the sense that, " We must reach the stage whereby each * transport system has i t s own p a r t i c u l a r r o l e . " The containerization concept seems to be a c a t a l y s t i n the development of an integrated transport system. Already, sea and r a i l c a r r i e r s are considered as complementary rather than as competing modes, each having i t s own service to o f f e r . I t i s also apparent that containerization presents a considerable opportunity of f a c i l i t a t i n g the movement of goods to the Canadian North. However/ before a, completely integrated a i r / s u r f a c e transport system can be achieved, the use of inter-modal containers w i l l promote p o s i t i v e competition and closer co-ordination between a i r and surface 'transport. Hopefully, the containerization concept and the advantages th i s e n t a i l s , w i l l ultimately r e s u l t i n reduced costs and improved customer service. 100. FOOTNOTES CHAPTER IV 1. Reynolds Metal Company, Department of Research ; An Economic Study of Containerization and Its Market, 1961, p, 1. 2. Price varies according to the dimensions, the material used for the f a b r i c a t i o n and the density of the container. 3. Reynolds Metal Company, Op. C i t . , pp. 49, 70. 4. Information supplied by C P . A i r and Northwest Orient A i r l i n e s , February 19 73. 5. Reynolds Metal Company, Op. C i t . , p. 6 . 6. Containerized A i r Freight, B u l l e t i n , Lockheed-Georgia Company, Marrietta, Georgia, 1969. 7. Ibid.. 8. Immer, John, R. ,' Container Services of the A t l a n t i c , L o g i s t i c s of A i r Cargo, Work Saving International Management Consultant, Washington, D.C, 1970.. 9. U.S. Airborne Trade 196 7- 19 71, Lockheed-Georgia Company Marrietta, Georgia, March 19 72. 10. Ibid, p. 4 . 11. Mann, Mr., Chairman of the National Harbours Board of Canada, Journal of Commerce, New York, N.Y., May 1968. 12. Interview with Japan A i r l i n e s , Cargo Supervisor, February 1972. CHAPTER V CONCLUSIONS AND RECOMMENDATIONS This study has attempted to evaluate what changes could be i n i t i a t e d whereby a i r f r e i g h t volume would increase as a r e s u l t of the app l i c a t i o n of the Total D i s t r i b u t i o n Cost Concept. As stated previously, B.C. trade i s oriented i n both volume and value, more towards exports (raw material) than imports (manufactured products). Unbalanced t r a f f i c of commodities both within .B.C. and on the t r a n s - P a c i f i c routes increases the cost of service by r e s t r a i n i n g a i r c a r r i e r s from further developing a i r f r e i g h t service. But, as most shipments at the moment t r a v e l on passenger a i r c r a f t , the cost of a i r f r e i g h t service could conceivably be reduced i f a i r c a r r i e r s r e f r a i n from a l l o c a t i n g a large portion of the d i r e c t costs (already charged to passenger service) to variable costs incurred by f r e i g h t service. However, under the present conditions, any rate decrease designed to increase volume of f r e i g h t would not s u b s t a n t i a l l y increase demand for a i r transport, unless the rate reduction were i n the order of 60%. Moreover, the expansion of containerization by a i r c a r r i e r s w i l l widen both the range and the volume of • 102. commodities compatible with both a i r and surface transportation, since a i r and surface modes w i l l become i n the near future complementary to each other, i n respect of a major portion of f r e i g h t t r a f f i c . The conclusions reached i n this study show that : - Given the present high rates for a i r f r e i g h t , advantages and cost savings derived from the use of a i r f r e i g h t do not appear to o f f s e t i t s high transportation charges. - A i r f r e i g h t rate reductions may not necessarily r e s u l t i n increased f r e i g h t volume, unless p o t e n t i a l demand can be further exploited by user-education.-- Demand for a i r f r e i g h t i s u n l i k e l y to increase dramatically i n the near future within B.C. and on the t r a n s - P a c i f i c routes. This not to deny any p o t e n t i a l growth i n the demand for a i r f r e i g h t : but i t seems evident that such growth w i l l emerge from a better balanced east-west t r a f f i c and from further expansion of secondary industry which can carry high f r e i g h t charges for the sake of operating at maximum e f f i c i e n c y . - F i n a l l y , the introduction of the Jumbo j e t r improved cooperation and increased coordination from surface c a r r i e r s , widespread containerization and the f u l l a p p l i c a t i o n of the t o t a l cost concept to the d i s t r i b u t i o n function, would a l l appear to be s i g n i f i c a n t factors i n hastening the acceptance of a i r f r e i g h t as an e f f i c i e n t and regular mode of transportation. 104 BIBLIOGRAPHY BOOKS Brewer, Stanley, H., A i r Cargo Comes to Age. Graduate School of Business Administration, University of Washington, 1966. Brewer, Stanley, H., The Nature of A i r Cargo Costs. Graduate School of Business Administration, University of Washington 1967. Brewer, Stanley, H., Kast, Fremont, E., and Rosenzweig, James, E Europe - Asia Market for A i r Freight. College of Business Administration, University of Washington, 1963. Brewer, Stanley, H.., and Rosenzweig, James, E., The Domestic Environment of the A i r Cargo Industry. Graduate School of Business Administration, University of Washington, 1967. Conoley, Ken, A i r l i n e s , Airports and You. Don M i l l s , Ont., Longmans, Canada, 196 8. Friendlanender, Ann, F., The Dilemna of Freight Transport  Regulations, Washington, Brookings I n s t i t u t i o n , 1969 Groenewege, A.D., and Heitmeyer, R., A i r Freight Key to Greater  P r o f i t s , England, Aerad Printers and Publishers, 1968. Grumbridge, Jack, L., Marketing Management i n A i r Transport, London, A l l e n and Urvin, 19 66. Lewis, Howard, T., and C u l l i t o n , James, W., The Role of A i r  Freight i n Physical D i s t r i b u t i o n . D i v i s i o n of Research, Graduate School of Business Administration, Harvard University, Boston, 1956. Schriever, Bernard, A., and S e i f e r t William W., A i r Transporta- ti o n 19 75 and Beyond. M.I.T, Press, 1968. 105. PERIODICALS, UNPUBLISHED PAPERS, JOURNALS A i r Canada, Total D i s t r i b u t i o n Concept, Montreal 1970. A i r Cargo from A to Z, A i r Transport Association of America, Washington, D.C., May 1971. Blanding Warren, P r o f i t s Opportunities in. Physical D i s t r i b u t i o n Report prepared for United A i r l i n e s , December 1965.. Brewer, Stanley, H., Rosenzweig James, E., and Warren, James, B. " B.C.'s Need fo r a United Regional A i r Transportation System " Vancouver, B.C., November 1965. Container, P a l l e t and other u n i t i z e d methods for the i n t e r -modal movement of f r e i g h t in ST/ECA/120. United Nations, . 1970. Gorham, James, E., " How to Identify P o t e n t i a l A i r Freight ", a study prepared for Emery A i r Freight Corporation, Southern C a l i f o r n i a Laboratories of Stanford Resarch I n s t i t u t e , South Pasadena, C a l i f . , 1963. Harris, Ralph, " The Economic E f f i c i e n c y of Regional A i r C a r r i e r i n the National Transportation System " Department of Economics Research, Ministry of Transport, Ottawa, Report #3, January 1969. Immer, John, R. , " Container Services of the A t l a n t i c " Work Saving Management Consultant, Washington, D.C., 1970. International Forum for. A i r Cargo, Society of Automotive Engineer, New York, 1968. Mc K i n n e l l , Henry, A., " An Econometric Analysis of U.S. A i r Freight Market ", Ph.D. Thesis, Graduate School of Business Administration, Stanford University, December.1968.. Sampson, Roy, J . , and F a r r i s , Martin, T., " Domestic Transpor-ta t i o n ", Boston, Maughton M i f f i n , 1971. Sealy, K. R. and Henderon, P.C., " A i r Freight and Anglo-Eiiropean Trade ", a paper prepared f o r S i r W. G. Armstrong, Witworth A i r c r a f t Ltd, 1961. Sletmofor, G. K., " A i r Marketing, a New A l t e r n a t i v e i n Physical D i s t r i b u t i o n ", prepared for Scandinavian System A i r l i n e s , Norway, 1970. S t o l l e , John, F., " How to Manage Physical D i s t r i b u t i o n ", Harvard Business Review, 45 July 67, 93-100. 106 Studnicki - Gizbert, K.W., " The Regional A i r C a r r i e r s ' Problems ", York University, for A i r Transport Board. Queen's P r i n t e r , Ottawa, 1966. The Journal of Commerce, Library of Containerization, Book I I , Volume IV, various a r t i c l e s . New York, May and December 1966. GOVERNMENT PUBLICATIONS • B r i t i s h Columbia.. Department of Commercial Transport., Annual Transport Report, V i c t o r i a , B.C., 1960 to 1965. B r i t i s h Columbia. Department of Finance., F i n a n c i a l and  Economic Review, V i c t o r i a , B.C., 1966 to 1971. B r i t i s h Columbia. Department of I n d u s t r i a l Development, Trade and Commerce. Economics and S t a t i s t i c s Branch., B.C. Economic A c t i v i t y , V i c t o r i a , B.C., 1962 to 1970. ., B.C. Economic Outlook Conference Report, V i c t o r i a , B.C., 1970. ., B.C. Facts and S t a s t i t i c s , V i c t o r i a , B.C. 1965 to 1970. ., Manual'of Resources and Development, V i c t o r i a , B.C., 19 70 . ., Summary of the Economic A c t i v i t y i n B.C., V i c t o r i a , B.C., 1965 to 1970. "v. T r a d e i n the 70' s Through B.C. Custom Ports, V i c t o r i a , B.C. , .1970. Government of Japan : Foreign Trade of Japan, Japan External Trade Organization, Tokyo, 19 70. 107. PERSONAL INTERVIEWS Mr. A. G. Crone, Canadian P a c i f i c Cargo O p e r a t i o n s Vancouver, B.C. - November 19 72. Mr. R.C. Jameson, D a v i d s o n B r o s . S e r v i c e s L t d , Vancouver., B.C. - March 1972. Mr. P. L o s s , G e n e r a l S a l e s Manager, Vancouver Fancy Sausage, Vancouver, B.C. - J a n u a r y 19 72. Mr. W. Moore, T r a f f i c S u p e r v i s o r , T. E a t o n Co., Burnaby, November 19 72. Mr. A . J . M o u l , V i c e - P r e s i d e n t Cargo, P a c i f i c Western A i r l i n e s , V ancouver, B.C. - December 1971. Mr. M. Osborne, Emery A i r F r e i g h t , Vancouver A i r p o r t , V ancouver, B.C. - December 19 71. Mr. J . R o b i n s , V i c e - P r e s i d e n t C o r p o r a t e - p l a n n i n g , P a c i f i c Western A i r l i n e s , V a n c ouver, B.C. - F e b r u a r y 19 72. Mr. L. S t e n s o n , S t a t i s t i c s O f f i c e r , Canada S t a t i s t i c s , Vancouver B r a n c h , Vancouver B.C. - December 19 71. Mr. D.N. Watson, P r e s i d e n t , P a c i f i c Western A i r l i n e s , V ancouver, B.C. - March 1972. Mr. M. W h i t e l a w , D i s t r i b u t i o n Manager, S i m p s o n s - S e a r s , Burnaby, B.C. - F e b r u a r y 19 72. Mr. J . Young, O p e r a t i o n s O f f i c e r , P.G..E., Vancouver, B.C. - F e b r u a r y 1972. 108. ' APPENDIX A THE STANFORD RESEARCH INSTITUTE METHOD  ON "HOW TO IDENTIFY POTENTIAL USES OF AIR FREIGHT" The objective of t h i s study-'- has been to i d e n t i f y the various c h a r a c t e r i s t i c s (those r e l a t i n g to the commodity i t s e l f , i t s market, i t s production and d i s t r i b u t i o n c h a r a c t e r i s t i c s ) which may influence a company i n a given s i t u a t i o n to make the most advantageous use of a i r f r e i g h t . The Stanford method would also provide a company with r e l i a b l e information whether as to a d e t a i l e d d i s t r i b u t i o n cost analysis as compared to surface mode i s j u s t i f i e d . The research procedures used i n the composition of the f i n a l questionnaire were arrived at by means of a series of interviews with a i r c a r r i e r s , a i r shippers (even occasional users) and f r e i g h t forwarders. The research team was then able to draw, up a c l a s s i f i c a t i o n of a i r f r e i g h t usage by reason for use and type of s i t u a t i o n (Table A . l ) . Table A.2 c l a s s i f i e s the c h a r a c t e r i s t i c s of commodity production, market mode. Table A,2 also i l l u s t r a t e s the required combination of c h a r a c t e r i s t i c s a shipper must show fo r advanta-geous use of a i r -freight. Each column represents a type of s i t u a t i o n i d e n t i f i e d i n Table A . l ; under each type of 109. s i t u a t i o n are the l e t t e r s R, A, B, M, which indicate : - R : required c h a r a c t e r i s t i c (which must be present i f a i r f r e i g h t i n t h i s p a r t i c u l a r s i t u a t i o n i s to be used advantageously). - A & B : a l t e r n a t i v e c h a r a c t e r i s t i c within a given group (at l e a s t one of each i s • required) . - M : makeweight c h a r a c t e r i s t i c (this might constitute a s i g n i f i c a n t factor i n a given s i t u a t i o n , but i t i s not required). Procedures followed i n administering the questionnaire The questionnaire as d e t a i l e d i n Table A.2 was adminis-tred to each interviewee. The l e t t e r s R, A, B and M, appearing i n front of each question answered by yes, are c i r c l e d . Then, by reading down each column i t i s possible to check that a l l the required c h a r a c t e r i s t i c s f o r a s a t i s f a c t o r y use of a i r i n a given s i t u a t i o n are included. In the company s i t u a t i o n column, a l l the R's, and at l e a s t one A and one B must be c i r c l e d i f a given company i s to be n e f i t by the use of a i r f r e i g h t . I f more than one A and B are c i r c l e d , this w i l l increase the p r o b a b i l i t y that the company i n t h i s p a r t i c u l a r type of s i t u a t i o n can b e n e f i t by using a i r f r e i g h t rather than surface modes of transport. 1. Gbrham, James, E,, " How to Identify P o t e n t i a l A i r Freight ", a study prepared fo r Emery A i r Freight Corporation, Southern C a l i f o r n i a Laboratories of Stanford Research I n s t i t u t e , South Pasadena, C a l i f o r n i a , 1963. ' TABLE' A . l CLASSIFICATION OP AIR FREIGHT USAGE BY REASON FOR USE AND TYPE OP SITUATION Ceatral Uaa Q u a Us* af spaed *• rcdwca lie* U trenail Use af apero" to reduce cost* of holditiir goods la inventory while eeio-lainiag or improving service Specific Use aaaa (reason) INCRCASE SALES OR IMPROVE SERV-ICE IN TIME-LIMITED SITUATIONS INCREASE UTILIZATION OF PRODUCTION FACILITIES AND EOUtPMCNT REDUCE COMPANY OR CUSTOMER INVEST-MENT IN GOODS IN TRANSIT A.4. MEET UNPREDICTABLE DEMANDS AND EMERGENCIES REDUCE INVENTORY INVESTMENT REDUCE RISK OF INVENTORY LOSS OR OBSOLESCENCE REDUCE INVESTMENT AND OPERATtNG EXPENSES ASSOCIATED WITH INVEN-TORY FACILITIES AND SERVICES REDUCE COSTS INCURRED BY HAVING JOBBERS OR WHOLESALERS PERFORM INVENTORY FUNCTION REDUCE RISK OF HAVING COMMODITIES LOST, STOLEN. DAMAGED, OR SPOILED IN TRANSIT Uat of air freight because • f suprrlar conditions of carriage REDUCE COSTS AND TIME OVER WHICH PROVISIONS FOR PRESERVING OR PROTECTING GOODS IN TRANSIT ARE REQUIREO ENHANCE CONTROL OR MANAGEMENT OF GOODS IN TRANSIT REDUCE DUTIES IN INTERNATIONAL MOVEMENTS EXPEDITE HANDLING OF SMALL LOTS S i t u a t i o n Typa A . l . Demand l a t l m o - l l m l t u d : a. In a market f o r time- o r s t y l e - d a t e d eomnoditlea b. In a premium-price market e. In a seasonal or h o l i d a y market Karkot f o r p c r i s h a b l n commodities can be extended: d. In time o. G e o g r a p h i c a l l y A.2. U t i l i z a t i o n can ba Increased f o r : a. A production u n i t by reducing tlmo l o s t w h i l e w a i t i n g f o r parts o r m a t e r i a l s b. A f i x e d f a c i l i t y by extending supply or market area c. A mobile production f a c i l i t y or equipment by reducing time spent i n moving between Job* A.3. Tho company d e s i r e s to speed up investment turnover l n commodities which can be used as soon as r e c e l v o d A.4. Any s i t u a t i o n l n which a i r f r e i g h t w i l l moot a c r i t i c a l requirement f o r the s h o r t e s t posslblw t r a n s i t time Inventory i s used s p e c i f i c a l l y to s e r v l c o production and sa l e s requirements because demand i s u n p r e d i c t a b l e as to time, l o c a t i o n , o r v a r i e t y :  B.2. inventory used to s e r v l c o production and sa l e s Is p h y s i c a l l y , t e c h n o l o g i c a l l y , or s t y l o perishable and domnm.- Is u n p r e d i c t a b l e B.3. Reduction o r e l i m i n a t i o n of inventory w i l l permit reducing: s. S i z e or completely e l i m i n a t i n g an Inventory f a c i l i t y at one or more l o c a t i o n s b. Inventory s e r v i c i n g c o s t s even without reducing warehouse f a c i l i t i e s U.S. c. Inventory can be c e n t r a l i z e d to permit a r e d u c t i o n i n t o t a l f a c i l i t i e s and s e r v i c i n g costs evon without reducing t o t a l i n v entory 0.4. A company's procurement or d i s t r i b u t i o n processes w i l l permit bypassing Jobbers or wholesalers C . l . A l t e r n a t i v e means u l transport have: s. A high Incidence of s t o l e n or l o s t commodities b. A high rate of p h y s i c a l damage c, A high incidence of s p o i l e d or d e t e r i o r a t e d commodities C.2. A l t e r n a t i v e means of transport Incur: C o s t l y guarding a g a l n s i t h e f t or dlsappeorance Heavier or more c o s t l y packaging C o s t l y environmental c o n t r o l S p e c i a l servlcet. or s p e c i a l handling Higher Insurance c o s t s C.3. E x p e d i t i n g through movements by a l t e r n a t i v e means of transport c h a r a c t e r i s t i c a l l y r e q u i r e s premium h a n d l i n g and g r e a t e r d i f -f i c u l t y l n c o o r d i n a t i o n and documentation C-4. Duty Is assessed on a gross weight b a s i s , which by d e f i n i t i o n i n c l u d e s packaging C S . a. Departure or a r r i v a l tlmoB or the route connections r e q u i r e d by a l t e r n a t i v e forms of tronsport aro not convenient or p r e d i c t a b l e b. Volume to be moved Is s u f f i c i e n t to take advantage of rato breaks o f f e r e d by a i r c a r r i e r s but not s u f f i c i e n t to take advantage ' of rat e breaks o f f e r e d by other forms of t r a n s p o r t Source: S t a n f o r d Research I n s t i t u t e . Gorham> James, E., "How to Identify Potential Uses of A i r Freight"_ (a paper prepared f o r Emery A i r Freight Corporation, Wilton Connecticut by Souther C a l i f o r n i a Laboratories of Stanford Research I n s t i t u t e , 1963) p. 9. TABLE A.2 1. t 0 t H O R — Requirement A — Alternate requirement (first group) B — Alternate requirement (second group) M — Makeweight factor C L A S S OF USE AND S ITUATION T Y P E A. Use of Speed to Reduce Time in Transit . B, Use of Speed to Reduce Cost* oi Holdioa Ooo.li ia lavcaicxr *hilr MaiDlaiaiBS ot Inrvotna Servare. C. Use of Air Freight Because of Supetior Conditions ca* Carriage. CHARACTERISTICS I 2 J 4 1 2 J 4 1 2 - 4 5 a b c d e .i b c c i b t a b C d e • b 1. Does commodn) have a short uselul or sales life because: £ a. Ii is physically p e m h a M e and its uselul life may be further ~i shortened by adverse conditions of cartiaRe* Si M M \ R A R R Si M M Si 1 b. c . d. S b. l is rare of deterioration is such that transportation lime can * limit its sales volume* M R R A M M •I c. It is subject to rapid style or technological obsolescence' A M M A M A 0 d. It must be available at a particular location by a particular date or used within a specified time* A M M A 1. Is commodity valuable relative to its weight* A R R M W M M 2. ). Is commodity purchased or sold in a variety of s i tes , colors, or styles within commodity l ine* M M M M J . 4. Are storage ot handling requirements costly because storage of commodity require* special costs (or servicing or protection? M M Si R M M 4. Does prohibitive expense, perishability, obaolrscencr, variety o( l ine, or high value make it unfeasible to store commodity? M M M M M M M M Si 3. B A A A A M M A B A A A A 6. b. e. t 6. Is demand for commodity unpredictable in the short-run with K respect to: p t - - Beginning or termination date* |jJJ b. Specific geographic locations at specif ic l imes' n A A A A M M A B A A A A fe» c . Particular s u e s or styles within l ines, either in total or at 3 specific locations or times? 8 A A A A M M A B A A A A 7. Are there known seasonal variations in the quantity, type, or geographic locations of demand for this commodity? H R M M M M M 7. 6. Is the demand infrequent? M M \\ \i \\ 8. 9. Is the demand at the point of use or sale urgent because: a. The volume that will be sold or used can be increased by increasing the supply available for a limited period of time? R R R M St Si M Si 9. a. b. c. d. e. b. Premium prices are available (or a limited period of time? R >• The production volume of a company or its customers can be X increased by (educing time lost while wait ing for this *i commodity. R at d . The productivity of the commodity (mobile productive unit) can 3 be increased and investment requirements reduced by reducing time spent moving between jobs? R e. Investment turnover of commodities used as soon as received can be speeded up ior a company ot its customers by reducing time in transport • R 10. Ate there emergency or completely unexpected and seldom occurring demands for (his commodity? R 10. 11. Are there limitations on timely availability of this commodity or J it* components to meet market or supply requirements because: •JO * . Its production is seasonal? B A A A M M M Si M M 11. a. b. c. wjj b. It is produced to order? B A A A M M M M St M jjj c . The supply or the capacity to produce it within a given area 3 is limited? B A A A A M M M M M M R R R R R R R R R R R R R R R R R R R R R R R R R R R R 12. 12. Docs or can your company control or influence the choice of transportation media? (Between rail , truck, water or air) 13. *ou ld a shift to air transportation reduce total elapsed time in transportation? R R R R R R R R R R R R R R R R M M Si M M M M R 13. 14. Dnet transportation of commodity by alternative forms of transport characteristically esceed 24 hours? Si Si M Si M Si M M St M M M M M St M M s\ M M M Si M M 14. j l . ' i s cc-mmodity supplied from oi marketed overseas or internationally? M Si M M Si M M M M M M M M M M M M M M M \\ M M Si R M 1% 16. Ate (chedules or route connections offered by alternative forms of transportation less than satisfactory? M R 16. 17. 17. Docs transportation time required to reach some supply or market areas by alternative forms of transportation limit production or sales volume? M M M M R M R 18. Do you produce or distribute from more than one location? M R M R 18. 19. Is the commodity moved between dispersed company facil i t ies in various stages of production or distribution? Si R 1? 20. Does use of alternative forms of transportation result in a high incidence off a. Lost or stolen commodities? R A 20. a. b. e, b. Physical damage or breakage? R A c. Spoiled ot deteriorated commodities? M R A 21. Docs use of alternative forms of transportation incur high costs for m. Guarding against theft or disappearance? R M 21. a. b. c. d. b. Heavy or special packaging? R M R c . Environmental control, such as temperature ot humidity regulation? M R d. Special services or handling, such as feeding? R M 22. Docs use of alternative forms of transportation incur eireptional management or transportation costs in eipediting through move-ments because of premium handling rates ot difficulty in cootdinatioo or documentation? R 22. 23. Does your company ship or receive commodities in international trade on which duties are assessed on a gross weight basis? R 23. 24. Do typical shipment sizes permit taking advantage of rate breaks offered by air carriers hut not rate breaks offered by alternative forms of transportation? R 24. 25, Docs your company maintain supply or distribution inventories? R R R R R 26. Are inventories maintained so that commodities arc available when and where needed? R R R R R R 26. 27, If air transportation can make commodities available when and where needed, will a reduction or elimination of inventory be feasible? R R R R R 27. 28. Is the supply inventory maiotained at the point of use? or. Are distribution inventories maintained at dispersed locations? R R R R R 28. 29. » i i l reduction or elimination of roial inventory permit reducing the size or completely eliminating an inventory facility? M M R 29. Jl*. • ' i l l reduction or elimination of inventory at any location permit reduction in inventory servicing costs even without reducing warehousing? M M R 30. 31. l i t ] centralizing the inventory function, even without proportionate reduction in total inventory, permit reduction in lot al warehousing and service eipence? H 31. 32, f i l l use of air frrigbi to reduce need lor inventory permit bypassing wholesalers or jobbers? R 32. S O U . C C : STANFORD RCSEAftCH INSTITUTE. COMBINATIONS OF CHARACTERISTICS REQUIRED FOR SPECIFIC TYPES OF SITUATIONS Source : Ibid., Gorham, p. 10. 112. APPENDIX B PRACTICAL APPLICATION OF THE STANFORD METHOD  IN IDENTIFICATION OF POTENTIAL USE OF AIR FREIGHT The questionnaire was administered on an experimental basis on two B.C. based companies. The results were interpreted as r e f l e c t i n g the actual current s i t u a t i o n with respect to d i s t r i b u t i o n problems. The f i r s t interviewee was Simpsons-Sears Department Store which uses a i r f r e i g h t on an occasional basis only. The second interviewee, Vancouver Fancy Sausage, was chosen since a i r i s the sole mode of transport used for the d i s t r i b u t i o n of i t s products. Simpsons-Sears ^ As can be seen i n the completed questionnaire (Tables B . l and B.2), the s i t u a t i o n i n which a i r f r e i g h t could be used to the best advantage are : A4, B2, B3, B4, C2a, C2b, C2e and C4 (these categories are found In Table B.l) The type of commodity selected f o r the purpose of the interview was clo t h i n g . Simpsons-Sears used a i r f r e i g h t on an emergency basis only i n s i t u a t i o n A4 (-unpredictable demand and 113 . emergencies) or i n s i t u a t i o n B2 (reduced r i s k of inventory loss through, unpredictable, demand ) , s i t u a t i o n B3c and B4 ( c e n t r a l i -zed inventory) require a complete transformation of the to t a l , d i s t r i b u t i o n system presently i n use. Situations C2a (higher disappearance r a t e ) , C2b and C2e ( c o s t l i e r packaging and higher insurance) were a r e f l e c t i o n .of the present state of the problems inherent i n the d i s t r i b u t i o n system. However, i t i s i n t e r e s t i n g to note that such important questions i n Table B.2 as no.2 (high-value commodity r e l a t i v e to weight) or no.9 (urgency of demand at the point of use or sale) were answered i n the negative. These responses suggest, that Simpsons-Sears does not present s u f f i c i e n t p o t e n t i a l for a i r f r e i g h t services. I t was l a t e r explained that, although the advantages of a i r f r e i g h t were evident , this mode of transport was too expensive for the type of commodity sold and the type of market served by a depart-ment store. Moreover, i f use of a i r f r e i g h t i s to be regarded as a regular mode of transport, the f i r s t step to take w i l l be to reorganize and adapt the present surface d i s t r i b u t i o n system to an airborne system. 2 Vancouver Fancy Sausage This i s the leading company i n the west i n the production of smoked meats and sausages of a l l kinds. The company's customers include small r e t a i l e r s (delicatessen stores) and grocery chain stores across Canada : Safeway, Super-Valu, Dominion, Steinberg's, Shop-Easy. SIMPSONS-SEARS TABLE B.1 CLASSIFICATION OF AIR FREIGHT USAGE EY REASON FOR USE AND TYPE OF SITUATION Ceaaral Use Qasa Specific Use Clasa (reaaea) S i t a e t l o a Type INCREASE SALES Oft IMPROVE SERV-ICE IN TIME-LIMITED SITUATIONS A. UM ef speed lo redact U M ia traasit A.i. Dastnd is tlne-llaitodi a. In a market for tine- or style-dated commodities b. In a premium-price market In a aeaaonal or holiday market Market for perishable commodities can be extended: d. In time , e. Geographically INCREASE UTILIZATION OF PRODUCTION FACILITIES AND EQUIPMENT A.3. Utilization can be Increased for: a. A production unit by reducing time lost while waiting for parts or materials b, A fixed facility by extending supply or market area o. A mobile production facility or equipment by roduclng time spent in moving between Jobs REDUCE COMPANY OR CUSTOMER INVEST-MENT IN GOODS IN TRANSIT A.3. The company desires to speed up investment turnover ln commodities which can be used aa soon as received MEET UNPREDICTABLE DEMANDS AND EMERGENClES T3 A.4J Any situation in which air freight will moot a critical requirement for the shortest possible transit time REDUCE INVENTORY INVESTMENT D.l. Inventory is used specifically to service production and sales requirements because demand Is unpredictable as to time, location, or variety , B. Use ef speed te red wee costs ef holding goods ta ievratory while mala-lainiog or improving service REDUCE RISK OF INVENTORY LOSS OR OBSOLESCENCE B.2. Inventory used to sorvice production and sales Is physically, technologically, or atyle porishsblo and demand is unpredictable REDUCE INVESTMENT AND OPERATING EXPENSES ASSOCIATED WITH INVEN-TORY FACILITIES AND SERVICES B.3. Reduction or elimination of inventory will permit reducing: a. Size or completely eliminating an Inventory facility at one or more locations b. Inventory servicing costs oven without roducing warehouse facilities f^uTs, ~C^ ) Inventory can be centralized to permit » reduction in total facilities and servicing costs even without reducing total inventory REDUCE COSTS INCURRED BY HAVING JOBBERS OR WHOLESALERS PERFORM INVENTORY FUNCTION ~J -^| A company'it procurement or distribution processes will permit bypassing Jobbers or wholesalers REDUCE RISK OF HAVING COMMODITIES LOST, STOLEN, DAMAGED, OR SPOILED IN TRANSIT C.l. Alternative means of transport have: a. A high incidence of stolen or lost commodities b. A high rate of physical damage c. A high incidence of spoiled or deteriorated commodities C.2. REDUCE COSTS AND TIME OVER WHICH PROVISIONS FOR PRESERVING OR PROTECTING GOODS IN TRANSIT ARE REQUIRED C. Uae of sir freight because of superior coeditiens of carriage C.2. Alternative means of transport Incur: a. Costly guarding against theft or disappearance f^b) Heavier or more costly packaging c. Costly environmental control d. Special service* or special handling fc\ Higher insurance costs C.3. ENHANCE CONTROL OR MANAGEMENT OF GOODS IN TRANSIT Expediting through movements by alternative means of transport characteristically requires premium handling and greater dif-ficulty ln coordination and documentation C.4. REDUCE DUTIES IN INTERNATIONAL MOVEMENTS Duty Is assessed on a gross weight basis, which by definition includes packaging C.5. EXPEDITE HANOI.ING OF SMALL LOTS s. Departure or arrival times or the route connections roqulred by alternative forms of transport are not convenient or , predictable b. Volume to be moved is sufficient to take advantage of rate breaks offered by air carriers but not sufficient to take advantage of rate breaks offered by other forma of transport  Source: Stanford Research Institute. SIMPSONS-SEARS TABLE B.2 COMMODITY CLOTHING 115. January 19 72 l t O C H O R — Requirement A — Alternate requirement ( ( int croup) B - Alternate requirement (second iroop) M — Makeweight factor i f yes CHARACTERISTICS \S C L A S S Of USE AND SITUATION T Y P E Use of Speed to Reduce Time in Transit . i. c l.i e ble alb r c d l-V \ b L, Doe» cwnmodiir have a short useful or sales tile because: • a. a . It is physically F«nihi t>!e and its useful life may be lurcher j shortened bv aj ierse conditions of c u r i a e ' M R A A R R S M M 1 e b. It* race oi deterioration ii m c h <hat transportation time can J limit it* a* !e* volu-n"' M K R R S b. S c . It it tubiect ro rip,d *tvle or teehnolneira 1 obsole scene* » f ' * !v A A c . d. £ d . It mu*t be avatlaale at a particular location by a pjrticular date or u»ec wirhin a *r>eciiir.* tt:-e' A M *. A 2. Is commodity valuable relative to it* wcicht? A rt R .«. •I r M M M 2. J . la commodity purchased or told in a variety of s izes, colors, * O* styles within commodity line? V / M M N - M '•) v 4. Are. storage or handling requirements costly because storage of commodity require* special costs for servirin*. or protection? M *, M R M M 4. U o e ' prohibitive t i f t n i t , perishability, obsolescence, variety of line, or high value n i i c it unfeasible to store crMTtmodiiv? M Iv V M M M VI M 5. i m a a w a a N g w t M : r.»; • i ^ n • • . s a u u a tt>: r. v. r.u. i a: i c i i r. ^ - g ^ ^ f ^ < 6. It demand for commodity unpredictable in (he short-(uo with t- respect to: • — 1- a. Beginning or termination date* B A A A A M M A B A A A A 6. .. b. c . J U J b. Specific itroeraphic l o c « ; i o n * at specific times? \y' R A A A A M M A B A A A A \ c " P » ' « e « l * r s u e s or styles within l ines, either in total or at S apecific location* o« tiroes? \,*"* B A A - A A M M A B A A A A I 7. Ate there known seasonal variation* io the quantify, type, or geographic location* of demand for this commodity? V * /* M R - - - ~ - - M M M M tl 7. 8. Ia the demand infrequent? - ~- - _. M y, ki! ir 8. 9. I« the demand at the point of use or sale argent because: a . The volume that will be told or used can be increased by iocicasing the supply available for a limited period of lime? P P \\ M M 9. m. b. c. d. b. Premium prices are available fo: a limited period of time? P. >j c . The production volume of a company or its customers can be X increased by reducing time lost while w i r i n g for this M commodity. R at d . The productivity of the commodity (mobile productive unit) can 3 be increased and investment requirements reduced by reducing lime tpen; moving between jobs? R e. Investment turnover of commodities used as soon as received can be speeded up for a company ot its customers by reducing lime in transport? R 10. Are (here emergency ot completely uneipccted and seldom ^ occurring demands for this commodity? \.S f R 10. 11. Are there limitations on timely availability of this commodity or J eoroponents to meet market or supply requirements because: ^ O a. Its production is seasonal? n A A A M M M Si M M 11. b. e. J - - I b. It it produced to order? ^ * B A A A M M M M M M > M 3 c - l f t e *»p?ly ° * the capacity to produce it within a given area 3 limited? v . j B A A A A - M M M M S! M R R R R R R R R R R R R R R R P. R R R R R R R R R R R it) 12. 12. D o e i or can your company control or influence the choice of transportation media? (Between rail , truck, water or air) V / * 13. w*ould a shift to air transportation reduce total elapsed time io transportation? yy' R R R R R R R R R R R R R R R R M ^t V M M M - R r ' n . 14. Docs transportation of commodity by alternative forms of transport characteristically e iceed 24 hours? * / M M \ ! M M M M M M M M M M M M M M M M - M M M y \ 14. 15. Is commodity supplied from or msrketed overseas or internationally J t,« M V M M M M M S( M M M M M M M M M M K M / IV 16. Axe schedules or iwute connections offered by alternative forms " of transportation less than satisfactory? ** ~ - - M R 16. IT. Does transportation time required to reach some supply or market areas by alternative forms of transportation limit production or sales volume? *. y M M M R M R S 17. 18. Do yoo produce or distribute from more than one location? \^»* —. V R." M R > IS. 1?. Ia the commodity moved between dispersed company facil i t ies ia various stages of production or distribution? / M R M 1 — 1? 20. Does use of alternative forms of transportation result in a high incidence of? a. Lost or stolen commodities? . R A 20. b. 9 r b. Physical damage or breakage? < R A e. Spoiled or deteriorated commodities? R A 2L, Does use of alternative forms of transport a tion incur high costs for a. Guarding against theft or disappearance? R " - M 21. a. b. e. d. b. Heavy or special packaging? v R M R ) C. Environmental control, such as temperature or humidity regulation? M R M d. Special services or handling, such as feeding* R M 22. Does use of alternative forms of transportation incur eiceptiona] management or transportation costs in eipedicing through move-ments because of premium handling rates or difficulty in coordination or documentation? R !2 . 2}. Does your company ship or receive commodities ia international , trade on which duties are assessed or. a gross weight b a s i s ? V \ R ) 2>. 24. Do typical shipment sizes permit taking advantage of rate breaks offcied by ait carriers but not rate breaks offered by alternative forms of transportation? R 24. 23. Does your company maintain supply or distribution inventories? / R R R R 25: 26. Are inventories maintained so that commodities ate available . when and wheie needed? \S I R R K R R K 1 26. 27. If air transport at IOO can make commodities available when and where needed, will a reduction or elimination of inventory be feasible? ^ / { R R R R -R ) 27. 28. Ia the supply inventory maintained at the point of use* or. Are distribution inventories maintained at dispersed locations? \S \ R R R R R 28. 29. will reduction or elimination of total inventory permit reducing the si te or completely eliminating sn inventory facility? M M R 29. 30. vTill reduction or elimination of inventory at any location permit •eduction in inventory servicing costs even without teaucing warehousing? \ / M ft ^ JO. J L will centralising the inventory function, even without ptopor lion are reduction in total inventory, permit reduction in total warehousing and i r i i i r r rapeni-r* \ir r • SI. 32. will use of ait freight to reduce need for inventory permit bypassing wholesalers or tor-bets' \ ^ » R ) )2. U s * of Speed to Reduce COJ:I of H o U i a s C ^ o d ' lovralorv *hi Mj I B i »a i i i | t o lropiv»rii Service. Use of Air Fteight Because of Superior Conditions oi Carriage. SOUftCf! MAHWono OCsKAftCM INSTITUTC. COMBINATIONS OF CHARACTERISTICS REQUIRED FOR SPECIFIC TYPES OF SITUATIONS 116. Vancouver Fancy Sausage was selected since this p a r t i c u l a r company uses a i r f r e i g h t e x c l u s i v e l y , f o r both regional and national d i s t r i b u t i o n . As can be seen, most of the questions were answered i n the affirmative. A i r f r e i g h t i s used by t h i s company with a maximum e f f i c i e n c y i n d i s t r i b u t i o n ; question such as no.25 i n Table B.4 (maintenance of supply or d i s t r i b u t i o n inven-tories) were answered i n the negative, being considered i r r e l e v a n t . Inventory l e v e l s and warehousing f a c i l i t i e s are reduced to a minimum at the Vancouver plant, since the company makes no provision for the storage of f i n i s h e d products. As soon as these are manufactured, they are shipped to the wholesalers who act as secondary centres, for d i s t r i b u t i o n to r e t a i l e r s and large-volume customers (grocery chain stores). The demand f o r this type of commodity i s f a i r l y stable on a year round basis with predictable peaks f o r Christmas, Easter and Thanksgiving holidays. The company's main concern seems to be the supply of "raw material" from southern B.C. and Alberta : during the 1971 Christmas season, a delay i n meat d e l i v e r i e s interrupted the production process at the plant f o r almost 2 4 hours. Yet, the r e p l i e s to the questionnaire items r e l a t i n g to the "use of a i r i n s p e c i f i c s i t u a t i o n s show that use of speed reduces time i n t r a n s i t , improves service for perishable commodi-ti e s i n time-limited s i t u a t i o n s . Thus the market i s extended i n time and i n space ( s i t u a t i o n Aid and Ale) and customer service i s improved (both for buyer and producer) by the reduction of VANCOUVER FANCY SAUSAGE ! TABLE B. 3-CLASSIFICATION OF AIR FREIGHT USAGE BY REASON FOR USE AND TYPE OF SITUATION Cesaral U M Cleaa Specific Use Das* (reaeea) S i t a a t i o a Type A. Uac of speed to redace tiae ia traasil A. l . INCREASE SALES OR IMPROVE SERV-ICE IN TIME-LIMITED SITUATIONS A. l . Demand is time-Halted: a. In a market for time- or style-dated commodities b. In a premium-price market c. In a seasonal or holiday market Market for perishable commodities can be extended: f*dj In time { t \ Geographically A.2. INCREASE UTILIZATION OF PRODUCTION FACILITIES AND EQUIPMENT A.2. Utilization can be Increased for: a. A production unit by reducing time lost while waiting for parts or materials b. A fixed facility by extending supply or market area c. A mobile production facility or equipment by reducing time spent in moving between Jobs A.3. REOUCE COMPANY OR CUSTOMER INVEST-MENT IN GOODS IN TRANSIT ^A.3^ The company desires to speed up Investment turnover ln commodities which can be used as soon as received A.4. MEET UNPREDICTABLE DEMANDS AND EMERGENCIES Any situation ln which air freight will meet a critical requirement for the shortest possible transit time B* Use of speed ta redace coots of holding goods la iaveatory white aaia-leiaing or iaproving service B.1. REDUCE INVENTORY INVESTMENT D.l, Inventory is used specifically to service production and sales requirements because demand is unpredictable as to time, location, or variety 8.2. REDUCE RISK OF INVENTORY LOSS OR OBSOLESCENCE B.2. Inventory used to service production and sales is physically, technologically, or stylo perishable and domund Is unpredictable B.3- REDUCE INVESTMENT AND OPERATING EXPENSES ASSOCIATED WITH INVEN-TORY FACILITIES ANO SERVICES yB.3^ Reduction or elimination of inventory will permit reducing: (a^ Size or completely eliminating an inventory facility at one or more locations b. Inventory servicing costs even without reducing warehouse facilities U.3. c. Inventory can be centralized to permit a reduction in total facilities and servicing costs even without reducing total Inventory B.4. REDUCE COSTS INCURRED BY HAVING JOBBERS OR WHOLESALERS PERFORM INVENTORY FUNCTION B.4. A company's procurement or distribution processes will permit bypassing Jobbers or wholesolers C Use of air freight beeease carrisge C t . REDUCE RISK OF HAVING COMMODITIES LOST, STOLEN. DAMAGED. OR SPOILED IN TRANSIT ^Cl^ Alternative means of transport have: a. A high incidence of stolen or lost commodities b. A high rate of physical damage c^*?) A high incidence of spoiled or deteriorated commodities C2. REOUCE COSTS AND TIME OVER WHICH PROVISIONS FOR PRESERVING OR PROTECTING GOODS IN TRANSIT ARE REQUIRED C.2. Alternative means of transport incur: a. Costly guarding against theft or disappearance b. Heavier or more costly packaging c. Costly environmental control d. Special services or special handling e. Higher insurance costs C.3. ENHANCE CONTROL OR MANAGEMENT OF GOODS IN TRANSIT C.3. Expediting through movements by alternative means of transport characteristically requires premium handling ond greater dif-ficulty ln coordination and documentation C-4. REDUCE DUTIES IN INTERNATIONAL MOVEMENTS C.4. Duty is assessed on a gross weight basis, which by definition Includes packaging CS- EXPEDITE HANDLING OF SMALL LOTS C.5. a. Departure or arrival times or the route connections required by alternative forms of transport aro not convenient or predictable b. Volume to bo moved is sufficient to take advantage of rate breaks offered by sir carriers but not sufficient to take advantage of rate breaks offered by other forms of transport Sourco: Stsnford Research Institute. TABLE B.4 118. "VANCOUVER FANCY SAUSAGE SMOKED MEATS February 19 72 L e o E H o R — Requirement A — Alternate requirement (first group) B — Alternate requirement (second group) M - Makeweight factor CHARACTERISTICS i f y e s CLASS OF USE AND SITUATION TYPE Use of Speed to Reduce Time in Ttarjstt. 2 •3 4 1 2 3 4 5 *. Does commodity have a short useful or sairs life because: a b s. a. It is physically perishable and its useful life may be further . j shortened by advene conditions of carriage' \f' ? M H A - R R \ Si as b. lis rate of deterioration is such iha: transportation time can ? liait its sales voli.me* V M «. R R A S •S C . It is subiect to ra^ -.d stvle or technological obsolescence? A IU M A O d. U most be avajlable at a pan.cular location by a particular * date er used within a specified time' ,-/ . A" M TC A 2 . Is commodity valuable relative to irs weight* A R R M M la commodity purchased or sold in a vsriety of sires, colors, or styles within commodity line? >y M M \ - M 4 . Ate storage or handling requirements costly becsuse storage of commodity requires special com (or servicing or protect ion ?V : M M M R M ( -5 . Does prohibitiv  erp nse, perishability, obsolescence, variety of, line, or high value make it unfeasible to srore commodity? M S \ H M S M "* < 6 . I* demand for commodity unpredictable in the short-ruo with J- _ respect to: %r— •• Beginning or termination date* \/ B A A A A M St A B A A A A ^ JfJJ b. Specific geoEtaphic locations at specific times? Fl A A A A w M A b A A A \ / %5 c ' p »" l c u l »r sizes or styles within lines, either in totsl or at 5 specific locations or times? B A A A A Si M A R A A A A 7 . Ar* there known sessonal variations in the quantity, type, ot • geographic locations of demand (or this commodity? \/ M R Si M St 'st M 8 . Is the demand infrequent? if \\ K \^ 9. Is the dem ind at the point of use or sale urgent because: >. The volume that will be sold or used can be increased by increasing the supply available for a limited period ot time? R R R M M M S K\ b. Premium prices a.-e available for a limited period of time? ' •">t R b. > c. The production volume of a company or its customers csn be X increased by reducing time lost while waiting for this > g commodity. y R c. m d. The productivity of the commodity (mobile productive unit) can 3 be increased and investment requirements reduced by reducing time spent moving between jobs? :R i d. c. investment turnover of commodities used as soon as received can be speeded up for a company or its customers by reducing^  time in transport' "y R 1 0 . Are there emergency or completely une spec ted and seldom / occurring demands for this commodity? ss R 10. IL Ate there limitations on timely availability of this commodity or j its component* to meet market or supply requirements because: >j6 a. Its production is seasonal? j A A A Si st M St St M 11. a. J-p b. It is produced to order? - A A A M St M st \i M b. j[3 c. The supply or the capacity to produce it wuhin a given area 3 is limited? , j A A A A St M M M Si M c. Ift^ UUlWMWlWtiaWlilk* 1 2 , Does or can your company control or influence the choice of . transportation media? (Between rait, truck, water ot air) \f * Ft R R R R R R R R R R R R R B R R R R R R R R R R R if; 12. 13. To«Jd a *hift to air transportation reduce total elapsed time la transportation? 1 R R R R R R R R R R R R P R R M U M \t M R l* 14 . Does transportation of commodity by alternative forms of transport characteristically esceed 24 hours? \y f M M M M M Si M M St Si M M St M \ Si St M M St M M M 14. 15. Is commodity supplied from ot marketed overseas or internationally: 1 M M M M M M M St M SJ M M M M \i Si Si St M M M R M 16, Are schedules or route connections offered by alternative forms of transportation less than satisfactory? v' - M R 16. * 7 . Does transportation time required to reach some supply or market areas by alternative forms of transportation limit production or, ' sales volume? 4 M M •M R M R 17. R 18. Do yon produce or distribute from more than one location? V" - st R U R * 18. > 1 9 . la the commodity moved between dispersed company facilities in " various stages of production or distribution? \y* ( M R M 1 9 < 2 0 . Does use of alternative forms of transportation tesult in a / 2 0 . - high incidence of? [ a. Lost or stolen commodities? R A L b. Physical damage or breakage? R A b. J C . Spoiled ot deteriorated commodities? M R A * 2 U Does use ol alternative forms of transportation incur high costs for » a. Guarding against theft or disappearance? — „ —• R M 21. a. b. Heavy or special packaging? R M R b. C . environmental control, such as temperature or humidity regulation? M R M c. d. Special services or handling, such ss feeding? R V( d. 2 2 . Does use of alternative forms of transportation incur exceptional management or transportation costs in expediting through move-ments because ot premium handling rates or difficulty in coordination or documentation? R 22. 2 3 . Does your company ship or receive commodities in international trade on which duties sre assessed on a gross weight basis? R 2 3 . 2 4 . Do typical shipment sizes permit taking advantage of rate breaks offered by air carriers but not rate breaks offered by alternative forms of transportation? R 24. i5. Does your company maintain supply or distribution inventories? R R R R 25. 2 6 . Ate inventories maintained so that commodities are available / when and where needed? \/ ' R" R R R R R 26. 2 7 . If «jr transportation can make commodities available when and where needed, will a reduction or elimination of inventory be * - feasible? v f R° R R R R 2 7 . ) 2 8 . la the supply inventory maintained et the point of use? or. Are distribution inventories maintained at dispersed locations ? \y* * R R R R R 2 8 . ( 2 9 . till reduction or elimination o( total invenrory permit reducingthe size or completely eliminating an inventory facility? M M R 2 9 . 3 0 . TtH reduction or elimination of inventory at any location permit reduction in inventory servicing cost* even without reducing warehousing? Si Si R 3 0 . 3 1 . till centralizing th* inventory function, even • it hour proportionate t eduction in total inventory, permit reduction in total warehousing.-( R1^ 3 1 . J 2 . »ill use of air freight to reduce need lor inventory permit bypassing wholesalers or jobbers? -T I 1 ("R ->1 3 2 . B, Use ol Speed i Redace Costs • Holding Good* Inventory while Imfxtwnjt Service. Use of Air Freight Because of Superior Conditions of Carriage. » O U « C C : tTANrono R E S E A R C H I N S T I T U T K COMBINATIONS OF CHARACTERISTICS REQUIRED FOR SPECIFIC TYPES OF SITUATION'S 119. investments i n goods i n t r a n s i t and by the producer a b i l i t y to meet unpredictable demand (situations A3 and A4). Moreover, s i t u a t i o n Cle r e f l e c t s the high rate of spoiled merchandise which would r e s u l t i f any other surface mode were used. Smoked meats and sausages produced i n Vancouver can be offered for sale i n Toronto the very next day. However, i n the course of the interview i t was pointed out that a i r f r e i g h t transport was more expensive, with respect to packaging, than surface modes, which provide air-conditioned t r a i l e r s . Nevertheless, a i r f r e i g h t was used p r i m a r i l y to improve service, to extend the market i n time and i n space and reduce inventories. The r e s u l t s of t h i s p o l i c y produced increased volume, sales and earnings. The a i r c a r r i e r concerned admitted experien-cing serious problems i n handling the increased volume. The management of Vancouver Fancy Sausage f e l t the switch to a i r transport necessary i n order to permit growth and to penetrate new markets with minimal cost and r i s k . In other words, a i r f r e i g h t for t h i s p a r t i c u l a r company was used as a marketing to o l rather than a system of d i s t r i b u t i o n per se. 1. Interview with Hr. White law, SimpsonsT-Sears-D i s t r i b u t i o n Manager, Burnaby-, B.C,, January 1972. 2. Interview with Mr. P. Loss, Vancouver Fancy Sausage General Sales Manager, Vancouver, B.C., February 1972. 120. APPENDIX C TOTAL DISTRIBUTION COST ANALYSIS  AIR versus SEA CASE no.l - TYPEWRITERS, KNITTING & SEWING MACHINES, HAIR DRYERS Data were supplied by the Head O f f i c e of Brother International Corporation (Canada) and cover the period from the end of July 1972 to the beginning of October 1972. A period of 90 days was mentioned as an average delivery time from Tokyo to Vancouver. The reasons for th i s delay appear to be that the Japanese parent company supplies the U.S.A. and Canada by sea f r e i g h t through the port of Seattle and occasionally through the port of Vancouver. Shipments are usually unloaded at Seattle and trucked i n the same container to Vancouver. These transfer charges were included i n the estimation of t o t a l transportation costs. In no instance did sea shipment show cost advantages over a i r f r e i g h t . Most of the shipments made to Brother International Corporation (Canada) involve typewriters and sewing machines (which are compact and cause a minimum of wasted space i n the container! and k n i t t i n g machines (which are bulky and l i g h t weight). These low-value commodities are never shipped by a i r , since shorter t r a n s i t time and/or lower inventory cost w i l l not influence sales or customer service. COMMODITY : TYPEWRITERS & SEWING MACHINES CONTAINER(S) USED : 8 x 8 x 35 CONTAINER TARE WEIGHT : 5,900 lbs. CASE : .1 SHIPMENTS BY SEA CONTAINER Net Weight (lbs) ( i n c l . packaging) Volume * (Cubic feet) Number of containers Total Revenue (tons) Value of Shipment Date 12,200 884 1 22. 7 $ 58,200 July 19 72 10,400 766 1 19.4 24 ,900 Aug.- 1972 15,400 1,272 2 31. 8 17,900 Aug. 1972 16,200 1,136 1 _ 30.4 42 ,500 Sept.1972 18,800 1,318 1 32.9 65 ,000 Sept.1972 19 ,500 1,360 1 35.1 66,000 Oct. 1972 * Volume occupied i n the container. A 20% reduction has been estimated f o r a i r volume. Period from order to de l i v e r y (average) : 3 months or 90 days (Air : 10 days). Sources : Brother International Corporation (Canada) Ltd, Vancouver. February 19 73. 122 < TOTAL DISTRIBUTION COST Commodity : TYPEWRITERS, SEWING MACHINES Shipment no. : 1 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS I Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67C/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . Freight charges @ $ 62.25 /Ton (AIR : U; L; D') Rate Insurance @ 1.00% CAPITAL COSTS ON GOODS (AIR : 0.20%) In T r a n s i t @ 15% on 15 days (AIR : 2 days) In Inventory @ 15% on 75 days (AIR " 8 days) Depreciation @ 5% on 75 days (AIR : 8 days) TOTAL DIFFERENCE . . CASE : 1 S E A 58,200 12 ,200 18,100 22.1 884 1,6 82 598 378 1,890 630 5,178 A I R (est.) 58,200 12 ,200 N.A. N.A. 718 7,414 131 55 219 73 7,892 + 2,714 123. TOTAL DISTRIBUTION COST CASE Commodity : TYPEWRITERS, SEWING MACHINES Shipment no. : 2 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS ( Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . ^ Wharfage @ 6 7£/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . ^ Freight charges @ $ 62.25/Ton ( A I R : & U g L ^ D ^ Insurance @ 1.00% (AIR: 0.20%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR : 2 days) In Inventory @ 15% on 75 days (AIR: 8 days) Depreciation @ 5% on 75 days (AIR : 8 days) TOTAL DIFFERENCE .. S E A 24,900 10 ,400 16 ,300 19.4 766 1,521 264 167 834 278 3,064 . A I R (est.) 24,900 10 ,400 N.A. N.A. 614 6 ,267 62 26 104 35 6,494 + 3,430 1 2 4 . TOTAL DISTRIBUTION COST CASE Commodity : TYPEWRITERS, SEWING MACHINES Shipment no. : 3 BASIC DATA Value of the shipment .($) Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS ''Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton o r / 4 0 c u . f t . I Wharfage @ 67C/Ton o r / 4 0 c u . f t . Containerization @ $ 3.25/Ton o r / 4 0 c u . f t . . , ~ * , , U.L.D. Freight charges @ $ 6 2 . 2 5 /Ton (AIR:& s.c.R. Insurance @ 1 . 0 0 % CAPITAL COSTS ON GOODS (AIR:0.20%) In T r a n s i t @ 1 5 % on 15 days (AIR: 2 days) In Inventory @ 1 5 % on 75 days (AIR: 8 days) Depreciation @ 5% on 75 days (AIR: 8 days) TOTAL DIFFERENCE .. S E A 1 7 , 9 0 0 1 5 , 3 0 0 2 4 , 1 0 0 3 1 . 8 1 , 2 7 2 2 , 4 3 1 2 0 3 1 2 9 6 4 1 2 1 4 3 , 6 1 8 A I R (est.) 1 7 , 9 0 0 15 ,300 N.A. N.A. 1 , 0 1 8 9 , 1 7 0 54 2 3 92 31 9 , 3 7 0 5 , 7 5 2 125. TOTAL DISTRIBUTION COST Commodity : TYPEWRITERS, SEWING MACHINES Shipment no. : 4 BASIC DATA Value of the shipment ($) Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS fHandling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . 1 </ Wharfage @ 67£/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . I Freight charges @ $ 62. 25 /Ton (AIR: U' L1 D1 Insurance @ 1.00% (AIR-. 0.20%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 2 days) In Inventory @ 15% on 75 days (AIR: 8 days) Depreciation @ 5% on 75 days (AIR: 8 days) TOTAL DIFFERENCE .. 2 ,065 445 281 1,406 468 4,665 CASE : 1 S E A A I R (est.) 42 ,500 42 ,500 16 ,200 16,200 22 ,100 N.A. 3.04 N.A. 1,136 910 9,670 104 44 174 58 10 ,050 5,385 126. TOTAL DISTRIBUTION COST Commodity : TYPEWRITERS, SEWING MACHINES Shipment no. : 5 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS h a n d l i n g @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . ,/ Wharfage § 67£/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . Freight charges @ $ 62.25 /Ton (AIR'. U- L- D-\. & S.CR. Insurance @ 1.00% (AIR: 0.20%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 2 days) In Inventory @ 15% on 75 days (AIR: 8 days) Depreciation @ 5% on 75 days (AIR'• 8 days) TOTAL DIFFERENCE .. 2,523 675 426 2,131 710 6,465 CASE : 1 S E A A I R (est.) 65,000 65 ,000 18,800 18,800 24.700 N.A. 32.9 N.A. 1,318 1,056 11,188 152 63 . 2 5 4 84 11,741 + 5,276 127. TOTAL DISTRIBUTION COST CASE Commodity : TYPEWRITERS, SEWING MACHINES Shipment no. : 6 BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f t h e s h i p m e n t : Net Weight ( l b s ) Gro s s Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . ^ W h a r f a g e @ 67£/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . U.L.D. '& S.C.R. F r e i g h t c h a r g e s @ $ 62.25/Ton (AIR: I n s u r a n c e @ 1.00% CAPITAL COSTS ON GOODS (AIR: 0.20%) I n T r a n s i t @ 15% on 15 days (AIR •. 2 days) I n I n v e n t o r y @ 15% on 75 days (AIR: 8 days) D e p r e c i a t i o n @ 5% on 75 days (AIR: 8 days) TOTAL DIFFERENCE .. S E A 66 ,000 19 ,500 25 ,400 35.1 1,360 2,752 687 433 2,169 724 6,763 A I R ( e s t . ) 66 ,000 19,500 N.A. N.A. 1,088 11,790 155 65 260 86 12,356 + 5,593 128. Appendix C (Cont^dl CASE no.2 - AUTO SPARE PARTS & ACCESSORIES Data were supplied by Canadian Motor Industries (Toyota), Vancouver. Auto parts include body, engine and various other spare parts. Information on shipments covered the period from June 19 72 to July 19 72. Delivery time was mentioned during the interview as being 120 days, i n spite of apparently f u l l capacity production at.the plant i n Japan, as well' as packaging and containerization problems. The flow of delivery i s not continuous; containers arrive two or three at a time but at 30-45 days i n t e r v a l . A i r f r e i g h t shipments of various sizes a r r i v e at an average of at l e a s t one every two weeks. A i r f r e i g h t i s used i n s p e c i a l (and sometimes emergency) sit u a t i o n s or f o r shipments of small s i z e , high value parts, i n which case t o t a l delivery time i s reduced to two weeks at the most.- Items 1 to 5 represent actual a i r f r e i g h t shipments for which sea costs were estimated, whereas items 6 to 10 represent actual sea shipments for which -a i r f r e i g h t costs were estimated. For each a i r shipment r e a l i z e d a cost difference emerges i n favour of estimated sea costs (items 1 to 5). A s i m i l a r s i t u a t i o n obtained i n the estimation of a i r f r e i g h t costs (items 6 to 10). Due to expansion of sales, Canadian Motor Industries w i l l be moving to new premises presently under construction i n Richmond, thereby reducing inventory costs,; i n the meantime, C.M.I, i s obliged to use two warehouses located on d i f f e r e n t s i t e s , which increase inventory and r e l a t e d costs. COMMODITY : AUTO.SPARE PARTS AND ACCESSORIES CASE : 2 CONTAINER(S).; USED ; (Est.) 8x8x20 - 8x8x40 or Less Than Container (L.T. CONTAINER TARE WEIGHT : 4,870 lbs 6,5 70 lbs SHIPMENTS BY SEA CONTAINER (Estimates) Net Weight (lbs) ( i n c l . packaging) Volume * (Cubic feet) Number of containers Total Revenue (tons) Value of Shipment Date 24,720 3,316 3.20 + 1.40 88.3 $ 30,000 June 19 72 525 75 L.T.C. 2.1 527 June 19 72 14,500 1,628 2.20 40.8 18,700 June 19 72 6,800 960 1.20 24.0 8,300 July 1972 8,360 1,244 2.20 31.1 8.000 July 19 72 * A 20% increase over a i r f r e i g h t volume has been estimated to obtain volume by sea container. Period from order to del i v e r y (average) : 4 months or 12 0 days (Air : 15 days). Sources : Canadian Motor Industries (Toyota), Vancouver, B.C., February 1973. 130 TOTAL DISTRIBUTION COST CASE Commodity : AUTO SPARE PARTS Shipment no. : l BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f t h e shi p m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . j Wharfage @ 67£/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 45.25/Ton (AIR: S.C.R.) I n s u r a n c e @ 0.70% (AIR: 0.12%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR: 2 days) I n I n v e n t o r y @ 15% on 105days (AIR:13 days) D e p r e c i a t i o n @ 5% on 105days (AIR-.13 days) TOTAL DIFFERENCE .. S E A ( E s t . ) 30 ,000 24,720 45,900 88.3 3,316 5 ,649 250 224 1,570 523 8,216 A I R 30,000 24,720 (25,200) N.A. N.A. 2 ,734 13,840 52 18 201 68 14,178 ,+ 5,962 TOTAL DISTRIBUTION COST 131, CASE Commodity : AUTO SPARE PARTS Shipment no. : 2 BASIC DATA Value of the shipment ("$) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS ^Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . ^ Wharfage @ 6 7C/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . Freight charges @ $ 49.25/Ton (AIR:S.C.R.) Insurance @ o.70% (AIR : 0.12%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR : 2 days) In Inventory @ 15% on 105 days (AIR13 days) Depreciation @ 5% on 105 days (AIR13 days) TOTAL DIFFERENCE . S E A (Est.) 527 525 730 2.1 75 127 4 5 35 14 185 132 TOTAL DISTRIBUTION COST Commodity : AUTO SPARE PARTS Shipment no. : 3 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS ^Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . /Wharfage @ 67C/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . ^Freight charges @ $ 49.25/Ton (AIR: S.C.R.) Insurance @ 0.70% (AIR: 0.12%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 2 days) In Inventory @ 15% on 105 days (AIR 13 days) Depreciation @ 5% on 105 days (AIR 13 days) TOTAL DIFFERENCE .. 2 ,221 146 133 937 312 3,749 CASE : 2 S E A A I R (Est.) 18,700 18,700 14 ,500 14 ,500 25,600 N.A. 40. 8 N.A. 1,628 1,357 8,120 32 11 123 41 8,327 + 4,578 133. TOTAL DISTRIBUTION COST Commodity : AUTO SPARE PARTS Shipment no. : 4 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS ^Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . I Wharfage § 67<=/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t charges @ $ 49.25 /Ton (AIR:S.C.R.) Insurance @ 0.70% (AIR: 0.12%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 2 days) In Inventory @ 15% on 105 days (AIR 13 days) Depreciation @ 5% on 105 days (AIR 13 days) TOTAL DIFFERENCE . . 1,530 69 63 435 145 2,242 CASE : 2 S E A A I R (Est. ) 8,300 8,300 6 , 800 6 ,800 12 ,200 N.A. 24.0 N.A. 960 764 3,814 14 5 55 18 3,906 + 1,664 134. TOTAL DISTRIBUTION COST CASE : 2 Commodity : AUTO SPARE PARTS Shipment no. : 5 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS fHandling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67C/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . (^Freight charges @ $ 49.25/Ton (AIR: S.C.R. Insurance @ 0.70% (AIR:.0.12%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR 2 days) In Inventory @ 15% on 105days (AIR 13 days) Depreciation @ 5% on 105days (AIR 13 days) TOTAL DIFFERENCE .. S E A (Est. ) 8,000 8,360 18,700 31.1 1,244 2 ,031 70 64 448 150 2,763 A I R 8,000 8,360 (8,890) N.A. N.A. 996 4 ,970 15 5 55 18 5,063 + 2,300 COMMODITY : AUTO SPARE PARTS AND ACCESSORIES CASE : 2 (Cont.) CONTAINER(S) . USED : . 8x8x20 - 8x8x40 CONTAINER TARE WEIGHT : 4 ' 8 7 0 l b s ~ 6,750 SHIPMENTS BY SEA CONTAINER Net Weight (lbs) ( i n c l . packaging) Volume * (Cubic feet) Number of containers Total Revenue (tons) Value of Shipment Date • 16,600 3,365 5.20 84.1 $ 52,000 June 19 72 6 ,400 810 1.20+1 P a l l e t 20.5 19,700 June'19 72 6 ,500 785 1.20+1 P a l l e t 19.6 16,800 July 1972 16,800 1,290 2.20 34.0 38,000 July 19 72 40,000 8,748 . 4.20 + 4.40 218.7 122,700 July 1972 X ; >• ; X • X * Volume occupied i n sea container. 15% reduction has been estimated fo r a i r f r e i g h t volume. Period from order to d e l i v e r y (average) : 4 monts or 120 days (Air : 15 days) . Sources : Canadian Motor Industries (Toyota), Vancouver, B.C., February 1973. 136. TOTAL DISTRIBUTION COST CASE Commodity : AUTO SPARE PARTS & ACCESSORIES Shipment no. : 6 BASIC DATA V a l u e o f t h e s h i p m e n t ($) S i z e o f the s h i p m e n t : Net Weight ( l b s ) Gr o s s Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . 1 Wharfage @ 67<=/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 49.25/Ton (AIR: S.C.R.) I n s u r a n c e @ 0.70% (AIR: 0.12%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 2 days) I n I n v e n t o r y @ 15% on 105days (AIR 13 days) D e p r e c i a t i o n @ 5% on 105days (AIR 13 days) TOTAL DIFFERENCE .. S E A 52 ,000 16 ,600 40,950 84.1 3,365 5,395 402 362 2,554 842 9 ,555 A I R ( e s t . ) 52,000 16,600 (24,000) N.A. N.A. 2 ,693 13,440 78 54 382 127 14,081 + 4,526 137 TOTAL DISTRIBUTION COST CASE Commodity : A U T 0 SPARE PARTS & ACCESSORIES Shipment no. : 7 BASIC DATA V a l u e o f t h e shipm e n t ($) : S i z e o f the sh i p m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS /'Handling @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 6 7£/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 49.25/Ton (AIR S.C.R.) I n s u r a n c e @ 0.70% (AIR 0.12%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 2 days) I n I n v e n t o r y @ 15% on 105 days (AIR13 days) D e p r e c i a t i o n @ 5% on 105days (AIR 13 days) TOTAL DIFFERENCE .. S E A 38,000 16,800 26,540 34.0 1,290 2 ,031 280 252 1,763 588 4,914 A I R ( e s t . ) 38,000 16 ,800 N.A. N.A. 1,110 9 ,408 57 38 257 85 9,845 + 4,931 138 TOTAL DISTRIBUTION COST Commodity : Shipment no, BASIC DATA AUTO SPARE PARTS & ACCESSORIES 8 Value of the shipment ..($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS 'Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . J Wharfage @ 6 7£/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t charges @ $ 49. 25/Ton (AIR:.S.C.R.) Insurance @ 0.70% (AIR: 0.12%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 2 days) In Inventory @ 15% onl05 days (AIR 13 days) Depreciation @ 5% onl05 days (AIR 13 days) TOTAL DIFFERENCE .. 1,269 147 132 923 308 2,779 CASE : 2 S E A A I R (est.) 19 ,700 19 ,700 6 ,400 6 ,400 12 ,400 N.A. 20 . 5 • N.A. 810 , 692 139. TOTAL DISTRIBUTION COST Commodity : AUTO SPARE PARTS & ACCESSORIES Shipment no. : 9 BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f t h e s h i p m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67<=/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 49.25 /Ton (AIR:S.C.R.) I n s u r a n c e @ 0.70% (AIR:0.12%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR: 2 days) I n I n v e n t o r y @ 15% on 105 days (AIR 13 days) D e p r e c i a t i o n @ 5% on 105 days (AIR 13 days) TOTAL DIFFERENCE .. 1,142 126 113 791 263 2,435 CASE : 2 S E A A I R (es t.) 16,800 16 ,800 6 ,500 6 ,500 12 ,500 N.A. 19.6 N.A. 785 670 3,6 40 24 17 110 36 3,827 + 1,392 140. TOTAL DISTRIBUTION COST Commodity : AUTO SPARE PARTS AND ACCESSORIES Shipment no. : 10 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS 'Handling @ $ 5.45/Ton or/40 cu.f t . Loading @ $ 4.85/Ton or/40 c u . f t . ^ Wharfage @ 67C/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . Freight charges @ $ 49.25/Ton (AIR ; S.C.R.) Insurance @ 0.70% (AIR: 0.12%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 2 days) In Inventory @ 15% onl05 days (AIR 13 days) Depreciation @ 5% onl05 days (AIR 13 days) TOTAL DIFFERENCE .. 13,890 956 860 6 ,020 2 ,006 23,732 CASE 2 S E A A I R (est.) 122 ,700 122,700 40 ,000 40,000 (65,000) 85,760 N.A. 218. 7 N.A. 8,748 7 , 390 36,400 190 132 •862 287 37,871 + 14,139 141. Appendix C (Con.t * dl CASE no.3 - T.V. SETS, ELECTRONIC EQUIPMENT & RADIO COMPONENTS Data concerning the value of these shipments and t h e i r delivery periods were not supplied because of t h e i r " c l a s s i f i e d " nature. The Western D i s t r i c t Manager of Toshiba of Canada mentioned that these shipments may represent the t o t a l imports for a 45 day period. Commodities were shipped by sea container from Tokyo to Vancouver v i a Japan Line Ltd. Because of the nature of the commodity, E l e c t r o n i c Equipment shipped i n sea containers requires more space than i s occupied by i t s actual volume for reasons of v e n t i l a t i o n and ease of stacking. The d i f -ference i n volume by a i r as compared to sea container i s explained by the f a c t that i n view of the shorter t r a n s i t time by a i r , extra space i s not required. Delivery time averages 90 to 120 days due to production bottlenecks and to delays i n l o c a t i n g suitable space.on container vessels and suitable loading times. Although producers such as Sony or Hitachi use a i r f r e i g h t on an occasional basis, Toshiba of Canada, as mentioned i n the interview, does not presently use a i r f r e i g h t and does not intend to change the p o l i c y i n this respect. However, the cost comparison analysis shows that three shipments (items 1, 2 and 3) present a net cost advantage by a i r over sea d i s t r i b u t i o n . COMMODITY : T.V. SETS, ELECTRONIC EQUIPMENT CASE : 3 CONTAINER(S) USED : 8x8x20 CONTAINER TARE WEIGHT : 4,870 l b s . SHIPMENTS BY SEA CONTAINER Net Weight ( l b s ) ( i n c l . p a c k a g i n g ) Volume * (C u b i c f e e t ) Number o f c o n t a i n e r s T o t a l Revenue (tons) V a l u e o f Shipment Date 4, 060 965 -• 1 24 .1 $ 12, 450 N 2, 890 890 1 22 .2 10, 350 Q m 3, 170 920 1 23 .0 11, 250 T 3, 590 1,060 1 26 5 11, 750 S 3, 820 775 1 19. 3 13, 300 u p 3, 080 289 L T.C. 7. 2 15, 580 p X 2, 495 241 L. T.C. 6. 3 12, 600 Jj I 1, 050 96 L. T.C. 2. 4 4, 670 E D * Volume o c c u p i e d i n the sea c o n t a i n e r . 40 t o 60% r e d u c t i o n has been e s t i m a t e d . f o r a i r volume, a c c o r d i n g t o the commodity. . P e r i o d from o r d e r t o d e l i v e r y (average) : 3 months o r 90"days ( A i r : 12 d a y s ) . S o u r c e s : T o s h i b a o f Canada L t d . , Vancouver, B.C. - F e b r u a r y 19 73, 143. TOTAL DISTRIBUTION COST CASE Commodity : T.V. SETS, ELECTRONIC EQUIPMENT Shipment no. : 1 BASIC DATA V a l u e o f the shipment (.$) : S i z e o f t h e s h i p m e n t : N e t Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS  f H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . <V Wharfage @ 67<=/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 58. 75 /Ton (AIR.S.C.R.) I n s u r a n c e @ 1.25% (AIR -. 0.23%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR : 1 day) I n I n v e n t o r y @ 15% on 75 days (AIR: H days D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. 1,751 178 90 450 150 2,619 s E A A I R ( e s t . ) 12 ,450 12 ,450 4 ,060 4,060 (4,200) 8 ,860 N.A. 24.1 N.A. 965 471 2 ,478 34 6 68 23 2,609 10 144. TOTAL DISTRIBUTION COST CASE : 3 Commodity : T.V. SETS, ELECTRONIC EQUIPMENT Shipment no. : 2 BASIC DATA S E A A I R ( e s t . ) V a l u e o f the shipment ($) : 10 ,350 10,350 S i z e o f t h e s h i p m e n t : Net Weight ( l b s ) 2,890 2 , 890 (3,400) Gross Weight ( l b s ) 7,690 N.A. Revenue Tons 22.2 N.A. Volume ( c u . f t . ) 890 389 TRANSPORTATION COSTS H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67<:/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 5 8.75/Ton (AIR S.C.R.) 1,679 2 ,006 I n s u r a n c e @ 1.25% (AIR 0.23%) 151 28 CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 1 day) 76 5 I n I n v e n t o r y @ 15% on 75 days (AIR 11 days) 381 56 D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) 127 18 TOTAL 2,414 2,113 DIFFERENCE 301 145. TOTAL DISTRIBUTION COST Commodity : T.V. SETS, ELECTRONIC EQUIPMENT Shipment no. : 3 BASIC DATA V a l u e o f the shipment ($) : S i z e o f t h e s h i p m e n t : N e t We i g h t ( l b s ) Gro s s Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67<r/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 58. 75 /Ton (AIRrS.C.R.) I n s u r a n c e @ 1.25% (AIR: 0.23%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR: 1 day) I n I n v e n t o r y @ 15% on 75 days (AIR 11 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. 1,678 161 82 410 137 2,468 CASE : 3 S E A A I R ( e s t . ) 11,250 11,250 3,170 3,170 (3,700) 7,970 N.A. 23.0 N.A. 920 407 2,183 32 6 61 20 2,302 166 146. TOTAL DISTRIBUTION COST Commodity : T.V. SETS, ELECTRONICS EQUIPMENT. Shipment no. : 4 BASIC DATA V a l u e o f the shipment ($) : S i z e o f the shipm e n t : Net Weight ( l b s ) Gross W e i g h t ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS  f H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . ^ Wharfage @ 6 7<VTon or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 58. 75 /Ton (AIR: S.C.R.) I n s u r a n c e @ 1.25% (AIR: 0.23%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 1 day) I n I n v e n t o r y @ 15% on 75 days (AIR 11 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. 1,970 172 87 435 145 2,809 CASE : 3 S E A A I R ( e s t . ) 11,750 11,750 3,590 3,590 (4,310) 8,390 N.A. 26.5 N.A. 1,060 484 2 ,542 33 6 67 23 2 ,921 112. 147. TOTAL DISTRIBUTION COST Commodity : T.V..SETS, ELECTRONIC EQUIPMENT Shipment no. : 5 BASIC DATA V a l u e o f the shipment ($) : S i z e o f t h e s h i p m e n t : N e t Weight ( l b s ) G r o s s W e i g h t ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS  1 H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . J Wharfage @ 67^/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 58.75/Ton (AIR:S.C.R.) I n s u r a n c e § 1.25% (AIR: 0.23%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR: 1 day) I n I n v e n t o r y @ 15% on 75 days (AIR 11 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. 1,459 184 93 466 156 2,358 CASE : 3 S E A A I R ( e s t . ) 13,300 13,300 3,820 3,820 8,620 N.A. 19. 3 N.A. 775 426 2 ,254 36 7 77 26 2,400 42 148. TOTAL DISTRIBUTION COST Commodity : RADIO RECEIVERS & COMPONENTS Shipment no. : 6 BASIC DATA V a l u e o f t h e shipment (^ $) : S i z e o f t h e s h i p m e n t : Net Weight ( l b s ) Gr o s s Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . ^ W h a r f a g e @ 67£/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s § $ 58.75/Ton (AIR: S.C.R.) I n s u r a n c e @ 1.25% (AIR: 0.23%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR: 1 day) I n I n v e n t o r y @ 15% on 75 days (AIR 11 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. 511 201 102 510 170 1,494 CASE t : 3 S E A A I R (es t . ) 15,580 15 ,580 3,080 3,080 3,800 N.A. 7.2 N.A. 289 247 1,817 40 7 79 26 1,969 + 475 149. TOTAL DISTRIBUTION COST CASE : 3 Commodity : RADIO RECEIVERS & COMPONENTS Shipment no. : 7 BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f the s h i p m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ''Handling @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67<r/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 58.75/Ton (AIR S.C.R.) I n s u r a n c e @ 1.25% (AIR o.23%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 1 day) I n I n v e n t o r y @ 15% on;75 days (AIR 11 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. S E A 12 ,600 2,495 3,200 6.3 241 438 162 83 410 137 1,093 A I R ( e s t . ) 12 ,600 2 ,495 N.A. N.A. 205 1,472 32 6 64 21 1,585 492 150. TOTAL DISTRIBUTION COST CASE Commodity : RADIO RECEIVERS & COMPONENTS Shipment no. : 8 BASIC DATA V a l u e o f t h e shipment (•$) : S i z e o f the shi p m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS f H a n d l i n g § $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . <| Wharfage @ 6 7'$/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 58.75/Ton (AIR S.C.R.) I n s u r a n c e @ 1.25% (AIR 0.23%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 1 day) I n I n v e n t o r y @ 15% on 75 days (AIR 11 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 11 days) TOTAL DIFFERENCE .. S E A 4 ,670 1,050 1,800 2.4 96 219 62 31 155 52 519 A I R ( e s t . ) 4„670 1,050 N.A. N.A. 82 620 12 2 24 8 666 + 147 Appendix C CCqnt • d). 151. CASE no.4 - TEXTILES Data supplied by Schenke Co. Ltd., covered operations over a period of approximately one month. Delivery time of 90 days (and sometimes longer) was also i n t h i s case to f u l l capacity production. Delivery time i s important because the demand for d i f f e r e n t types of t e x t i l e s i s time-limited i n seasonal and premium-price markets. Most of the t e x t i l e shipments required extra packaging since they were shipped i n less-than-a-container (the container i s destuffed on the dockside). It was mentioned during the interview that a i r f r e i g h t would involve less packaging, improve customer s a t i s f a c t i o n but at a high cost which was not j u s t i f i e d by the volume of sales and the medium to low-value c h a r a c t e r i s t i c s of the commodity imported. COMMODITY : TEXTILES CASE : 4 CONTAINER(S) USED : 8x8x20 o r Less Than C o n t a i n e r (L.T.C.) CONTAINER TARE WEIGHT : 4,870 SHIPMENTS BY SEA CONTAINER Net Weight ( l b s ) ( i n c l . p a c k a g i n g ) Volume * (Cu b i c f e e t ) Number o f c o n t a i n e r s T o t a l Revenue (tons) V a l u e o f Shipment• Date . 6,955 844 ,1 21.2 $ 16,827 N 3,936 92 8 373 238 L.T.C. L.T.C. 9.3 6.2 7,290 2 ,930 O T 6 ,254 779 1 19. 8 19,470 S U P . 4 ,492 665 1 16.4 13,680 5,676 807 1 20.1 10,510 P T 834 32 L.T.C. 1.5 748 ± J I E D Volume o c c u p i e d i n t h e s e a c o n t a i n e r . 15% r e d u c t i o n has been e s t i m a t e d f o r a i r f r e i g h t volume. P e r i o d from o r d e r t o d e l i v e r y (average) : 3 months o r 90 days ( A i r : 1 5 d a y s ) . S o u r c e s : Schencke, E. , Co. L t d . , Vancouver, B.C. - F e b r u a r y 1973. £ 153. TOTAL DISTRIBUTION COST Commodity : TEXTILES Shipment no. : i BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f t h e s h i p m e n t : N e t Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ''Handling @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67C/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 55.75/Ton (AIR S.C.R.) I n s u r a n c e @ .75% (AIR 0.15%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 2 days) I n I n v e n t o r y @ 15% on 75 days (AIR 13 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 13 days) TOTAL DIFFERENCE .. 1,540 138 116 581 194 2,569 CASE : 4 S E A A I R ( e s t . ) 16 ,927 16 ,927 6,955 6 ,955 8, 800 N.A. 21.2 N.A. 844 710 4,720 31 17 115 38 4 ,921 + 2,352 154 TOTAL DISTRIBUTION COST CASE Commodity : TEXTILES Shipment no. : 2 BASIC DATA Value of the shipment ($) : Size of the shipment : Net Weight (lbs) Gross Weight (lbs) Revenue Tons Volume (cu.ft.) TRANSPORTATION COSTS ' Handling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . ^ Wharfage @ 6 7C/Ton or/40 c u . f t . Containerization @ $ 3.25/Ton or/40 c u . f t . F r e ight charges @ $ 55.75/Ton (AIR S.C.R. )| Insurance @ 0.75% (AIR 0.15%) CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR 2 days) In Inventory @ 15% on 75 days (AIR 13 days) Depreciation @ 5% on 75 days (AIR 13 days) TOTAL DIFFERENCE .. S E A 7,290 3,936 9.3 373 700 60 50 251 84 1,145 A I R (est. ) 7,290 3,936 N.A. 328 2,577 15 9 56 18 2,675 + 1,530 155. TOTAL DISTRIBUTION COST CASE Commodity : TEXTILES Shipment no. : 3 BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f the s h i p m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ''Handling @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . <^  Wharfage @ 6 7<=/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 55.75/Ton (AIR S.C.R.) I n s u r a n c e @ 0.75 % (AIR 0.15%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 2 days) I n I n v e n t o r y @ 15% on 75 days (AIR 13 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 13 days) TOTAL DIFFERENCE .. S E A 2,930 928 6.2 238 490 26 22 110 37 685 A I R ( e s t . ) 2,930 928 N.A. 205 696 4 3 19 7 729 + 44 156. TOTAL DISTRIBUTION COST Commodity : Shipment no. : 4 BASIC DATA V a l u e o f the shipment ($) S i z e o f the ship m e n t : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5 . 4 5 / T o n or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . Wharfage @ 67^/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 5 5 . 7 5 / T o n (AIR: S.C.R.) I n s u r a n c e @ 0.75% (AIR: 0.15%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR: 2 days) I n I n v e n t o r y @ 15% on 75 days (AIR 13 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 13 days) TOTAL DIFFERENCE .. 1,400 157 131 653 217 2,188 CASE : 4 S E A A I R ( e s t . ) 19 ,470 1?,4 70 6 ,254 . 6,254 11,120 N.A. 19. 8 N.A. 779 664 4 ,252 35 19 128 42 4 ,476 + 2,288 TOTAL DISTRIBUTION COST 157. CASE Commodity : TEXTILES Shipment no. : 5 BASIC DATA V a l u e o f t h e shipment ($) : S i z e o f t h e s h i p m e n t : N e t Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ^ H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . I Wharfage @ 67<=/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . F r e i g h t c h a r g e s @ $ 55.75/Ton (AIR: S.C.R.) I n s u r a n c e @ 0.75% (AIR: 0.15%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR: 2 days) I n I n v e n t o r y @ 15% on 75 days (AIR 13 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 13 days) TOTAL DIFFERENCE .. S E A 13,680 4 ,492 9 ,360 16. 4 665 1,190 111 93 465 155 1,914 A I R ( e s t . ) 13,680 4 ,492 (4,800) N.A. N.A. 542 3,264 25 14 91 30 3,424 + 1,510 158. TOTAL DISTRIBUTION COST CASE • 4 Commodity : TEXTILES Shipment no. : 6 BASIC DATA S E A A I R (est.) Value of the shipment ($) : 10 ,510 10,510 Size of the shipment : Net Weight (lbs) 5 ,676 5 ,676 (6,100) Gross Weight (lbs) 10 ,540 N.A. Revenue Tons 20.1 N.A. Volume (cu.ft.) 807 687 TRANSPORTATION COSTS rHandling @ $ 5.45/Ton or/40 c u . f t . Loading @ $ 4.85/Ton or/40 c u . f t . 1 Wharfage @ 6 7C/Ton or/40 c u . f t . Containerization @ $ 3. 25/Ton or/40 c u . f t . ^ F r e i g h t charges @ $ 55. 75/Ton (AIR: S.C.R.) 1 ,470 4,148 Insurance @ 0.75 % (AIR: 0.15%) 90 22 CAPITAL COSTS ON GOODS In T r a n s i t @ 15% on 15 days (AIR : 2 days) 75 12 In Inventory @ 15% on 75 days (AIR 13 days) 377 80 Depreciation @ 5% on 75 days (AIR 13 days) 125 26 TOTAL 2 ,137 4,288 DIFFERENCE ., + 2,151 159. TOTAL DISTRIBUTION COST CASE Commodity : TEXTILES Shipment no. : 7 BASIC DATA V a l u e o f t h e ship m e n t ($) : S i z e o f the sh i p m e n t : Net Weight ( l b s ) Gr o s s Weight ( l b s ) Revenue Tons Volume ( c u . f t . ) TRANSPORTATION COSTS ' H a n d l i n g @ $ 5.45/Ton or/40 c u . f t . L o a d i n g @ $ 4.85/Ton or/40 c u . f t . { Wharfage @ 67^/Ton or/40 c u . f t . C o n t a i n e r i z a t i o n @ $ 3.25/Ton or/40 c u . f t . ^ F r e i g h t c h a r g e s @ $ 55. 75 /Ton (AIR S.C.R.) I n s u r a n c e @ 0.75% (AIR 0.15%) CAPITAL COSTS ON GOODS I n T r a n s i t @ 15% on 15 days (AIR 2 days) I n I n v e n t o r y @ 15% on 75 days (AIR 13 days) D e p r e c i a t i o n @ 5% on 75 days (AIR 13 days) TOTAL DIFFERENCE . . S E A 748 834 1.5 32 140 7 6 30 10 193 A I R ( e s t . ) 748 834 N.A. N.A. 27 625 7 1 7 2 637 + 444 160. Appendix C Analysis of regression model used to compare Total A i r and Sea  D i s t r i b u t i o n Cos t s . Although a i r f r e i g h t has i n i t i a t e d Container or Unit Load Device Rates (U.L.D.R.), these are not a t t r a c t i v e enough f o r most commodities because of the density and minimum weight l i m i -tations. A i r f r e i g h t rates are based on 194 cubic feet per pound, while sea rates are based on 34 cubic feet per pound. Moreover, mimimum weight shipments of 2,200 lbs to benefit by lower a i r f r e i g h t rates do not o f f e r enough incentive to transport large volume shipments. As shown i n the computation of transportation costs for each shipment considered, a i r f r e i g h t charges are from 4 to 6 times higher than sea f r e i g h t charges. However, when the t o t a l d i s t r i b u t i o n costs are compared, the r e l a t i o n i s s t i l l 1 to 1.5 or 2 i n favour of sea transport. The t o t a l cost for each s p e c i f i c shipment by sea and a i r and the size (weight) and the value of shipment were p l o t t e d i n a regression model. Size or weight and value of shipment were estimated to be important factors i n the t o t a l d i s t r i b u t i o n costs, since a)- transportation charges which may represent 40% of the t o t a l d i s t r i b u t i o n costs, are computed on the weight (or volume) of the shipment for a i r or-, surface mode and b) c a p i t a l costs, which may account f o r as much: a,s 35% of the t o t a l d i s t r i b u t i o n costs, take in t o account the value of the inventory. (In this study value of shipment was assumed to be value of inventory). A p p e n d i x C (Cont'd) 161. The r e g r e s s i o n e q u a t i o n s w h i c h r e p r e s e n t t o t a l d i s t r i b u t i o n c o s t f u n c t i o n s by a i r and by sea a r e as f o l l o w s ; Xa = 313 + 0.5467 Xw + 0.0178 Xy (1) Ys = 669 + 0.2166 Xw + 0.0269 Xv (2) where Ya = T o t a l a i r d i s t r i b u t i o n c o s t Ys = T o t a l s e a d i s t r i b u t i o n c o s t Yw = Weight o f shipment Xv = V a l u e o f shipment From e q u a t i o n s (1) and ( 2 ) , we can see the c o e f f i c i e n t o f Xv, v a l u e o f shipment by s e a , i s l a r g e r t h a n t h e c o e f f i c i e n t Xv by a i r . T h i s i n d i c a t e s t h a t f o r i d e n t i c a l s h i p m e n t s , the v a l u e has l e s s e f f e c t on the t o t a l . a i r d i s t r i b u t i o n c o s t s t h a n on the t o t a l s e a d i s t r i b u t i o n c o s t s . However, the s i t u a t i o n i s d i f f e r e n t i n the case o f the w e i g h t c o e f f i c i e n t , w h i c h has l e s s e f f e c t on t o t a l s e a d i s t r i b u t i o n c o s t s than on t o t a l a i r d i s t r i b u t i o n c o s t s . The c o n s t a n t term, w h i c h i s l o w e r f o r a i r c o s t f u n c t i o n , e q u a t i o n ( 1 ) , may i n d i c a t e t h a t shipments o f s m a l l volume (and c o r r e s p o n d i n g l y l o w - v a l u e ) are more e c o n o m i c a l t o s h i p by a i r than by s e a . T h i s s i t u a t i o n i s c o n f i r m e d by Case no.3 - T.V. s e t s  and E l e c t r o n i c Equipment. F i g u r e C . l , b a sed on t h e r e g r e s s i o n r e s u l t s , r e p r e s e n t s the c u r v e s f o r t h e A i r C o s t f u n c t i o n and Sea C o s t f u n c t i o n . F o r ease o f c o m p a r i s o n t h e two c u r v e s have been p l o t t e d on t h e same. graph. The two c u r v e s c r o s s a t t h e p o i n t f o r w h i c h a. shipment v a l u e d a t $ 7,300 and a w e i g h t o f 1,250 l b s w i l l have e q u a l d i s -t r i b u t i o n c o s t s ($ 1,350) by a i r o r by s e a mode ; t h e r e f o r e , a l l s hipments below t h e s e two l i m i t s ($ 7,300 and 1,250 l b s ) w i l l be c a r r i e d more e c o n o m i c a l l y v i a a i r f r e i g h t . Appendix C (Cont ldl 162. In addition, Figure C . l shows, that, given a 30% reduction i n a i r f r e i g h t rates, shipments under 5,500 lbs and valued at less than $ 16,000 would present a net d i s t r i b u t i o n cost advantage by a i r f r e i g h t . For these two values (5,500 lbs and $ 16,000), the t o t a l d i s t r i b u t i o n cost i s $ 2,300, whether sea or a i r transport i s used. Assuming a 30% rate reduction, the regression equation of Total A i r D i s t r i b u t i o n Cost function i s as follows : Ya = 222 + 0.3853 Xw + 0.0109 Xv (3) r The c o e f f i c i e n t of Xv (value of shipment) creates minimal e f f e c t s on the t o t a l a i r d i s t r i b u t i o n cost, whereas the c o e f f i c i e n t of Xw (weight of shipment) i s s t i l l higher than the one i n equation (2) based on present rate structures. However, i n the shipments considered (Cases nos: .1,2,3 & 4) , a rate reduction would r e s u l t i n a 7% volume increase for a i r f r e i g h t at the expense of the sea f r e i g h t . I t appears that t h i s 7% increase i n volume would ..compemsate for l o s t revenues incurred by a. 30% eare reduction. On the other hand, a 1Q o r 20% rate reduction would not be s u f f i c i e n t l y a t t r a c t i v e to a majority of p o t e n t i a l customers. A 30% rate reduction (which i s out of the question f o r the moment, given the present operating costs faced by the a i r c a r r i e r s ) would probably be f e a s i b l e when present p o t e n t i a l a i r f r e i g h t market i s more f u l l y e xploited and when d i r e c t operating costs (and p a r t i c u l a r l y ground handling operations) decrease with the intror-duction of the new Jumbo j e t s . 164. FIGURE C.2 - AIR FREIGHT TARIFFS SPECIFIC COMMODITY RATES1 Minimum siz e shipment (lbs) COMMODITY 440 660 1,100 2,200 INSURANCE Auto spare parts N.A. 75* 63* 56* 0.12% se : 4204 Typewriters N.A- 75* 68* N.A. 0.20% sc : 4318 T.V., Elec. Equipment 75* N.A. 61* 59* 0.23% sc : 4417 Texti l e s N.A. 75* 68* N.A. 0.15% sc : 2195 AIR CONTAINER OR UNIT LOAD DEVICE RATES AND SPECIFICATIONS 2 ' RATES * $ 3,125 for the f i r s t 5,060 lbs then 56* per pound $ 2,400 f o r the f i r s t 3,6 30 lbs then 59* per pound MEASUREMENT, (inches) 88x87x125 88x86x108 MAX. PAYLOAD (pounds) 8,000 7,000 MAX. VOLUME (cubic feet) 425 350 * These rates and s p e c i f i c a t i o n s are for P a l l e t or Igloo-type containers (tare weight of the container i s free of charge). FIGURE C. 2, Continued, CHARTER RATES 3 RATES ROUTE AIRCRAFT MAX.PAYLOAD App. $ 18,000 Vancouver-Tokyo Boeing 707-320C 85,000 lbs App. $ 32,000 Return t r i p (cargo version) Sources : 1 - Rates supplied by C P . A i r , Emery A i r Freight, F l y i n g Tiger Northwest Orient A i r l i n e s , Japan A i r l i n e s , Vancouver, B.C. January 1973 2 - Container rates supplied by F l y i n g Tiger, Northwest Orient A i r l i n e s , Vancouver, B.C., January 1973. 3 - Approximate charter rate supplied by P.W.A., Vancouver, B. February 19 73. 166. FIGURE C,3 SEA CONTAINER RATES COMMODITY R A T E S INSURANCE Auto parts & Accessories $ 49.25/2,000 lbs/40' 3 0.70% Typewriters, Sewing Machines $ 62.25/2,000 lbs/40'3 1.00% T.V. sets & Elec. Equipment $ 58.75/2 ,000 lbs/40 13 1.25% Tex t i l e s $ 55.75/2,000 lbs/40' 3 0.75% General charges applicable to a l l containerized commodities : - Containerization @ $ 3.25/2,000 lbs or 40 cubic feet - Handling @ $ 5.45/2,000 lbs or 40 cubic feet - Loading @ $ 4.85/2,000 lbs or 40 cubic feet - Wharfage @ $ 0.67/2,000 lbs or 40 cubic feet - Freight and above charges are applied to each 2,000 lbs or 40 cubic feet, whichever i s greater. - Insurance. CONTAINER CHARACTERISTICS MEASUREMENT TARE WEIGHT MAX. VOLUME MAX. PAYLOAD MAX. GROSS WEIGHT 8x8x20 4,870 lbs 1,116 cu.ft. 39,930 lbs 44,800 lbs 8x8x35 5,900 lbs 2,000 cu . f t . 48,500 lbs 54,400 lbs 8x8x40 6,570 lbs 2,387 cu.ft . 60,630 lbs 67,200 lbs Sources :. Western Overseas Shipping Ltd, Vancouver, B.C. Adanac International Forwarders, Vancouver,. B,C, Westward Shipping Ltd, Vancouver, B.C, Border Brokers, Vancouver, B.C. Japan Line, Container Service, Guide n o . l , Equipment  Sp e c i f i c a t i o n s and Data, March 19 71. FIGURE C.4 COMPARATIVE SPECIFICATIONS FOR AIR/SURFACE VAN CONTAINERS Container Container i Mode Container capacity tare weight Maximum capacity Average capacity c u . f t . (pounds) , — A i r S'xS'xlO 1 640 900 15 ,000 lbs @ 25 lbs cu. f t . 7,500 lbs @ 12 lbs cu. f t . Sea. B'xS'xlO' 550 2 ,400 20 ,000 lbs @ 37 lbs cu. f t . 12,000 lbs @ 22 lbs cu. f t . A i r 8'x8*x20< 1, 200 1 ,800 30 ,000 lbs @ 25 lbs cu. f t . 14,500 lbs @ 12 lbs cu. f t . Sea 8'x8'x20< 1, 116 4 ,870 40 ,000 lbs @ 37 lbs cu. f t . 25,000 lbs @ 22 lbs cu. f t . Sources : Reynolds Metal Company, Department of Research ; An Economic Study of Containerization and Its Market, 1961. Containerization International Year Book, London, 1969. Japan Line Container service, Guide no.l, Equipment S p e c i f i c a t i o n and Data, Japan, March 19 71. i—1 en GENERAL CARGO RATES. FROM' VANCOUVER D e l i v e r y T C ~ \ C i t y Rate Rate Lbs to Code Per Lb Per Cut Min Min Per l b iSLLA BELLA EA 26 NA 39 3LLA COOLA L3 24 NA 42 .75 .01 lALGARY j YC 08 7.00 124 2.00 .01 lAXBRIDOE 3AY CB 47 44.00 21 2.00 .01 -:A!-:?BELL RIV. BL 07 6.00 • 166 ; 1.50 . .01 iASTLi GAR £ CG 11 10.50 - 90 '.' • 1.50 .01 ICMOX 9 %*«* 07 6,00 i 166 ; 2.00 :RAN3R00X £ XC 11 10.50 ; . 90 , 1.00 ^ .02 :AV/50K CR^EK DQ ' 23 21.50 I- hi : 2.00 ,50cut .DKCKTGN £ XD 09 8.00 : 111 ; 1.75 ,50cwt 'ORT CHI POT AN PY • 20 17.00 • ! 50 ; .75 .50cv/t 'CRT HURRAY >2-I 17 14.50 i 59 '-.75 ,50cwt ORT RESOL'N FR 27 • 25.00 • 25.00 . ; 37 • CRT SIKrSON J FS CRT SMITH • .1 SM 27 ; 37 23 21.00 i 43 • R,U:D FORKS $ XZ ! 14 NA 71 AY RIVER HY ! 24 ! 33 21.50 41 . .75 ,50cwt 1,-UVIK EV 35.00 7.50 31 2 o00 ,50cv7t • A K LOOPS % KA 03 • ; 133 ZLQ.7NA $ LW 1 08 7.50 133 . i .1.00 . .02 VANCOUVER INORKAN WELLS •OCEAN FALLS ;PEACE RIVER PENTICTON £ iPORT HARDY IFOVSLL RIVER PRINCE GEORGE $ •PRINCE RUPERT '^UESNEL RAINBOW LAKE .RESOLUTE BAY •SAND3FIT I SMITHERS TORINO WILLIAMS LAKE WRIGLEY JELLOWKNIFE t ALL SHIPMENTS &ID.00 MINIMUM. VQ. i OF ! PS ! Yr i 7 r p : Lx | ?V/ : xs i PR j QZ ; RD • R 3 ; ZP i YD TS XT AZ EE WY ZF 32 26 19 07 . 09 07 11 12 10 22 56 12 22 IS zv 12' . 22 >. 16 ' 23 26 Per 30.00 NA 16.50 7.00 3.00 6.00 , 10 .CO l 10.00 | IO.OO ; 20.00 j 52.50 ; 10.00 NA NA NA j NA i 20.50; NA ; 26.00. 24.50i I t s to 31 39 52 142 VS 142 ICO 100 46 17 S3 46 55 55 63 35 3o t Denotes Canada Customs Po r t Of Entry. A l l r a t e s i n Canadian D o l l a r s unless other'-n Pe s t a t e d " MOTS: THE A B O V E R A T ? 3 AR2 L M F Q R M A T I O N A I : D N . . Y, AND S U B J E C T TO CHANGE. F D R O F F I C E R'J. E S . R A T E S AMD R E G U L A T I O N S C O N S U L T THE OFFICAL AIR F R E I G H T T A R I F F , O R C O N T A C T : PACIFIC WESTERN AIRLINES JET CARGO T O : f ROM VICTOR I A 10.00 I .08 VAMcouvt:^ To V200 1 • 2.00 .75 1.00 1.00 1.75 .75 1,50 1.50 2.00. 00! 7.00 £.00 5.00 A T T U C 10.10 I VICTORIA ? 1 - 5 0 7.07 { _ j DELlyE R V_ C H A Q& £ s_ M 1 N j C w J . 50 CO 3-2^ 1.^7 NORMAN WELLS ©. TERRACE PRINCE RUPERT SMITHERS IDSPIT ^>©£L-2©, 0 KITIMAT 169. OCEAN BELLA Q \P£ ?,?,,, . J^ 'A i NAMU ll ^ ^ W I L L I A M S S S PORT HARDY ^ CAMPBELL R^SL/^vSr; ..V>V<j; TOFINb b,f>JS£?r^ VICTORIA " O CALGARY . ( _*<LEY Oag^v.. "^roTcRANBROOK ° M - « - ^ « NELSON \ PRCIFtC LUEBTBin AIRUirs!E£S i GRAND FORKS CASTLEGAR TRAIL DOMESTIC SCHEDULED SERVICES INTERNATIONAL CHARTER SERVICES 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
https://iiif.library.ubc.ca/presentation/dsp.831.1-0099881/manifest

Comment

Related Items