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

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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 , U n i v e r s i t e de M o n t p e l l i e r , France, 1967 B.  Comm. E c o l e des Cadres du Commerce, France, 19 69  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE  REQUIREMENTS FOR THE DEGREE OF  MASTER OF BUSINESS ADMINISTRATION  F a c u l t y o f Commerce and Business  We accept t h i s required  THE  Administration  t h e s i s as conforming t o the  standard  UNIVERSITY OF BRITISH COLUMBIA J u l y 1973  In  presenting  this  an a d v a n c e d  degree  the  shall  I  Library  further  for  scholarly  by h i s of  agree  this  thesis  in p a r t i a l  fulfilment  of  at  University  of  Columbia,  the  make  it  that permission  p u r p o s e s may  representatives. thesis  freely  for  available  is  financial  of  G®\\Kk\\  P  gain  Y ?* £  The U n i v e r s i t y o f B r i t i s h V a n c o u v e r 8, C a n a d a  Date  JOt  A/I  kjJSJJd  /  Columbia  /  C  by  the  Ml-{  shall  not  requirements  reference copying of  I  agree  and  copying or  be a l l o w e d  for  that  study.  this  thesis  Head o f my D e p a r t m e n t  understood that  written permission.  Department  for  for extensive  be g r a n t e d  It  British  the  or  publication  without  my  i.  ABSTRACT  Transportation  o f commodities by a i r d u r i n g  the p a s t  decade has e x p e r i e n c e d the f a s t e s t growth o f a l l modes o f transport. and  Although a slowdown had been p r e d i c t e d by  shippers  c a r r i e r s a l i k e , the economic r e c e s s i o n o f 1969 has had o n l y  m i l d e f f e c t s on the a i r f r e i g h t i n d u s t r y . In t h i s study, the p o t e n t i a l f o r a i r f r e i g h t has been examined i n terms o f the concept o f t o t a l d i s t r i b u t i o n c o s t . The  study has focused  on the p o t e n t i a l f o r a i r f r e i g h t w i t h i n  B.C. b u t more p a r t i c u l a r l y on B.C. e x t e r n a l trade w i t h Japan and  on t h e means whereby t h i s p o t e n t i a l may b e s t be r e a l i z e d .  C o s t a n a l y s i s f o r s p e c i f i c commodities by a i r t r a n s p o r t as compared t o s e a c o n t a i n e r  transport i l l u s t r a t e s  o f the T o t a l D i s t r i b u t i o n Cost Concept.  the a p p l i c a t i o n  B r i e f mention i s made  of the back-haul f r e i g h t problems f a c e d by B.C.- based a i r carriers. d i t y market  P o t e n t i a l f o r a i r f r e i g h t i n the c o n t a i n e r i z e d commoi s examined i n the l i g h t o f p r e s e n t  a i r c r a f t c a p a c i t y and performance, t o g e t h e r surface  transport The  and f u t u r e  with p o s s i b l e a i r /  coordination.  conclusions  o f tfte study aire as f o l l o w s :  1 - the convenience and c o s t savings  d e r i v e d from the use o f a i r  t r a n s p o r t do n o t appear, as y e t , t o compensate f o r the  present a i r transportation air-freight increased fully it  rate  reductions  charges ; may n o t n e c e s s a r i l y  f r e i g h t volume u n l e s s  t h e p r e s e n t p o t e n t i a l i s more  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  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  B.C. a n d on t r a n s - P a c i f i c r o u t e s w i l l in  the near term.  traffic,  This  increase  i s p a r t i c u l a r l y true  b o t h from Japan and from  reduction within  dramatically  f o r eastbound  B.C.;  however, advanced t e c h n o l o g y , lower o p e r a t i n g use  result in  costs  through  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  i m p r o v e d u n d e r s t a n d i n g o f t h e 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  of a i rf r e i g h t i n a given  d i s t r i b u t i o n system would a l l  appear t o augur w e l l f o r the f u t u r e  of a i r freight.  iii.  TABLE  OF  CONTENTS  CHAPTER  PAGE INTRODUCTION Objective Thesis organization Limitations  I  .  1 2 3  STRUCTURES AND GENERAL CONFIGURATION OF THE TRANSPORTATION NETWORK IN B.C. Geographical considerations . 4 S o c i o Economic c o n s i d e r a t i o n s <,.... 5 Industrial activity . . . . . 6 Network t r a n s p o r t a t i o n 10 Irtter-modal c o m p e t i t i o n f a c t o r s i n B.C. . . . . . ' 2 0  II  B.C. TRADE BY MODE OF TRANSPORT AND THE SITUATION OF THE REGIONAL AIR CARRIER B.C. t r a d e '. . Japanese t r a d e Situation of regional a i r c a r r i e r  III  31 38 41  THE AIR FREIGHT DECISION AND ITS POTENTIAL O p e r a t i n g c o s t s o f a i r c a r r i e r s i n Canada . . . . Who are the users o f a i r f r e i g h t s e r v i c e . . . . C h a r a c t e r i s t i c s s p e c i f i c t o the use o f a i r f r e i g h t G e n e r a l demand f u n c t i o n i n a i r f r e i g h t The t o t a l d i s t r i b u t i o n concept S p e c i f i c advantages o f a i r d i s t r i b u t i o n over s u r f a c e d i s t r i b u t i o n Surface t r a n s p o r t a t i o n versus a i r t r a n s p o r t a t i o n : a p p l i c a t i o n and a n a l y s i s o f the t o t a l d i s t r i b u t i o n c o s t concept . .  55 59 60 61 63 69 73  iv.  CHAPTER IV  POTENTIAL AIR FREIGHT IN THE CONTAINER MARKET A i r cargo c o n t a i n e r i z a t i o n . • C o n t a i n e r s and a i r c r a f t C a p a b i l i t y and c a p a c i t y o f a i r c r a f t P o t e n t i a l of a i r f r e i g h t container i n the s u r f a c e c o n t a i n e r market Air/truck coordination A i r / s e a c o m p e t i t i o n and c o o r d i n a t i o n Land-bridge concept a p p l i e d t o a i r f r e i g h t  V  88 89 91  . . .  94 95 96 97  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  1.2  Annual  1.3  Railway  1.4  Cargo handled through B.C.  1.5  Aerodrome i n B.C.  1.6  Scheduled I n t e r n a t i o n a l and  7  index o f employment i n B.C  traffic  8  f r e i g h t i n B.C  12 ports  14  and Canada i n 1968  .  17  domestic  at Vancouver a i r p o r t  18  1.7  Intra-modal c o m p e t i t i v e f a c t o r s  21  1.8  Inter-modal c o m p e t i t i v e f a c t o r s  23  2.1  Ten l e a d i n g commodities B.C. custom p o r t s Ten l e a d i n g commodities  2.2  B.C.  exported  through  imported  through  32  custom p o r t s  33  2.3  E x p o r t s o f B.C.  2.4  Imports through B.C. p o r t s by p r i n c i p a l market o r i g i n Value & mode o f t r a n s p o r t f o r e x p o r t s  36  through B.C.  37  2.5  p r o d u c t s to major markets  ports  2.6  Japanese  e x p o r t s t o Canada  2.7  P . W . A . b u l k o p e r a t i o n revenues  . . . .  35  40 . . ,  44  vi.  TABLE  PAGE  2.8  P.W.A. growth and volume o f bulk o p e r a t i o n s . . .  45  2.9  P.W.A. o p e r a t i n g r a t i o s and f r e i g h t l o a d  47  2.10  Ton/miles  2.11  Directional  produced  i n B.C. by P.W.A  characteristics  movement f o r P;W.A. s e l e c t e d  factors  48  o f cargo routes  49  3.1  D.O.C. p e r type o f a i r c r a f t  56  4.1  Composition o f a i r f r e i g h t by type o f c o n t a i n e r i n the f r e e w o r l d  88  vii.  LIST OF FIGURES FIGURE 3.1 3.2 4.1  PAGE Demand curve f o r a i r f r e i g h t when a i r and s e a r a t e s are the same . . . . . . . . . Demand curve f o r a i r f r e i g h t w i t h a p p l i c a t i o n o f t o t a l d i s t r i b u t i o n c o s t concept C o s t comparison f o r p a l l e t i z e d and c o n t a i n e r i z e d shipment on 3,000 m i l e f l i g h t  80 .  . . .  81 92  INTRODUCTION  OBJECTIVE OF  The  THIS STUDY  o b j e c t i v e s of the p r e s e n t  study are to examine whether  the p o t e n t i a l demand f o r a i r f r e i g h t w i t h i n B.C. t r a n s - P a c i f i c routes  and  transport  the e f f e c t of a i r r a t e s on t h i s demand. The  e f f e c t s of a r e d u c t i o n i n a i r f r e i g h t r a t e s on  volume t r a n s p o r t e d i n order  the  are t e s t e d on s p e c i f i c shipments and s i t u a t i o n s ,  to determine whether t o t a l c o s t d i s t r i b u t i o n o f f e r s  s u f f i c i e n t advantages t o o f f s e t the h i g h e r of s h i p p i n g by  air.  The  t r a n s p o r t a t i o n charges  concept of T o t a l D i s t r i b u t i o n Cost i s  a p p l i e d i n t h i s study to the measurement of comparative b u t i o n c o s t by s u r f a c e and The  distri-  a i r modes.  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 s u r f a c e c o n t a i n e r market, and t i o n s o f an i n t e g r a t e d c o o p e r a t i o n and  the  can be r e a l i z e d by means of the many advan-  tages o f f e r e d by a i r t r a n s p o r t over those of s u r f a c e and  on  and  analyze  the  implica-  c o o r d i n a t i o n between a i r  s u r f a c e modes, both, o f which c o u l d p l a y an important p a r t i n  the development of air. freight:.  THESIS ORGANIZATION The  introductory  chapter o u t l i n e s the bases o f the B.C.  economy and the n a t u r e o f i t s t r a n s p o r t a t i o n network. modal c o m p e t i t i v e  f a c t o r s r e l e v a n t to the choice  t r a n s p o r t i n B.C. are a l s o  The i n t e r -  o f a mode o f  described.  Chapter Two examines the nature of B.C. exports and imports by mode o f t r a n s p o r t , with, p a r t i c u l a r r e f e r e n c e w i t h Japan.  In a d d i t i o n , the chapter d i s c u s s e s  t o trade  the s i t u a t i o n  of the B.C. r e g i o n a l a i r c a r r i e r and the nature o f i t s  operations  i n the North. Chapter Three d i s c u s s e s  the advantages, d i s a v a n t a g e s ,  c h a r a c t e r i s t i c s and r a t e s t r u c t u r e s o f a i r t r a n s p o r t . D i s t r i b u t i o n Cost Concept i s d i s c u s s e d  at length  c o s t a n a l y s i s comparison between s u r f a c e i n r e s p e c t o f s p e c i f i c commodities  The T o t a l  and i n c l u d e s a  and a i r t r a n s p o r t a t i o n  ( a l s o i n Appendix C ) . The  i n t e n t i o n o f t h i s chapter i s t o i n d i c a t e the means a v a i l a b l e t o a i r c a r r i e r s o f i n c r e a s i n g 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 f a c t be r e a l i z e d by the a i r f r e i g h t i n d u s t r y . Chapter Four examines the p o t e n t i a l o f a i r f r e i g h t i n the c o n t a i n e r market i n the l i g h t o f r a p i d t e c h n o l o g i c a l changes i n the a e r o n a u t i c s  and c o n t a i n e r  transport coordination  industries.  Surface  and a i r  i s a l s o b r i e f l y mentioned as means f o r  f u r t h e r development o f a,ir f r e i g h t , Finally, ations  Chapter F i v e p r e s e n t s  and c o n c l u s i o n s .  the summary o f recommend-  3.  LIMITATIONS The  c o s t a n a l y s i s made with r e s p e c t to shipments from  f o u r d i f f e r e n t companies should  i d e a l l y have i n v o l v e d a thorough  a n a l y s i s of t h e i r d i s t r i b u t i o n system. were however unable to supply  The  information  firms  on  interviewed  inventory  costs,  p i l f e r a g e , damages, packing and warehousing c o s t s , and pertinent The  other  data. T o t a l D i s t r i b u t i o n Cost Concept takes i n t o  r a t i o n such i n t a n g i b l e f a c t o r s as r e l i a b i l i t y , s a t i s f a c t i o n and  conside-  customer  company p r e s t i g e , a l l of which p l a y a secondary  r o l e i n the d e c i s i o n of whether or not to use  air freight.  f a c t o r s , even i f they were a v a i l a b l e , would be extremely t o i n t e r p r e t , and  Accordingly, and  difficult  t h e r e f o r e were not taken i n t o c o n s i d e r a t i o n i n  computing the comparative c o s t a n a l y s i s between a i r and  the value  These  the f a c t o r s c o n s i d e r e d  i n the a n a l y s i s  s i z e of the shipment, h a n d l i n g ,  c o n t a i n e r i z a t i o n , f r e i g h t and  insurance  on goods i n t r a n s i t , i n i n v e n t o r y  and  sea modes.  l o a d i n g , wharfage,  charges, c a p i t a l  their  are  depreciation.  costs  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 w e s t e r l y p r o v i n c e o f Canada, bounded on the south by the 49th p a r a l l e l and the U.S. b o r d e r , on the n o r t h by the Yukon T e r r i t o r y and A l a s k a , on the e a s t 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 o f B.C. i s g e n e r a l l y mountainous and e x t e n s i v e l y covered by coniferous  forests.  The numerous ranges o f mountains i n the p r o v i n c e are mostly p a r a l l e l t o the. c o a s t l i n e , 8,C, has very r i c h m i n e r a l r e s o u r c e s , n o t f u l l y e x p l o i t e d , and a h i g h p o t e n t i a l f o r the development.of hydro e l e c t r i c i t y . N e a r l y 60% o f the p r o v i n c e i s covered by commercial f o r e s t s , y e t only 5% o f the s u r f a c e area o f the p r o v i n c e i s s u i t a b l e f o r a g r i c u l t u r e . Crops i n c l u d e g r a i n , f r u i t ,  berries  and v e g e t a b l e s . There are a l s o areas o f d a i r y farming and c a t t l e r a n c h i n g i n the south and s o u t h e a s t o f the P r o v i n c e . The  economic l i f e o f the p r o v i n c e o f B r i t i s h Columbia i s  5.  c o n d i t i o n e d by w i d e l y  diversified  climatic factors.  Basically,  there are three c l i m a t i c r e g i o n s : - The  Pacific  : c o a s t a l area v/hich c o n s t i t u t e s 5 % of  the p r o v i n c e - The and  i s warm and humid  South Mountain southeast  (rainfall  i s heavy) ;  : v a l l e y s and p l a t e a u s on  r e p r e s e n t one  the  south  t h i r d of the area of  the  province ; - Th,e North, f o u n t a i n ; c o l d e r i n the n o r t h and east the As  ; represents- n e a r l y t w o - t h i r d s  north-  of the area of  province.  a r e s u l t of these g e o g r a p h i c a l c l i m a t i c  B r i t i s h Columbia i s mostly  populated  factors,  along the c o a s t , Vancouver  I s l a n d and i n the v a l l e y s , such as F r a s e r , Columbia, Kootenay, Skeena, Peace and Okanagan R i v e r s . l o c a t e d i n the southern the Vancouver area and  Most of the p o p u l a t i o n i s  h a l f of the p r o v i n c e with n e a r l y 55%  in  the F r a s e r V a l l e y .  SOCIO --ECONOMIC CONSIDERATIQNS . POPULATION A b a s i c element o f the economic a c t i v i t y i t s p o p u l a t i o n and where secondary manufacturing trade are concerned. On June 1966, 1,873,700  (up 34%  2,137,000 and The  B.C.  B.C.  is reflected and  population  s e r v i c e s or  was  from 1956). P o p u l a t i o n as o f June 1, 1970  the 1971  by  was  p r e l i m i n a r y census r e p o r t e d 2,180,000.  p o p u l a t i o n , as shown by the l a s t census, has  the  h i g h e s t growth r a t e i n Canada. Much of t h i s i n c r e a s e of  second  popula-  6.  t i o n i s a t t r i b u t a b l e to net immigration r a t h e r 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 s e r v i c e s produced  w i t h i n the p r o v i n c e and  depends upon the p r o d u c t i v i t y and the number of people i n c r e a s e d by 7.3%  from 1969  to 1971.  Although  employed,  the l a s t couple of  y e a r s show a marked slowdown i n economic a c t i v i t y  i n Canada, the  U n i t e d S t a t e s and the r e s t of the world, B r i t i s h Columbia now  stands  as one of the w e a l t h i e s t p r o v i n c e s i n Canada, i n economic  terms. Table 1.1  shows comparative  f i g u r e s f o r p o p u l a t i o n growth,  labour f o r c e , G.P.P. and income p e r c a p i t a f o r the y e a r s 1965  and  1960,  1970.  Table 1.2 areas i n the B.C.  shows the index of employment i n seven i n d u s t r i e s . A h i g h degree  selected  o f automation  i n the  primary i n d u s t r y has g i v e n h i g h l a b o u r p r o d u c t i v i t y w h i l e the demand f o r u n s k i l l e d workers has been d e c r e a s i n g . INDUSTRIAL ACTIVITY An i n c r e a s e i n p o p u l a t i o n i m p l i e s a c o r r e s p o n d i n g i n c r e a s e in industrial activity  and i n job o p p o r t u n i t i e s .  Yet, as shown  by p a s t e x p e r i e n c e and by the s t a t i s t i c s o u t l i n e d i n Tables and 1.2,  1.1  i n s p i t e of s u b s t a n t i a l development i n a l l s e c t o r s of  i n d u s t r y , fewer workers were employed i n primary  industries -  mining, l o g g i n g , 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 p a r t , employment i n these  industries  TABLE  1.1  BRITISH COLUMBIA ECONOMIC ACTIVITY 19 60 - 19 70  FACTORS  P o p u l a t i o n growth Labour Force  1960  1965  1968  1969  1970  1,600 ,000  1,800,000  2,007,000  2,067,000  2,137,000  565 ,000  667,000  797,000  836,000  877,000  G.P.P. ($ m i l l i o n s )  3,933  5,794  7,708  8,640  9 ,250  Income p e r c a p i t a ($)  1,856  2 ,334  2,833  3,121  3,264  Source : B.C. F i n a n c i a l and Economic Review, June 1971 Department o f F i n a n c e , 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^ o f Economic A c t i v i t y ,  December 1970.  Department o f I n d u s t r i a l Development, Trade and Commerce, V i c t o r i a ,  B.i  * estimates.  CO  has been a f f e c t e d by e x t e n s i v e use of  automation.  At the same time, however, the i n c r e a s e i n e x p l o r a t i o n programs and the e x p l o i t a t i o n of m i n e r a l r e s o u r c e s d u r i n g the decade have i n f l u e n c e d the development and f u r t h e r of a i r t r a n s p o r t p a r t i c u l a r l y i n the  pas  utilization  North.  The p r o v i n c i a l government and the b u s i n e s s community w e l l aware o f the p o t e n t i a l of these r e s o u r c e s and are t o encourage the development of a secondary  are  attempting  i n d u s t r y to f u r t h e r  i n d u s t r i a l i z e the p r o v i n c e . The wood and paper product i n d u s t r i e s dominate manufact u r i n g i n B.C.,  a c c o u n t i n g f o r almost  50% of f a c t o r y  and i t seems the f o r e s t i n d u s t r y w i l l remain i n the f o r many years."'' expansion  manufacturing  i n d u s t r y t o supply  i n d u s t r y such as mining,  The  the  l o g g i n g and t r a n s p o r -  t a t i o n equipment which i s f a v o r e d by the p r e s e n t government.  forefront  However t h e r e has been r e c e n t l y a t r e n d toward  o f a secondary  needs f o r primary  shipments,  provincial  2  f i g u r e s o u t l i n e d i n Table 1.1.  t h a t the p r o v i n c e of B.C.  and Table 1.2  indicate  has the means to meet the demands of  an e v e r - i n c r e a s i n g consumer market which has  the second  highest  per c a p i t a income i n Canada. The  r e c e n t completion by the B.C.  of the e x t e n s i o n of r a i l up to F o r t St.John  p r o v i n c i a l government,  t r a c k s of the former P.G.E., now  B.C.R.,  shows the i n c r e a s i n g concern of d e v e l o p i n g  the n o r t h e r n p a r t of B.C.. and  i n areas where t h e r e are n a t u r a l  10.  barriers  t o p e n e t r a t i o n and to i n d u s t r i a l development,  modes o f t r a n s p o r t w h i c h w i l l b e n e f i t most from t h i s  one o f the situation  w i l l be a i r t r a n s p o r t . E x t e r n a l t r a d e through B r i t i s h Columbia be d i s c u s s e d l a t e r i n more d e t a i l . transportation  custom p o r t s w i l l  We w i l l t u r n now  to the  sector.  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 P r e s e n t l y , t h e r e are 4,900 m i l e s o f m a i n l i n e r a i l w a y i n B r i t i s h Columbia,  r e p r e s e n t i n g over 10% of the Canadian  The Canadian N a t i o n a l . Railway of t r a c k i n the p r o v i n c e , e n t e r s B.C. Pass.  (C.N.R.) w i t h 1,450  total. miles  through the Yellowhead  I t turns west t o Red Pass and then d i v i d e s i n t o n o r t h and  south branches.  The North branch f o l l o w s the F r a s e r R i v e r to  P r i n c e George and then along the B u l k l e y and Skeena R i v e r s to P r i n c e Rupert.  The South branch f o l l o w s Thompson R i v e r to  Kamloops and then a l o n g the F r a s e r R i v e r to The Canadian P a c i f i c Railway t r a c k i n the p r o v i n c e , e n t e r s B.C. Pass.  Vancouver.  (C.P.R.) w i t h 2,000 m i l e s o f through the K i c k i n g  Horse  I t runs to Golden, R e v e l s t o k e , Kamloops and then, p a r a l l e l  to C.N.R,, t o  Vancouver,  The B r i t i s h Columbia  Railway, w i t h 1,450  miles of track,  r e p r e s e n t s an important l i n k between the south and c e n t r a l area,  and the south and the n o r t h e r n area o f the p r o v i n c e .  The B.C.R.  operates 865 m i l e s o f m a i n l i n e t r a c k between North Vancouver  and  i t s most n o r t h e r l y ' t e r m i n a l , F o r t St.John.  has  access t o the North American bulk l o a d i n g f a c i l i t y , mid-1972.  The B.C.  Railway  r a i l w a y network and a l a r g e  deep-sea  l o c a t e d a t Squamish, became o p e r a t i v e i n  3  The r a p i d expansion i n f o r e s t r y , mining, n a t u r a l gas a g r i c u l t u r e , t o g e t h e r w i t h the r i s e of the secondary s e r v i c e d by the B.C.  and  industry  Railway have have l e d to a growth i n p o p u l a -  t i o n , which i n t u r n has l e d t o i n c r e a s e d economic a c t i v i t y throughout the area s e r v i c e d by the r a i l w a y .  Freight t r a f f i c for  B.C.R. accounts f o r almost 90% o f i t s t o t a l revenue, w i t h the f o r e s t p r o d u c t commodities t o t a l f r e i g h t revenue.  c o n t r i b u t i n g more than h a l f o f the  The development  o f new  areas s e r v i c e d by  the B.C.R. system w i l l have the e f f e c t o f i n c r e a s i n g the p r o p o r t i o n o f a i r f r e i g h t by c r e a t i n g new population  centres.  Table 1.3 rail  s e r v i c e s and needs f o r these  shows the f i g u r e s of f r e i g h t volume handled a t  s t a t i o n s i n B r i t i s h Columbia  WATER TRANSPORTATION  f o r 1967,  1968,  1969,  1970.  .  Coas f a I S h i p p i n g The B.C.  c o a s t l i n e i s u t i l i z e d y e a r around by  coastal  f r e i g h t e r s , tugs, barges f o r g e n e r a l cargo and passenger movements.  TABLE  1.3  RAILWAY FREIGHT IN BRITISH COLUMBIA (thousands o f tons)  O r i g i n a t e d o r loaded Terminated o r unloaded  Source  1967  1968  1969  1970*  18,868  19 ,568  20,716  21,800  22,422  24,201  23,550  24,100  : B.C. F a c t s and S t a t i s t i c s , 1970, Economics and S t a t i s t i c s Government o f B.C., V i c t o r i a ,  Branch,  B.C.  * estimates.  ro  13.  Practically  a l l of the bulk m a t e r i a l s moving by water along the  c o a s t i s c a r r i e d by barges. E x t e n s i v e f e r r y s e r v i c e s are operated  between the Mainland and Vancouver I s l a n d and the G u l f  I s l a n d s by the B.C.  Ferries,  a company owned by the p r o v i n c i a l  government. Deep-sea s h i p p i n g Although the number of f o r e i g n s a i l i n g s Columbia  British  p o r t s has decreased over the p a s t decade, the volume of  cargo e x p o r t e d f o r the same p e r i o d has from 12 m i l l i o n tons i n 1960 of  to and from  i n c r e a s e d by over  t o 27 m i l l i o n  tons i n 1970  120%, and out  t h i s amount, 17 m i l l i o n tons have been exported through  the  p o r t of Vancouver a l o n e . R a p i d l y expanding bulk p r o d u c t shipments,  e x p o r t s and i m p o r t s , the d i v e r s i t y  and long-term s a l e c o n t r a c t s f o r c o a l t o  Japan, have a l l c r e a t e d the need f o r l a r g e r deep-sea i n Vancouver.  Rail  automatic r a i l - c a r  of  l o o p s , bulk s t o r a g e , deep-sea loading f a c i l i t i e s  facilities  b e r t h s and  have been i n s t a l l e d a t  Roberts Bank Super p o r t . P r e s e n t l y , the p o r t of Vancouver can 4 handle up to 35,000 u n i t s a n n u a l l y at the c o n t a i n e r t e r m i n a l . Table 1.4 B.C.  i n d i c a t e s the volume o f cargo handled  p o r t s f o r the years 1966  to  through  1970.  ROAD TRANSPORTATION In  r e c e n t y e a r s , t r u c k i n g has come to be r e c o g n i z e d as the  mode of t r a n s p o r t s u i t e d to l o c a l d i s t r i b u t i o n . The government has  acknowledged the r e s p o n s i b i l i t y  provincial  of the p r o v i n c e  TABLE  1.4  CARGO HANDLED THROUGH BRITISH COLUMBIA PORTS 1966 - 1970 (Thousands o f tons) COASTAL  TRAFFIC  INTERNATIONAL  TRAFFIC  Year  Loaded  Unloaded  Loaded  1966  20,977  21,043  20,533  3,657  1967  20,233  20,196  22,194  3,843  1968  19,587  19 ,581  24,150  4,457  1969  19,808  19,796  20 ,724  4,511  1970*  17,564  17,568  25,296  2 ,882  Source  : S h i p p i n g r e p o r t , 1970.  D.B.S. 54-206  Dominion Bureau o f S t a t i s t i c s , Ottawa. F i g u r e s f o r 19 70 are estimates,  Unloaded  to p r o v i d e access road to areas under development or p o t e n t i a l l y r i c h i n m i n e r a l r e s o u r c e s . The now  B r i t i s h Columbia Highway system  t o t a l s 28,000 m i l e s of highways of which 7,100  miles  are  5  paved.  Commercial v e h i c l e r e g i s t r a t i o n f o r 1969  u n i t s , which t r a n s p o r t e d 85 m i l l i o n s which was  was  197,800  tons of cargo, one  r e g i s t e r e d as.shipments w i t h i n the p r o v i n c e . ^  most l o c a l i t i e s i n B.C.  are s e r v i c e d by road.  The  t h i r d of Today,  t r u c k i n g indus  t r y w i t h i n B.C.  i s more than c o m p e t i t i v e w i t h a i r f r e i g h t on h a u l  between 400  800 m i l e s , o f f e r i n g r e g u l a r schedules  cities  and  to major  and towns w i t h i n 2 4 hours a t the most. Highways p l a y  an  important p a r t i n the p e n e t r a t i o n and the development o f the n o r t h e r n r e g i o n s i n the n o r t h of the p r o v i n c e . AIR  TRANSPORTATION  There are 75 a i r c a r r i e r s based i n B.C.- t r a n s c o n t i n e n t a l , t r a n s p a c i f i c , r e g i o n a l , supplemental  and c h a r t e r . There are  e l e v e n companies o f f e r i n g h e l i c o p t e r s e r v i c e s ( c o n t r a c t and c h a r t e r ) . Vancouver I n t e r n a t i o n a l A i r p o r t can handle commercial a i r c r a f t on the ground a t a time. The  up to 30  o l d Vancouver  I n t e r n a t i o n a l A i r p o r t Terminal has been transformed  and i s  u t i l i z e d as cargo t e r m i n a l a i r p o r t f o r r e g i o n a l and  international  routes. With d i f f i c u l t  access to so many areas w i t h i n the p r o v i n c e ,  the p a s t years have been the scene of " b u s h - p i l o t " o p e r a t i o n s . Numerous lakes and s h e l t e r e d c o a s t a l s e a p o r t s have p r o v i d e d airport f a c i l i t i e s  i n s p i t e o f mountainous and  forested terrain.  As a ' r e s u l t , B r i t i s h Columbia has n e a r l y  20% o f a l l aerodromes  r e g i s t e r e d w i t h t h e m i n i s t r y o f T r a n s p o r t . T a b l e 1.5 l i s t s aerodromes o p e r a t e d by the F e d e r a l  (overleaf)  Department o f T r a n s p o r t ,  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 ,  b o t h f o r B.C. and  Canada. But o u t o f 29 8 aerodromes, o n l y  15 o f the l a n d  aerodromes  c a r r y r e g u l a r s c h e d u l e d t r a f f i c . The r e s t a r e o p e r a t e d by p r i v a t e . 7 i n d u s t r i e s , o r a r e f o r r e c r e a t i o n o r emergency u s e . 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 Canadian a i r p o r t i n terms o f t r a f f i c  largest  and volume o f c a r g o h a n d l e d .  T a b l e 1.6 i n d i c a t e s t h e a c t i v i t y o f Vancouver I n t e r n a t i o n a l Airport  ( i n c l u d i n g cargo terminal)  f o r 1969 and 1970 f o r p a s s e n -  g e r s , 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 p a s s e n g e r (+ 10%) and c a r g o (+ 20%) t r a f f i c , w h i l e m a i l  traffic  dropped by 41. P a c i f i c Western A i r l i n e s , t h e r e g i o n a l c a r r i e r f o r w e s t e r n Canada, c a r r i e d , f o r the p e r i o d s o f 1969 and 1970 r e s p e c t i v e l y , 7,260 and 8,180 t o n s . More than 50% o f t h e t o t a l volume came f r o m 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 a t i o n s i n t h e N o r t h w e s t and Yukon T e r r i t o r i e s . T h i s shows t h a t i n s p i t e o f a l a r g e r number o f a i r p o r t s i n the province,  t h e amount o f 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 v e r y s m a l l . But d u r i n g demand f o r a i r t r a n s p o r t  t h e p a s t decade  the  - p a s s e n g e r and f r e i g h t s e r v i c e s -  increased 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 a c c u r a g  tely.  One f a c t o r , p e c u l i a r t o Canada, and more s p e c i f i c a l l y t o  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  5  8  52  244  119  494  UNLICENSED AERODROMES Heliports Water Land MILITARY AERODROMES  . 2 TOTAL  Source :  298  Canadian Aerodrome D i r e c t o r y , A p r i l M i n i s t r y o f T r a n s p o r t , Ottawa.  57 1,564  196 8  TABLE  1.6  SCHEDULED INTERNATIONAL AND DOMESTIC TRAFFIC AT VANCOUVER INTERNATIONAL AIRPORT ( i n thousands) PERIOD  YEAR  January 1 , t o December 3 1 .  ARRIVING LOAD Passenger  DEPARTING LOAD  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  All  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  services  Sources  : D.B.S. S t a t i s t i c s s u p p l i e d by the Vancouver A i r p o r t , T r a f f i c O f f i c e . Vancouver, B. C., December 1971.. CO  19. the p r o v i n c e  of B.C.,  must be borne i n mind : f r e i g h t  operations  are more c o s t o r i e n t e d i n view of the back haul problems current*-ly  f a c e d by  the r e g i o n a l a i r l i n e  p a t t e r n of unbalanced t r a f f i c  : cargo r a t e s must r e f l e c t  s i n c e shipments are north  and  the east 9  bound from Vancouver with On north has  uneconomic payloads on r e t u r n  the other hand, the development of r e s o u r c e s created  operations  a s i t u a t i o n which i n v o l v e s  trips. in  the  service-oriented  f o r passengers and more e s p e c i a l l y f o r emergency s h i p -  ments which c o n s t i t u t e most of the volume of scheduled a i r f r e i g h t moving w i t h i n  the  province.  PIPELINES Long d i s t a n c e p i p e l i n e s are a r e l a t i v e l y r e c e n t i n B r i t i s h Columbia. petroleum and  gas  They are used f o r the  products.  They r e p r e s e n t  development  transportation  of  a good p r o p o r t i o n  the t o t a l ton mileage of f r e i g h t i n i n v e n t o r y  traffic.  of  From  A l b e r t a , 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 S t a t e . The c a r r i e s n a t u r a l gas U.S.  border  w h i l e B.C.  from F o r t Nelson and  F o r t St.John, down to  ( s e r v i n g at the same time the Hydro s u p p l i e s Vancouver and  area w i t h n a t u r a l Presently, gas  Westcoast T r a n s m i s s i o n P i p e l i n e  i n t e r i o r of the  the Lower F r a s e r  province) Valley  gas. i n B.C.  there  are over 8,700 m i l e s  and petroleum p i p e l i n e s w i t h a p r o d u c t i o n  f e e t of n a t u r a l gas  the  (+ 9.3%  over 1969)  and  o f 280  of  natural  billion  the p r o d u c t i o n  cubic  o f crude  20. o i l has  r i s e n to  25.8  million 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 w e l l s e r v i c e d by i t s  t r a n s p o r t a t i o n network both i n regard trade.  Studies  Transportation  conducted every two and  to i n t e r n a l and  y e a r s f o r the  external  Canadian  D i s t r i b u t i o n Management Magazine by  the  Research Bureau o f Southam Business P u b l i c a t i o n s , i s o l a t e the f a c t o r s t h a t c o n d i t i o n and  a f f e c t the  of the persons r e s p o n s i b l e  f o r the movement of goods.  and  judgement and  d i s t r i b u t i o n managers are r e s p o n s i b l e  the  decision Traffic  f o r s e l e c t i n g the mode  o f t r a n s p o r t which s u i t s h i s needs, o r company's needs, b e s t and w i t h i n  the mode, the  carrier.  Q u e s t i o n n a i r e s were sent  to s e l e c t e d companies.  f a c t o r s were s e l e c t e d as h a v i n g an e f f e c t on the c a r r i e r s , and  choice  of  the  the p a r t i c i p a n t s were asked to rank these f a c t o r s  when s e l e c t i n g c a r r i e r s e r v i c e s . f a c t o r s considered is  Twelve  within  Table 1.7  a mode of t r a n s p o r t .  the rank of these f a c t o r s a t the n a t i o n a l  hand column at the  lists  regional  the  The  level,  l e v e l f o r the p r o v i n c e  twelve  left  column  the r i g h t of  British  Columbia. I t i s i n t e r e s t i n g to note t h a t , i n B.C. ranks t h i r d , w h i l e ranking explained  e i t h e r by  time i n t r a n s i t  f i r s t at n a t i o n a l l e v e l .  a l i m i t e d market and  few  This  can  s u p p l i e r s or by  be low  21.  TABLE INTRA-MODAL  NATIONAL RANK  1.7  COMPETITIVE FACTORS  F A C T O R S  B.C. RANK  1  Time i n t r a n s i t  3  2  F r e i g h t charges  1  3  On time performance  2  4  Shipment  5  Frequency o f s e r v i c e  5  6  Door-to-door s e r v i c e  9 .  7  Promptness o f c l a i m s settlement  ^  8  A v a i l a b i l i t y of standard equipment  ^  9  Loss and degree o f damage  6  10  Information service  8  11  Competence o f 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 special equipment  12  Source  tracing  10  Southam B u s i n e s s P u b l i c a t i o n s L t d : C a r r i e r and Equipment  P r e f e r e n c e . Study o f  Canadian I n d u s t r i a l s h i p p e r s , 1970.  22 .  or medium value commodities. carrier,  But p r i o r to the c h o i c e of a  the d e c i s i o n as to the mode of t r a n s p o r t must be made.  In c o n t r a s t to i n t r a - m o d a l c o m p e t i t i o n , i n t e r - m o d a l has more l i m i t s i.e.  : geographic  situation,  a v a i l a b i l i t y o f standard and  l e v e l of  competition  technology,  s p e c i a l equipment, s i z e  and  weight o f shipment. Of the twelve  f a c t o r s l i s t e d i n T a b l e 1.7,  c o n s i d e r e d of importance f o r i n t e r m o d a l in  Table  c o m p e t i t i o n are  listed  1.8. Time i n t r a n s i t  is  the s i x  important  ( c a l c u l a t e d on the normal v e h i c l e speed)  t o the s h i p p e r i n s e v e r a l d i f f e r e n t ways : i f goods  are o f h i g h v a l u e , low t r a n s i t time would have p r e f e r e n c e .  For  p e r i s h a b l e or s h o r t - l i f e items, such as f l o w e r s , v e g e t a b l e s , fruit,  f i s h , meat, newspapers, low  t r a n s i t time i s important  a v o i d s p o i l a g e , i t i s a l s o important  to s h i p p e r s i n a  t i v e i n d u s t r y i n which customers r e q u i r e and expect Time i n t r a n s i t i s a l s o very important  to  competi-  fast  service.  f o r reducing i n v e n t o r i e s  or f o r emergency s i t u a t i o n s . Improvements i n roads bly  reduced  and motor v e h i c l e s have c o n s i d e r a -  time i n t r a n s i t f o r road t r a n s p o r t . S h o r t e r  time i s the most important  c o m p e t i t i v e f a c t o r - f o r an  commodity - between road and r a i l and towards U.S.A. markets.  t r a n s p o r t w i t h i n the  F r e i g h t charges  for r a i l  travelling inter-modal province  and  road  are very s i m i l a r w i t h a l i t t l e advantage f o r r a i l t r a n s p o r t . Road t r a n s p o r t i s ranked rail.  1 1  second, a f t e r a i r , but  T h i s i s because s e v e r a l r a i l  before  i n t e r - c h a n g e s 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  F r e i g h t charges  1  2  3  4  Frequency o f s e r v i c e  *  2  1  1  Door-to-door s e r v i c e  3  2  1  *  Loss and degree o f damage  3  3  2  1  R e s t r i c t i o n on s i z e and weight o f shipment  1  2  ' 3  4  * n o t a c h a r a c t e r i s t i c o f the mode per se. Sources  : Southam Business P u b l i c a t i o n s L t d : C a r r i e r and Equipment P r e f e r e n c e . Study o f Canadian I n d u s t r i a l S h i p p e r s , 1968.  CO  necessary from o r i g i n  t o d e s t i n a t i o n and very o f t e n ,  inter-change,  r e q u i r e s up t o two days o f o p e r a t i o n s . Water t r a n s p o r t i s the cheapest, but a l s o the s l o w e s t . To stay i n business,  water c a r r i e r s  have had t o improve t h e i r  mance because the water c o a s t a l t r a f f i c , p a r t i c u l a r l y years,  i s p r o g r e s s i v e l y s h i f t i n g t o road  perfor-  i n recent  transport.  A i r t r a n s p o r t , f o r the movement o f goods w i t h i n the province parts  i s p r i m a r i l y used f o r emergency shipment o f s u p p l i e s and  replacement f o r h i g h value  equipment. A i r cargo i s a l s o  concerned w i t h s m a l l s i z e shipments.  To reduce the t o t a l  time, P.W.A. o f f e r e d the f o l l o w i n g terms : p r o v i d i n g ment were r e c e i v e d a t the cargo t e r m i n a l  that a ship-  t h i r t y minutes b e f o r e  o f f , i t would be a v a i l a b l e f o r p i c k - u p immediately a f t e r of the a i r c r a f t .  For instance,  transit  take-  the a r r i v a l  i f a shipment i s a t the a i r p o r t  at 10 a.m. , i t w i l l be a v a i l a b l e the same day a t P r i n c e  George  12 A i r p o r t a t 1 p.m.  I f the time i n t r a n s i t can be reduced i n t h i s  way, more shipments may be induced t o switch F r e i g h t charges The  mode o f f e r i n g  the lowest f r e i g h t  to a i r f r e i g h t .  charges i s water  t r a n s p o r t . F r e i g h t charges become more s i g n i f i c a n t when low value commodities are i n v o l v e d . freight  I f the rank o r d e r  charges i s c o r r e c t f o r long-run t r i p s and l a r g e  shipments, i t has t o be m o d i f i e d size  f o r short-run  shipments, because o f the h a n d l i n g  ferring  i n Table 1.8 f o r  from one mode t o another.  size  t r i p s and s m a l l  costs i n v o l v e d i n trans-  F o r the medium h a u l , a i r f r e i g h t  would rank a t the same l e v e l as road t r a n s p o r t , and f o r the s h o r t  25.  haul,  road  transport  would  rank b e f o r e  air, rail  and w a t e r  transport. Usually, pensive  than road,  150 m i l e s . table  f o r short  changing  rail  transport  and t h e b r e a k - e v e n p o i n t  Of t h e s i x i n t e r m o d a l  1.8, F r e i g h t  without  distances  charges  the p h y s i c a l  Frequency  of service  Frequency  of service  i s located  competitive  i s the only aspects  factors  one t h a t  competitors  h a v e some minals the  l i m i t a t i o n s with  a n d on t h e r o u t e s  single track  more f l e x i b l e , passengers  railway  because  respect  to t r a f f i c Rail  volume o f  and t h e number  and a i r t r a n s p o r t congestion  transport  f r e i g h t c a n be c a r r i e d o n  as w e l l  Door-to-door  service  as on a l l c a r g o  E a c h mode o f t r a n s p o r t  has d e v e l o p e d  door-to-door s e r v i c e .  Water t r a n s p o r t  inter-modal  which  i s much  scheduled  flights.  i t s own  "personalized"  has g e n e r a l i z e d  the use o f  c a n be t r a n s f e r r e d t o t r u c k s  trains.  D o o r - t o - d o o r s e r v i c e by w a t e r  to  i n d u s t r i e s and f o r t h e e x p o r t o f raw m a t e r i a l s .  large  coastline and  logs  traffic,  canneries  c u t i n the c o a s t a l  A substantial proportion  at ter-  i s l i m i t e d by  system, b u t a i r cargo t r a f f i c  flights,  containers  operation.  o f the t o t a l  Water, r o a d  travelled.  listed in  o f the c a r r i e r s '  i s a function  on t h e same r o u t e .  a t about  c a n be v a r i e d  commodity o f f r e i g h t moved, t h e s i z e o f s h i p m e n t s of  i s more e x -  transport  are u s u a l l y region  located  i s offered  fish,  to  lumber, p u l p  only  For  on t i d a l  a r e towed d i r e c t l y  o f packaged  or  waters, sawmills.  and p a p e r  26.  i s exported from the p r o d u c t i o n s i t e by deep-sea r e - r o u t i n g v i a Vancouver.  vessels without  Large manufacturers own r a i l  sidings  a d j a c e n t t o t h e i r main p l a n t to reduce h a n d l i n g c o s t s . Another p r a c t i c e , which  i s now widespread  i n surface  t r a n s p o r t a t i o n i s the use o f piggy-back o r T r a i l e r - o n - F l a t - C a r (T.O.F.C.).  T h i s mode o f s h i p p i n g i s commonly used i n r a i l  traf-  f i c moving between the U.S.A., B.C. and E a s t e r n Canada. Loss and degree o f damage The i n c i d e n c e of l o s s and degree of damage i s o f t e n regarded as lowest f o r a i r f r e i g h t , w i t h t r u c k the  n e x t " l o w e s t , f o l l o w e d by water and r a i l  transportation  transport.  Loss  through t h e f t has been d r a s t i c a l l y reduced because many commod i t i e s s u b j e c t t o - t h e f t are w e l l packed and s e a l e d Loss o f shipments  i s i n f r e q u e n t because  in'containers.  s h i p p e r s and c a r r i e r s  take care t o i n d i c a t e c l e a r l y on the package d e t a i l s o f d e s t i n a - . t i o n , o r i g i n and o t h e r p a r t i c u l a r s .  Losses are r a r e i n a i r  f r e i g h t "because o f .shorter time i n t r a n s i t and a l s o because  the ' 13  consignee" o r i t s agent w i l l p i c k up the shipment  upon a r r i v a l .  Damages t o goods i n t r a n s i t i n any mode i s becoming l e s s and l e s s important  because  o f the improvement i n modernizing  h a n d l i n g equipment, s t o r a g e t e c h n i q u e s , packaging m a t e r i a l s and i n package d e s i g n . U n i t i z e d and p a l l e t i z e d shipments common, e s p e c i a l l y i n a i r f r e i g h t t r a n s p o r t .  a r e very  P a l l e t and u n i t are  easy t o handle f o r l o a d i n g , u n l o a d i n g and s t o r a g e and are e a s i e r to  t r a n s f e r from one v e h i c l e to another o r from one type o f  a i r c r a f t t o another, without  the need o f any f u r t h e r packaging  27. to the o r i g i n a l one. R e s t r i c t i o n on s i z e and weight o f the shipment T h i s i s the second most important f a c t o r a f t e r f r e i g h t charges as f a r as a i r f r e i g h t i s concerned. and barges c a r r y  b u l k i e r and h e a v i e r  loads  Deep-sea v e s s e l s than any o t h e r mode.  S i z e and weight o f the shipment on water t r a n s p o r t can be l i m i t e d only by the c a p a c i t y o f the s h i p  itself.  R a i l t r a n s p o r t ranks second because o f o b s t r u c t i o n s as t u n n e l s , b r i d g e s , grades, two o r one-way t r a f f i c strength of bridges For road but road  such  tracks,  and r a i l s .  t r a n s p o r t , 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  t r a n s p o r t i s , i n a d d i t i o n , s u b j e c t to p r o v i n c i a l govern-  ment r e g u l a t i o n s . Air  t r a n s p o r t i s ranked l a s t f o r r e s t r i c t e d maximum s i z e  and weight because the maximum loads  t h a t 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 c a p a c i t y o f the type o f a i r c r a f t , the design  o f the doors  (an Argosy i s designed to handle the l o a d i n g  o f s m a l l European c a r s ) , and the a v a i l a b l e 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 i n t e r m o d a l  competitive  f a c t o r s and the  rank o f importance g i v e n by the s h i p p e r s  c o n s i d e r i n g which mode  o f t r a n s p o r t b e s t s u i t e d t h e i r needs.  The rank o r d e r would  r e q u i r e some f l e x i b i l i t y one  mode o f t r a n s p o r t .  when a shipment i s i n v o l v e d i n more than We can see t h a t there i s no s i n g l e mode  which has a marked p r e f e r e n c e  over the o t h e r s .  When a c h o i c e  e x i s t s , the s e l e c t i o n o f a mode f o r any p a r t i c u l a r shipment must be based upon weighing up these f a c t o r s o p e r a t i n g  under p a r t i c u -  28.  l a r circumstances.  Such d e c i s i o n s are s t i l l  different  t r a f f i c managers may make d i f f e r e n t  identical  circumstances.  subjective decisions  and under  29.  FOOTNOTES  CHAPTER I  1. B.C. S e l l i n g Value o f the F a c t o r y Shipments b y Major Manufacturing I n d u s t r i e s - B.C. F i n a n c i a l a n d Economic Review, Department o f F i n a n c e , V i c t o r i a , B.C. 19 71 2. D e c l a r a t i o n o f Mr. A . McDonald, M i n i s t e r o f I n d u s t r i a l Development Trade a n d Commerce - The P r o v i n c e , March 3, Vancouver, B.C. 3. T r a n s p o r t a t i o n - B.C. Summary o f Economic A c t i v i t y , Department o f I n d u s t r i a l Development Trade and Commerce, V i c t o r i a , B.C., 1970. 4. I b i d ,  Shipping  5. I b i d , Highways 6. I b i d . 7. Canadian Aerodrome D i r e c t o r y , A p r i l 196 8 M i n i s t r y o f T r a n s p o r t , Ottawa. 8. See Appendix P.W.A., network, r o u t e s . 9. See Appendix P.W.A., g e n e r a l cargo r a t e s . 10. Op. C i t . , P i p e l i n e s . 11. See Table 1.8 12. C o n v e r s a t i o n w i t h P.W.A. Cargo S u p e r v i s o r , Vancouver I n d u s t r i a l A i r p o r t , March 1972. 13. Mentioned s e v e r a l times d u r i n g i n t e r v i e w s w i t h both a i r f r e i g h t forwarders and s h i p p e r s . 14. Study o f Canadian I n d u s t r i a l S h i p p e r s , Southam P u b l i c a t i o n s L t d , Toronto 19 70, pp.  3,4.  1973  CHAPTER I I  BRITISH COLUMBIA TRADE BY MODE OF TRANSPORT AND THE SITUATION OF THE REGIONAL AIR CARRIER  The p r e v i o u s chapter i n d i c a t e d heavy c o n c e n t r a t i o n on primary  i n d u s t r y 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 w i t h trade flow t o and from B.C. f o r l e a d i n g commodities and t h e i r value by mode o f t r a n s p o r t . More than 60% of. B.C. p r o d u c t i o n  ( e x c l u d i n g the v a l u e o f  c o n s t r u c t i o n ) i s s o l d t o f o r e i g n markets because the Canadian market i s i n c a p a b l e o f a b s o r b i n g a l l B.C. r e s o u r c e p r o d u c t s . Exports through B.C. customs p o r t s ; i n c l u d e products p r o v i n c e s o f Canada and p a r t o f the imports Prairies  from  other  are shipped t o the  and E a s t e r n p r o v i n c e s o f Canada.  BRITISH COLUMBIA TRADE 1  The p r i n c i p a l market area f o r the products  exported  through B.C. customs p o r t s are U.S.A., Japan, U.K. and European Economic Community which t o g e t h e r account exports.  Forest  products  top export commodities.  f o r more than  80% o f  and m i n e r a l r e s o u r c e s are among the  Table 2.1 p r e s e n t s the top ten l e a d i n g  31. commodities exported t h a t the f i r s t  through B.C.  p o r t s . I t has  commodity, wheat, i s a P r a i r i e p r o d u c t  e n t i r e l y exported  to the Southeast  Asia countries.  the ten l e a d i n g commodities imported for  the p e r i o d s Tables  1968, 2.1  1969  and  and  2.2  B r i t i s h Columbia t r a d e . province  to be p o i n t e d  through B.C.  and  out  almost  Table  2.2  lists  customs p o r t s  1970.  r e f l e c t a c c u r a t e l y the trends i n  The  f i g u r e s show the need f o r t h i s  to encourage the development of secondary i n d u s t r y .  top ten exported e x p o r t s , were raw  commodities, a c c o u n t i n g m a t e r i a l or p a r t l y  p r i n t or n a t u r a l gas, w h i l e  30%  equipment and f i n i s h e d products  f o r 60%  f i n i s h e d products  of the imported - c a r s and  By i t s g e o g r a p h i c a l s i t u a t i o n B.C. P a c i f i c Rim  c o u n t r i e s and  of the  The  total l i k e news-  products  were  trucks. trade i s turned  the U n i t e d S t a t e s .  toward  Over the p a s t  ten  y e a r s , Japan and  the Common Market C o u n t r i e s have i n c r e a s e d  their  importance w h i l e  the U.K.  in  trade w i t h Canada and  f i g u r e s show a c o n t i n u e d  decrease  the Commonwealth c o u n t r i e s .  T h i s t r e n d can be expected  to i n c r e a s e now  t h a t the  has  become a f u l l member o f the E.E.C.  Rim  c o u n t r i e s f o l l o w the same p a t t e r n as the e x p o r t s . The  s u p p l i e r and  customer i s the U.S.A. and  Since Japan r e p l a c e d the U.K. of  goods through B.C.  customs p o r t s  Imports from the  Pacific first  the second, Japan.  as the second l a r g e s t s u p p l i e r (1964) , 70%  trade is'done w i t h the U.S.A. and Japan  ; and  of the t o t a l  s i n c e 1967,  gap  between the U.S.A. and Japan t r a d e with B.C.  and  the r e s t of the world  and B.C.  U.K.  the  on the one  on the o t h e r , continues  B.C.  hand, 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 o f d o l l a r s ) 19  1 9 6 8 VALUE  COMMODITY  % OF TOTAL  VALUE  19  6 9 % OF TOTAL  VALUE  7 0 % OF TOTAL  14. 8  247.9  10. 8  264.5  1.0. 3  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  96.1  4.8  10 8. 4  4.7  141.1  5.5  N a t u r a l 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  1,359.1  60.4  1 ,338.2  58.4  2,248.7  100  2 ,289.1  100  Wheat  334  Crude Petroleum  Copper i n Ores  T o t a l above  commodities  T o t a l a l l commodities Sources : E x t e r n a l  Trade Through B.C. Custom P o r t s .  Development,  1,465. 8  5 7.1.  2,566.4  100  Department o f I n d u s t r i a l  Trade and Commerce, Government of B.C. , 1968, 1969, 1970  * In 1970, Sulphur was r e p l a c e d by Rapeseed i n the ten commodities.  leading  TABLE  2.2  TEN LEADING COMMODITIES IMPORTED THROUGH.B.C. CUSTOM PORTS FOR 1968, 1969 and 1970 (value i n m i l l i o n s o f d o l l a r s ) 1 !9 6 8 COMMODITY  VALUE  1 9 6 9  19  % OF TOTAL  VALUE  % OF TOTAL  VALUE  7 0 % OF TOTAL  Automobile  88. 3  9.5  111.2  9.8  118.2  10. 2  Civil  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 c h a s s i s  29. 8  3.2  34.0  3.0  29.5  2.6  P a r t s o f motor v e h i c l e s  18.8  2.0  25. 8  2.3  24.5  2.1  8.3  0.9  13.0  1.1  24.5  2.1  16. 8  1.8  9.4  0.8  24.2  2.1  3.9  0.4  ' 17.1  1.5  20.0  1.7  P l a t e s , Carbon, S t e e l *  10.0  1.1  12.7  1.1  11.5  1.0  Motor v e h i c l e s engines  6.2  0.7  12.4  1.1  11.5  1.0  272.6  29. 3  322. 8  28.4  352.9  30.5  930.1  100  100  1,156.0  100  aircraft  T r a c t o r s and p a r t s N i c k e l i n Ores * C o f f e e , green  T o t a l above  commodities  T o t a l a l l commodities Sources  : E x t e r n a l Trade Through B.C .  1,135.9  Custom P o r t s ,  Department of I n d u s t r i a l  Development, Trade and Commerce, Government o f B.C., 1968, 1969, 1970 * I n 19 70, N i c k e l i n ores and P l a t e s , Carbon S t e e l have been r e s p e c tively  r e p l a c e d by Copper and F u e l O i l .  widen. 3.5%  However, i m p o r t s from the U.S.A. i n 1970  i n d o l l a r value T a b l e s 2.3  (see T a b l e s 2.3  and 2.4  and  d e c l i n e d by  2.4).  g i v e a l s o the v a l u e o f e x p o r t s  i m p o r t s f o r the p r i n c i p a l p a r t n e r s o f B.C.  trade.  from t h e s e f i g u r e s and t h o s e i n T a b l e s 2.1  and 2.2,  commodities i m p o r t e d and e x p o r t e d d e t e r m i n e s of  transport.  As we  and can  see  t h e type o f  the s u i t a b l e mode  I t i s o b v i o u s t h a t each o f t h e s e 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 o f i t s p h y s i c a l  reasons,  h i g h volume and r e l a t i v e l y low v a l u e . N e a r l y t h r e e q u a r t e r s o f the commodities e x p o r t e d B.C.  p o r t s use w a t e r  t r a n s p o r t . The  r e s t use  r a i l and  through  road  t r a n s p o r t and i s d e s t i n e d a l m o s t e x c l u s i v e l y f o r t h e U.S.A. However, a l t h o u a h a i r t r a n s p o r t ' s s h a r e i s v e r y 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 o v e r the p a s t seven y e a r s and i t s continued expansion  seems a s s u r e d .  T a b l e 2 . 5 shows t h e t r e n d by mode o f t r a n s p o r t f o r e x p o r t e d commodities from 1964  t o 1970.  U n f o r t u n a t e l y , the same  d a t a f o r i m p o r t e d commodities were n o t a v a i l a b l e from  provincial  and f e d e r a l p u b l i c a t i o n s and i t p r o v e d i m p o s s i b l e t o g a t h e r i n f o r m a t i o n t h r o u g h the customs o f f i c e ' s way These d a t a f o r the p e r i o d 1964  t o 1970  any  bills. ( T a b l e 2.5)  show  2  the t r e n d s f o r d i f f e r e n t modes o f t r a n s p o r t a t i o n Others  : Road, A i r and  ( 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  seems t o remain  a t 10% o f the t o t a l v a l u e ; w a t e r  rail  transportation, 3  on the other- hand, shows a s l i g h t downward t r e n d .  As  these  f i g u r e s r e p r e s e n t the v a l u e o f the commodities and n o t the volume,  TABLE  2. 3  EXPORTS OF B.C. PRODUCTS TO MAJOR MARKETS (value i n m i l l i o n s o f d o l l a r s ) 19  6 8  19  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  U n i t e d 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  39.7  2.2  39.7  2.0  45.6  2.3  6.2  158.1  7.8  Australia Others  126.3  TOTAL  Sources  1,840.0  :  B.C. F i n a n c i a l  6.8 100  & Economic Review,  123.5 1,981.3  100  2,020.3  100  Department of F i n a n c e ,  Government o f 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 o f d o l l a r s ) 1 9 6 8  1 9 6 9  1 9 7 0  MARKET  VALUE  % OF TOTAL  VALUE  % OF TOTAL  VALUE  % OF TO  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  U n i t e d 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  Australia  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 o f F i n a n c e ,  Government o f B r i t i s h Columbia, V i c t o r i a , B.C. 19 70.  r  TABLE  2. 5  VALUE AND MODE OF TRANSPORT FOR EXPORTS THROUGH B.C. PORTS ( v a l u e i n thousands o f d o l l a r s ) WATER  ROAD VALUE %  Y E A R . :  VALUE  1964  1,194,946  73. 6  48,242  3.0  1965 1966 .  1,161,148 1,281,856  71. 3 72. 0  63,847 76 ,901  1967  1,486,235  73. 0  74 ,476  1968  1,629,661  72. 4  1969 1970*  1,558,851 1,773,700  68. 1 69 .1  %  RAIL VALUE  AIR  OTHERS  %  VALUE  160,056  9. 9  5,091  0. 3  217,758 • 13. 3  3.9 4.2  176 ,146  10. 8  6.694  0 .4  227.741  13. 9  191,917  10. 7  10 ,151  0 .5  243,128  13. 6  3.6  181,466  8,672  5.1  217,990  0 .4 9 ,909 0 .4  286 ,246  114,898  9. 0 9. 6  14. 0 12. 5  1, 803,952 2, 037,095 2, 253,459  148,789 164,250  6.5 6.4  231,195  14. 7 14. 1  2, 289 ,062 2, 566,900  251,800  10. 1 9. 8  13,735 15,300  %  0 .6 0 .6  VALUE  281,000 336,492 361,800  %  TOTAL 1, 626.093 1, 635,576  * t o t a l f o r 19 70 has been e s t i m a t e d by S t a t i s t i c s Canada. Sources : B.C. Summary o f Economic A c t i v i t y , Department o f 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  33.  it  seems t h a t more products which f a l l w i t h i n the medium range  value per weight, w i l l be shipped by road and resources products  such as f o r e s t p r o d u c t s , m i n e r a l s , o i l and  n a t u r a l gas w i l l use water, r a i l exclusively.  The  and p i p e l i n e t r a n s p o r t a t i o n  share of a i r f r e i g h t , ( i n terms of value o f  shipments) doubled value of exported  a i r , while n a t u r a l  d u r i n g the p e r i o d 1964-1970, w h i l e the commodities by a l l modes  p e r i o d i n c r e a s e d by 50%.  Although  still  total  d u r i n g the same  very small  (0.6%), the  p r o s p e c t s o f f u r t h e r u t i l i z a t i o n o f a i r t r a n s p o r t f o r the movement of commodities seem very p r o m i s i n g when one d u r i n g ,the l a s t ten years  considers that  there has been a r a p i d i n c r e a s e i n the  d i v e r s e 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 p o s s i b l e to use a r e g r e s s i o n a n a l y s i s to c o n f i r m the apparent We  trends f o r each mode of t r a n s p o r t .  w i l l now  c o n s i d e r b r i e f l y the B.C.-Japan t r a d e , b e f o r e  a n a l y z i n g the s i t u a t i o n o f the r e g i o n a l a i r c a r r i e r i n  B.C.  Japanese Trade As Japanese imports trade and account  are i n a dominant p o s i t i o n i n Canadian  for a large part of a c t i v i t y  i n the p o r t o f  Vancouver, i t seems a p p r o p r i a t e to g i v e a b r i e f a n a l y s i s o f i  this  trade. From 1967 in  value by  75%  to 1969,  Japanese e x p o r t s  from $ 21A m i l l i o n s  to Canada i n c r e a s e d  to $ 481 m i l l i o n s .  i n c r e a s e s were n o t i c e a b l e i n heavy and chemical ducts.  Moderate i n c r e a s e s occured i n l i g h t  Major  industrial  pro-  i n d u s t r y products  and  textiles.  The  switch toward more s o p h i s t i c a t e d products  reflects  the w i l l i n g n e s s of Japanese e x p o r t e r s to abandon cheap i n d u s t r y to Korea, Hong-Kong and I f we  Singapore.  compare the value o f Japanese exports i n Table  2.6  to the volume of exports to Canada, i t i s very n o t i c e a b l e t h a t , w h i l e the volume i n c r e a s e d by 10%  f o r the period. 1967  to 1969 ,  t h e i r value d u r i n g the same p e r i o d o f time i n c r e a s e d by Most consumer goods  (textiles, light industrial  chemical and p h a r m a c e u t i c a l p r o d u c t s , instruments are moved  i n containers.  i n sea c o n t a i n e r s  The  75%.^ products,  and machinery)  c a t e g o r i e s o f commodities moved  show s i m i l a r i t i e s  to those s h i p p e d by a i r .  Japanese commodities u s i n g c o n t a i n e r s are d i v i d e d i n t o f o u r categories : - P e r i s h a b l e goods, e.g.  foodstuffs,  - High v a l u e s e a s o n a l goods, - High value goods  (T.V., V i d e o - t a p e ,  e l e c t r o n i c equipment), - Dense commodities  (engines, p a r t s , motor c y c l e s ) .  For these items t r a n s i t time i s very v a l u a b l e because o f s p o i l a g e , s e a s o n a l market or t i e d - u p c a p i t a l .  The  elapsed  from the o r d e r placement to d e l i v e r y has been reduced  time  t o s i x to  e i g h t weeks under normal c o n d i t i o n s when c o n t a i n e r s are used f o r shipments from Japan t o the West Coast.  O c c a s i o n a l l y , due  to  p r o d u c t i o n d e l a y s or i n s u f f i c i e n t cargo c a p a c i t y , a Canadian importer has  to w a i t up to f o u r months f o r d e l i v e r y .  c o n d i t i o n s , t r a n s i t time does not have any  further  The problem seems to be on the e x p o r t e r s ' s i d e . ^  Under these  significance. Although  TABLE  2.6  JAPANESE EXPORTS TO CANADA (millions of dollars)  COMMODITY Foodstuffs Raw m a t e r i a l ,  fuel  Textiles M i n e r a l Products L i g h t I n d u s t r y Products Chemical & P h a r m a c e u t i c a l  1967  196 8  1969  11.6  11.6 '  12.6  2.1  1-7  2.1  5 8.1 •  69.9  82. 4  9.4  10.6  13.6  46.0  57.3  65.2  6.5  7.8.  9.0  Metal P r o d u c t s  55. 8  51.3  Machinery  84.5  135.2'  214.3  346.3  481.0  & Instruments  TOTAL  Source  274.2  81.6  : F o r e i g n Trade o f Japan, Japan E x t e r n a l Trade O r g a n i z a t i o n , Tokyo, 19 70.  41. Japanese i n d u s t r y i s v/orking a t f u l l  c a p a c i t y , i t cannot  the i n c r e a s e d demand f o r s h o r t e r d e l i v e r y times f o r t h e i r  THE  satisfy exports.  SITUATION OF THE REGIONAL AIR CARRIER IN B.C. In 1966,  Mr. J . P i k e r s g i l l ,  then F e d e r a l M i n i s t e r o f  T r a n s p o r t , made the f o l l o w i n g statement : " The 'role o f the r e g i o n a l a i r c a r r i e r i s to operate l o c a l o r r e g i o n a l r o u t e s t o supplement the domestic m a i n l i n e o p e r a t i o n o f A i r Canada and Canadian P a c i f i c A i r l i n e s i n o r d e r t o p r o v i d e r e g u l a r and scheduled s e r v i c e s i n t o the North." 6 T h i s view was confirmed  by the terms o f the N a t i o n a l  Transpor-  t a t i o n Act : " ... an economic, e f f i c i e n t and adequate t r a n s p o r t a t i o n system, making the b e s t use o f a l l a v a i l a b l e modes o f t r a n s p o r t a t i o n a t the lowest c o s t i s e s s e n t i a l to p r o t e c t the i n t e r e s t s o f users o f t r a n s p o r t a t i o n and t o m a i n t a i n the economic w e l l - b e i n g and growth of Canada."7 Although r e g i o n a l a i r c a r r i e r s r e c e i v e d o f f i c i a l n i t i o n o f t h e i r r o l e and a c t i v i t i e s , facing d i f f i c u l t i e s operations.  they  f a c e d , and are  a f f e c t i n g the e f f i c i e n c y o f t h e i r  A glance  a t P.W.A. r o u t e s  recogstill  route  (see P.W.A. map i n  Appendix) make t h i s s e l f - e v i d e n t . The  problem i s d e f i n e d by s h o r t h a u l r o u t e s , low t r a f f i c  density, unstable  traffic  flow and s m a l l s c a l e o p e r a t i o n s .  The  l e n g t h o f h a u l i n the s h o r t run a f f e c t s the c o s t s o f o p e r a t i o n s and  i n the long run, the choic e o f equipment. The " j e t r e v o l u t i o n "  has  only r e c e n t l y a f f e c t e d the r e g i o n a l a i r c a r r i e r s .  make f u l l  They cannot  use o f t e c h n o l o g i c a l l y advanced a i r c r a f t - the c a p i t a l i s  l a c k i n g - because they face a h i g h u n i t c o s t when t r a f f i c is  volume  insufficient. In B r i t i s h . Columbia, s h o r t h a u l o p e r a t i o n s f o r a i r c a r r i e r s  are a s s o c i a t e d w i t h h i g h u n i t c o s t s and c o m p e t i t i v e road s e r v i c e g  is  r e a d i l y a v a i l a b l e throughout  the p r o v i n c e .  On the o t h e r  hand, u n a v a i l a b i l i t y o r s c a r c i t y o f o t h e r modes o f t r a n s p o r t makes h i g h a i r f r e i g h t charges  a c c e p t a b l e by the users e s p e c i a l l y where  i s o l a t e d o r n o r t h e r n d e s t i n a t i o n s are concerned. The  g e n e r a l cargo r a t e s a p p l i e d by P.W.A. from Vancouver  r e f l e c t t h i s s i t u a t i o n and the importance o f the t r a f f i c on s p e c i f i c routes both  ; f o r example 9  350 m i l e s d i s t a n t )  (the two d e s t i n a t i o n s mentioned are  :  - Vancouver - Ocean F a l l s ,  26C p e r l b ,  - Vancouver - C a s t l e g a r ,  11C p e r l b .  (see P.W.A. cargo r a t e s i n Appendix). In o r d e r t o be more e f f i c i e n t over long h a u l s , P.W.A. introduced Hercules  a i r c r a f t on n o r t h e r n routes t o I n u v i k ,  Cambridge Bay and Resolute Bay f o r t h e i r c h a r t e r and- c o n t r a c t cargo o p e r a t i o n s .  These s p e c i a l i z e d a i r c r a f t , which can l a n d  on any type o f runway, have been, s i n c e 1967, a source o f apprec i a b l e ' revenue f o r P.W.A.  10  through  route t r a n s f e r s from C P . A . and from the merger w i t h  B.C. A i r l i n e s . marginal  A l s o , more e f f i c i e n c y was a c h i e v e d  T r a n s c o n t i n e n t a l c a r r i e r s used t o r e c e i v e only  revenues from these r e g i o n a l routes b u t , when t r a n s f e r r e d  to  the r e g i o n a l a i r c a r r i e r there has been a marked improvement  in  the s e r v i c e o f f e r e d t o the t o t a l  traffic.  I f a l l the i n t e r r e g i o n a l routes p r e s e n t l y s e r v i c e d t r a n s c o n t i n e n t a l a i r c a r r i e r s , were t o be t r a n s f e r r e d to r e g i o n a l a i r c a r r i e r s ,  by  exclusively  government o b j e c t i v e s , v i z :  " ... t o serve the p u b l i c i n t e r e s t and h e l p . . . economic development, by advancing the development of a i r cargo s e r v i c e s i n more populated a r e a 1 1 would be a c h i e v e d i n an e f f i c i e n t manner. The  r e g i o n a l c a r r i e r s and,  t o a c o n s i d e r a b l e degree, P.W.A.  are dependent f o r t h e i r f r e i g h t revenues on c h a r t e r • a n d c o n t r a c t o p e r a t i o n s i n the n o r t h . Table 2.7  shows the importance  r e l a t i o n t o t o t a l revenue.  Table 2.8  of bulk o p e r a t i o n s i n shows the growth, the volume  and s i z e of bulk o p e r a t i o n s f o r P a c i f i c Western A i r l i n e s from t o 1970. 2.8  We  can see t h a t the remainder  1966  t o n / m i l e s volume i n Table  i s s u p p l i e d by m a i n l i n e o p e r a t i o n s i . e . scheduled o p e r a t i o n s .  The volume of cargo c a r r i e d on the m a i n l i n e s e r v i c e s d u r i n g 19 70 was  double  i.e.  the volume c a r r i e d i n 1964,  8,500 m e t r i c tons.  r e a c h i n g 18,730,000 l b s ,  T h i s volume a p p l i e s to B.C.,  A l b e r t a and  Mackenzie D i s t r i c t o p e r a t i o n s . From Table 2.8,  i t can be assumed t h a t revenues from  t r a f f i c are very important  to the r e g i o n a l a i r c a r r i e r  bulk  and  p r o v i d e an optimum u t i l i z a t i o n of i t s equipment a l l the y e a r round  and more p a r t i c u l a r l y i n o f f - p e a k p e r i o d s . The  revenues of the r e g i o n a l a i r c a r r i e r tend to f l u c t u a t e  over a p e r i o d of time, due  to changes i n e x p l o r a t i o n a c t i v i t i e s ,  s e a s o n a l c l i m a t e s . a n d r e g i o n a l economic and p o l i t i c a l T h e i r o p e r a t i n g c o s t s are a l s o s u b j e c t t o f l u c t u a t i o n .  factors. In Tables  TABLE  2,7  P.W.A. BULK OPERATIONS REVENUES ( i n thousands o f d o l l a r s )  YEAR  TOTAL REVENUE  BULK REVENUE  HERCULES REVENUE  BULK REVENUE AS % OF TOTAL  1966  12,280  1,803  N. A.  15%  1967  14,974  3,078  48%  20%*  1968  17,659  2 ,789  70%  16%  1969  33,944  7,934  79%  24%  1970  43,509  9,084  78%  21%  * Introduction o f Hercules Sources  :  Dominion  Bureau o f S t a t i s t i c s ,  Transportation,  C i v i l A v i a t i o n . D.B.S. 51 - 202 P.W.A. F i n a n c i a l Reports 1966 t o 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 INCLUDING HERCULES  BULK IN % OF TOTAL TON/MILES  HERCULES TON/MILES IN %  CHARTER TON/MILE ONLY IN %  1966  5,700  2,000  35%  N.A.  1967  9 ,600  5,800  60%  53%  7%  1968  9 , 800  6,600  65%  55%  10%  35%  1969  18,500  13,700  74%  62%  12%  1970  26,600  21,300  81%  73%  8%  Sources  :  Dominion Bureau o f S t a t i s t i c s , Air  Transportation.  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 t o 1970.  2.8  & 2.9,  tions  weight l o a d f a c t o r s have been computed as u s e f u l  indica-  of measuring u t i l i z a t i o n of the a v a i l a b l e cargo space  the o p e r a t i n g r a t i o f o r the f i n a n c i a l Table 2.10  and  situation.  i n d i c a t e s the t o t a l volume o f t o n / m i l e s  duced i n B r i t i s h Columbia which i s very low,  pro-  compared to the  total  ton/miles o f P.W.A. o p e r a t i o n s . Another major problem f a c e d by the r e g i o n a l c a r r i e r i s t h a t of d i r e c t i o n a l cargo movements, which g r e a t l y a f f e c t s economics o f n o r t h e r n o p e r a t i o n s .  Whereas passenger  the  s e r v i c e s show  an o v e r - a l l b a l a n c e , the cargo s e r v i c e s show a preponderance o f north-bound movements.  I t must be p o i n t e d out t h a t t h e r e are  no  a l l - c a r g o a i r c r a f t nor a l l - c a r g o f l i g h t s , except f o r c h a r t e r and Hercules o p e r a t i o n s . cargo combination  A l l g e n e r a l cargo i s moved by  a i r c r a f t or i n b e l l y container.  c h a r a c t e r i s t i c s o f cargo movement i n Table  passengerThe  directional  f o r s e l e c t e d r o u t e s are shown  2.11 In 1969,  o n l y one  route  (Vancouver  - C a l g a r y ) was  t a b l y b a l a n c e d w i t h r e s p e c t to the cargo c a r r i e d . In 19 70, were three routes  : Vancouver - P r i n c e Rupert,  accepthere  Vancouver - Calgary,  and Vancouver - Edmonton, w i t h a b a l a n c e d cargo movement i n both directions. From a l l these t a b l e s and f i g u r e s , we note  t h a t the growth  o f 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  in  B.C.,  i s very slow, except f o r c h a r t e r and c o n t r a c t o p e r a t i o n s . The t o t a l volume o f cargo moved does not r e q u i r e an a l l cargo even on w e l l b a l a n c e d r o u t e s .  service  The p o t e n t i a l market f o r scheduled  a i r cargo s e r v i c e s does not appear to be the prime concern o f the  TABLE 2.9 P.W.A. OPERATING RATIOS AND FREIGHT LOAD FACTORS  1966  1967  1968  1969  1970  O p e r a t i n g revenues ( $ 0 0 0 )  12,280  14,975  17,660  33,945  43,500  O p e r a t i n g expenses  11,330  13,860  16,550  30,360  38,950  1.08  1.07  1.06  1.12  1.11  12,430  12,150  11,400  15,980  18.730  44.7  48.2  46.4  43.4  ($ 000)  Operating r a t i o  *  Freight carried  ( l b s 000)**  Weight l o a d f a c t o r (%)  * operating r a t i o  : o p e r a t i n g revenues 4- o p e r a t i n g expenses  ** f r e i g h t c a r r i e d on m a i n l i n e  services only.  Sources : Dominion Bureau o f 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.  47.3  TABLE 2.10 TON/MILES PRODUCED IN B.C. BY P.W.A. SERVICES* 19  69  19  70  19  71  ( f i r s t 6 months) West Coast  224 ,500  281,100  161,000  Stampeder  71,700  107,800  77,800  South west  43,600  96 ,900  90 ,000  N.A.  N.A.  35,60 0  Vancouver - S e a t t l e ** T o t a l a l l P.W.A. r o u t e s  5,028,000  5,555 ,000  * These f i g u r e s show o n l y cargo ton/miles produced scheduled  on m a i n l i n e  f l i g h t s , e x c l u d i n g c h a r t e r and Hercules o p e r a t i o n s .  ** V a n c o u v e r - S e a t t l e  has been t r a n s f e r r e d to P.W.A. from A i r Canada  and s t a r t e d t o operate on January Sources  3,200,000 (est.)  19 71.  : f i g u r e s s u p p l i e d by P.W.A., Head O f f i c e , Vancouver I n t e r n a t i o n a l 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  Cargo carried (lbs) Van - P o r t Hardy  145 ,000  Van - S a n d s p i t  374,500  S a n d s p i t - Van  73,400  Van - P r i n c e Rupert  49,100  Prince- Rupert - Van  8,700  Van - C a l g a r y  9 ,200 53,400  Van - Edmonton  108,300  Edmonton - Van  47,400  Van - Kamloops  61,500  Kamloops - Van  13,800  Van - P e n t i c t o n  35,000  Penticton  7,800  Unbalance Index  123,200  6.0  430 ,600 5.1  87,500  5.0  63,000 5.6  46 ,200  1.3*  94,000 3.5  101,400  C a l g a r y - Van  Cargo carried (lbs) 740,200  5. 3  32,400  Cranbrook - Van  '  Unbalance Index  774,000  P o r t Hardy - Van  Van - Cranbrook  from Vancouver)  1.9*  20 ,000  4.7  130,000 144 ,000  0.9*  147,000 2.2  82,000  1.6*  95 ,000 4.4  24 ,200  4.0  56 ,000 4.4  11,800  4.7  * i n d i c a t e s t h a t there i s a s a t i s f a c t o r y t r a f f i c b a l a n c e . Unbalance Index has been computed by d i v i d i n g Northbound t r a f f i c by Southbound Source  :  traffic.  f i g u r e s o b t a i n e d from P.W.A., Vancouver I n t e r n a t i o n a l A i r p o r t , February 19 72.  50.  r e g i o n a l a i r c a r r i e r f o r the very reason t h a t the market i n B.C. i s 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 r e g i o n a l a i r c a r r i e r i s making every e f f o r t t o promote the use example, P.W.A. i s p r e s e n t l y B-707 f r e i g h t e r and,  of a i r freight service  transporting  l i v e s t o c k t o Japan by  f o l l o w i n g the example o f C P .  and C.N.,  P.W.A. has r e c e n t l y d i v e r s i f i e d i t s t r a n s p o r t a t i o n the  : for  a c q u i s i t i o n o f a t r u c k i n g company i n 19 70.  o p e r a t i o n s by  Thus, P.W.A.  can  13 now  o f f e r shippers I t has  an i n t e g r a t e d  niences.  service.  been argued t h a t r e g i o n a l r o u t e s ,  r e g i o n a l a i r cargo r o u t e s , air carrier.  transport  s h o u l d be t r a n s f e r r e d t o the  T h i s p o s i t i o n o f f e r s both advantages and  I t i s understandable t h a t as t e c h n o l o g i c a l  are i n t r o d u c e d  regional inconve-  innovations  a t a f a s t r a t e and p a r t i c u l a r l y i n the  i n d u s t r i a l transport,  area o f  a c a r r i e r ' s e f f i c i e n c y can be a c h i e v e d  through f u l l u t i l i z a t i o n o f the equipment and grated  as w e l l as a l l  i n t e r m o d a l system.  only  through an i n t e -  The arguments a g a i n s t  using  such a  system would e n t a i l a r e g i o n a l monopoly s i t u a t i o n w i t h 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 o f t h i s  14 problem. is  As mentioned i n the N a t i o n a l  considerations  Transportation  o f p u b l i c i n t e r e s t t h a t determine the  of the n a t i o n a l and  regional transportation  f o r u n p r o f i t a b i l i t y on c e r t a i n routes and  system.  small  scale  Act, i t character  To compensate operations,  a r e g i o n a l c a r r i e r may be encouraged t o 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 c o n d i t i o n s  and w i t h o u t d i s -  r u p t i n g 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 t r u c k c a r r i e r s ' s e r v i c e s , a r e g i o n a l c a r r i e r w i l l  be  able to o f f e r b e t t e r s e r v i c e to the p u b l i c w i t h both economic e f f i c i e n c y and  profitability.  T h i s 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 t r a n s p o r t and the s i t u a t i o n of the r e g i o n a l carrier. B.C.  I t seems t h a t 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  r e s u l t s from e x p l o r a t i o n programmes and s e t t l e m e n t s e s t a -  b l i s h e d i n the The  North.  nature o f commodities which are imported  and  exported 15  through B.C. Although B.C.  e x p l a i n s why  surface transport i s largely  very s m a l l , a i r f r e i g h t volume generated  used.  to and  from  i s becoming s i g n i f i c a n t w i t h r e s p e c t t o the t o t a l v a l u e o f  commodities  carried.  "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 I I  1. B.C. Summary o f Economic A c t i v i t y , Department o f 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. pp. 10-12. 2. I b i d . , p.  49.  3. I b i d . , p.  52.  4. F o r e i g n Trade o f Japan, Japan E x t e r n a l Trade O r g a n i z a t i o n Tokyo, 19 70. 5. I n t e r v i e w w i t h R. Jameson, David Bros. S h i p p i n g  agent.  6. Statement o f P r i n c i p a l f o r R e g i o n a l A i r C a r r i e r s , t a b l e d i n the House o f Commons by Mr. P i k e r s g i l l , then M i n i s t e r o f T r a n s p o r t , Ottawa, 1966. 7. N a t i o n a l T r a n s p o r t a t i o n A c t , Ottawa. Queen's P r i n t e r February 1967. 8. S t u n i c k i - G i z b e r t , K. W., The R e g i o n a l A i r C a r r i e r s ' Problems, Study prepared f o r the A i r T r a n s p o r t 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. I n t e r v i e w w i t h a i r l i n e  e x e c u t i v e s , 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 E x p e r i e n c e , T r a n s p o r t a t i o n J o u r n a l , Volume 11, n o . l , 19 71. 15. T a b l e s 2.1, 2.2, 2.5  CHAPTER I I I  5  THE AIR FREIGHT DECISION AND ITS POTENTIAL  A i r f r e i g h t i s no longer c o n s i d e r e d  as a l u x u r i o u s mode  of t r a n s p o r t by s h i p p e r s . Most o f the volume o f 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,  s i n c e the mid-and l a t e s i x t i e s  f l i g h t s i n c r e a s e d i n frequency. and  C a p a c i t i e s r a n g i n g between 100,000  200,000 pounds on cargo a i r c r a f t are now very  t r a s t t o the f i f t i e s ,  all-cargo  common.  In con-  a i r f r e i g h t i s no l o n g e r c o n f i n e d t o emer-  gency and/or p e r i s h a b l e shipments. During  the s i x t i e s , the demand f o r a i r f r e i g h t grew a t a  r a t e beyond a l l e x p e c t a t i o n s . increasingly  conscious  The a i r l i n e i n d u s t r y has become  o f the advantages o f 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  freight  are i n c r e a s i n g a t a h i g h e r r a t e than passenger revenues. A i r f r e i g h t f o r the major c a r r i e r s  i n the f r e e world  average, f o r 25% o f the t o t a l revenue.  accounts,  By 1980, c a r r i e r s  on the optimis-  t i c a l l y expect t o r e c e i v e 50% o f t o t a l revenues from a i r f r e i g h t operations. optimistic traffic,  P r o j e c t i o n s f o r the P a c i f i c routes  seem even more  and f o r e s e e a y e a r l y i n c r e a s e o f 30% i n the t o t a l  compared t o an 18% on the A t l a n t i c  routes.  1  In examining  the c h a r a c t e r i s t i c s o f a i r f r e i g h t  transport,  one s h o u l d be aware o f two f a c t o r s p e c u l i a r t o t h i s mode o f t r a n s port : - i t i s the f a s t e s t and - i t i s the most e x p e n s i v e . The transport  speed f a c t o r r e p r e s e n t s a p l u s over the o t h e r modes o f  ; t h e r e f o r e , a s h o r t e r t r a n s i t time s h o u l d a l s o  the t o t a l d e l i v e r y time. t o t a l t r a n s i t time shipment  reduce  T h i s i s t r u e when we come to compare  ; b u t the s t a t i c time, i . e . the time when a  i s i d l e e i t h e r i n t r a n s i t warehouses, on t r u c k s o r a t  a i r p o r t s , i s n e a r l y i d e n t i c a l f o r a l l modes o f t r a n s p o r t .  Thus,  o p e r a t i o n s such as l o a d i n g , u n l o a d i n g , h a n d l i n g , p i c k up and d e l i v e r y must be e f f i c i e n t i n r e l a t i o n t o t r a n s i t time. The second f a c t o r i s o f c r i t i c a l importance p o t e n t i a l customers is  t o use a i r t r a n s p o r t .  l i s t e d a r a t e p e r t o n - m i l e f o r shipment  e a s t e r n Canada  i n attracting  Below, as i l l u s t r a t i o n , of clothing  from  (Montreal) t o the west c o a s t (Vancouver), f o r the 2  f o u r modes o f t r a n s p o r t : D e l i v e r y time 1 day  Mode Air  Cost p e r t o n / m i l e 2 3*  5 days  Truck  9C  7 days  Rail  7*  Ship  4C *  2-3  weeks *  * informant's o r a l estimate. These f i g u r e s r e f l e c t n o t o n l y the c o s t b u t the d i s t a n c e , the s i z e o f shipment,  the type o f commodity and i t s v a l u e .  The  h i g h c o s t o f a i r f r e i g h t puts t h i s mode i n t o the category o f  "premium" t r a n s p o r t a t i o n . and more s h i p p e r s of t h e i r goods.  At t h i s p o i n t , one  are ready to pay We  will  may  w e l l ask why  t h i s premium f o r the  t r y to answer t h i s q u e s t i o n  the advantages to the s h i p p e r s  more  transport  by  showing  of u s i n g a i r f r e i g h t r a t h e r than  s u r f a c e t r a n s p o r t a t i o n , and how  the d e c r e a s i n g  c o s t s to the  carriers  enable them to o f f e r s h i p p e r s more and more a t t r a c t i v e r a t e s .  OPERATING COSTS OF AIR  CARRIERS IN CANADA  T e c h n o l o g i c a l progress of a i r t r a n s p o r t .  has  Although o p e r a t i n g  t i v e terms over the years w i t h traffic,  been the key  c a r r i e r s ' o p e r a t i n g expenses ; and c l o s e l y r e l a t e d to the p r e s e n t categories widely  success  c o s t s were reduced i n r e l a -  an ever i n c r e a s i n g volume o f  f a s t t e c h n o l o g i c a l progress  under two  to the  a l s o has  put  a burden on  these o p e r a t i n g  costs  p r i c i n g system p o l i c y .  accepted  International C i v i l Aviation Organization  are  They  by a l l a i r l i n e s and  the  fall  the  (I.C.A.O.).  3 1 - Direct operating  costs  These i n c l u d e 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 , - F u e l and o i l , - F l i g h t equipment, - Landing f e e s . - Maintenance and - Depreciation Direct operating  overhaul  of f l i g h t  equipment,  of f l i g h t equipment and  c o s t s vary with  i t s rental.  the type of a i r c r a f t ,  length  of  haul and type o f route international). by  Table  (either t r a n s c o n t i n e n t a l , regional or 3.1 shows d i r e c t o p e r a t i n g  type o f a i r c r a f t , which i n c r e a s e p e r mile w i t h  but decrease w i t h  available  costs cargo  (D.O.C.) capacity,  ton/mile.  TABLE  3.1  D.O.C. PER TYPE OF AIRCRAFT LOAD CAPACITY (metric tons)  SPEED  DC-6  16  282  1.28  7.75  DOUGLAS DC-8F  43  550  1.92  3.64  B-707-320 C  44  555  2.06  3.68  90  625  2.50  N.A.  N.A.  TYPE  B-747 L-500 (1971) •Military Source  375  D.O.C. PER MILE ($)  D.O.C. PER AVAILABLE TON-MILE (<?)  2.75  t o 3.0 0 2.25  (est.)  : Brewer, S t a n l e y , H., The Nature o f A i r Cargo Costs Graduate School o f B u s i n e s s A d m i n i s t r a t i o n , U n i v e r s i t y o f Washington, 1968, and updated from various p e r i o d i c a l s .  Frequency o f u t i l i z a t i o n i s an important v a r i a b l e which a f f e c t s D.O.C.  Utilization  o f an a i r c r a f t  i s dependent upon  average l e n g t h o f h a u l , 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 o f a i r c r a f t . longer  The  the time spent a t c r u i s i n g speed, the lower the D.O.C.per  aircraft/mile. i n regard  The weight l o a d f a c t o r can be a u s e f u l i n d i c a t o r  t o optimum a i r c r a f t  utilization.  As a i r c r a f t  capacity  i s i n c r e a s i n g , c a r r i e r s are f a c i n g the problem o f f i n d i n g as much  as t w i c e the volume o f cargo c a r r i e d i n a DC-3F f o r example, to f i l l  up a B-74 7, i n order  t o keep up t h e i r p r e s e n t  load f a c t o r  the average weight l o a d f a c t o r f o r a l l cargo j e t s i s i n the low. fifties.  A l s o the backhaul i n many routes  has an impact on the  average weight l o a d f a c t o r and t h e r e f o r e , on the t o t a l 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 because o f economic, freight t r a f f i c  Columbia,  t o p o g r a p h i c and c l i m a t i c c o n d i t i o n s , a i r  i s c h a r a c t e r i z e d by a westbound flow f o r t r a n s -  c o n t i n e n t a l r o u t e s , northbound f o r r e g i o n a l routes for  operations  t r a n s - P a c i f i c routes.  and eastbound  T h i s d i r e c t i o n a l ( i . e . one-way) 4  traffic  i s r e f l e c t e d by the r a t e s now i n e f f e c t .  2 - Indirect operating  costs  The f o l l o w i n g costs,, which cannot be d i r e c t l y the o p e r a t i o n operating  o f the a i r c r a f t ,  costs,  (I.O.C.)  are i d e n t i f i e d as i n d i r e c t  :  - D i r e c t maintenance and  o f ground  property  equipment,  - Depreciation  traced to  o f maintenance  and ground p r o p e r t y  equipment  equipment,  - Passenger s e r v i c e , c a b i n crew s a l a r i e s (not a p p l i c a b l e t o a l 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  servicing ~  s t a t i o n and r e g i o n a l c o s t - Promotion and s a l e s ,  58. - General  and  administration costs,  - I n t e r e s t expenses. In cargo o p e r a t i o n s , the I.O.C. accounts f o r 35%  of  '. t o t a l o p e r a t i n g c o s t s versus According  50%  f o r passenger  to Canadian P a c i f i c A i r l i n e s  the  5  operations.  ( C P . A . ) , the  proportion  of d i r e c t to i n d i r e c t c o s t s i s as f o l l o w s : % d i r e c t cost % i n d i r e c t cost  Total  Domestic o p e r a t i o n s  60  40  100  International operations  52  48  100  Total operations  55  45  100  It is d i f f i c u l t  to assess  the r e l a t i v e p r o p o r t i o n  alloca-  ted to i n d i r e c t costs  (such as a d m i n i s t r a t i v e , d e p r e c i a t i o n ,  s t a t i o n expenses) and  i n what p r o p o r t i o n passenger, cargo o r m a i l  s e r v i c e - s h o u l d bear these  expenses.  Hence, i t i s u n r e a l i s t i c  compare a i r l i n e u n i t c o s t per type o f s e r v i c e , route and when every costs.  a i r l i n e has  i t s own  I t i s thus important  equipment  method o f a l l o c a t i n g these  from an economic s t a n d p o i n t  indirect to d e t e r -  mine an optimum r a t e which r e l a t e s to the o p e r a t i o n o f an  airline  i n terms o f a i r c r a f t u t i l i z a t i o n r a t h e r than the o p e r a t i o n aircraft  to  of  themselves. T h i s " o p e r a t i o n of a i r c r a f t " a t t i t u d e and  strong  competi-  t i o n from s u r f a c e c a r r i e r s - which have a l s o improved t h e i r mark e t i n g methods - can be one  e x p l a n a t i o n of the problems faced  the a i r l i n e s w i t h r e s p e c t to c o s t a l l o c a t i o n and p r i c i n g With b e t t e r e f f i c i e n c y i n o p e r a t i o n s r a t e s i n a i r f r e i g h t t r a n s p o r t has  by  policies.  and management, the t r e n d o f  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 t h e m s e l v e s have  t o 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  agreed  containerized  shipments.  WHO  ARE  THE  USERS OF  Current into  four  AIR  users of  groups  FREIGHT SERVICE  a i r freight services  shipping  3 - Customers  f o r emergency  4 - Customers u t i l i z i n g  potential by  the  serve  a i r transport  2 - Customers  (2)  and  (4)  customers  of  -  objectives^ to increase  to  locate  t o use According "occasional revenues  be  divided  a regular  basis,  commodities,  shipments,  a i r transport  customers  t h e s e two  are  by  on  an  occasional  f a r the  categories  A  most  further  of  basis.  important analysis  shippers  would  : the  would-be u s e r s -  high-value  on  f o r a i r cargo business.  a i r c a r r i e r s of two  can  :  1 - Customers u t i l i z i n g  Categories  ?  and  r a n g e and of  the  to induce o c c a s i o n a l  to a i r l i n e  regular  air freight,  a i r freight transport  shippers",  number o f  on  executives,  should  be  shippers  a permanent the  although providing  i n cargo operations,  air  fourth  basis.  category,  substantially  given  every  increased  consideration  7 from a i r cargo agents t o use  a i r transport  occasional  users  , since  for a l l their  ayail  themselves  "under s p e c i a l c i r c u m s t a n c e s " incurred  by  failure  they w i l l  e.g.  be  more e a s i l y  persuaded  d i s t r i b u t i o n needs. of to  These  a i r freight services avoid  substantial  t o meet e i t h e r t e r m c o n t r a c t s  or  only  losses  production  60. schedules. instances  These s p e c i a l circumstances are to i n e f f e c t i v e i n v e n t o r y  I t has during  been i l l u s t r a t e d by  field-work  transport  can be  i s used.  ness world and  - v i z . a i r - plays  c o n t r o l system i n  department w i t h i n  an  a source of s u b s t a n t i a l savings when a i r  g  THE  o f time and the  s p e c i f i c examples gathered  transportation  CHARACTERISTICS SPECIFIC TO Factors  i n many  c o n t r o l methods.  t h a t an e f f i c i e n t i n v e n t o r y  c l o s e r e l a t i o n t o the organization,  also ascribed  USE  place  transport  OF  are  AIR  FREIGHT  c r u c i a l i n the modern b u s i -  o f commodities by  a major r o l e i n the  the  f a s t e s t mode  d i s t r i b u t i o n system.  In  a d d i t i o n 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 t r a n s p o r t  offers a r e l i a b i l i t y  s e r v i c e which i n t u r n have an e f f e c t on  and  the  availability  of  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 o f s e r v i c e i s one i n d e t e r m i n i n g the carrier  ; and  established  i n very many i n s t a n c e s ,  A v a i l a b i l i t y of s e r v i c e  routes,  element.  the  ability  and/or  to m a i n t a i n  considerations  ( i . e . frequency and  o f speed. accessibility),  U n t i l the e a r l y s i x t i e s , except on a  frequency o f a i r cargo s e r v i c e was 9  frequency of passenger s e r v i c e s , only  consideration  c h o i c e of s u i t a b l e modes of t r a n s p o r t  schedules i s superseded by  i s another key  critical  i n the b e l l y or f u s e l a g e  Recently however, w i t h the  since  c l o s e l y r e l a t e d to  cargo space was  (or both) of passenger  increasing  few the  available  aircraft.  volume of a i r cargo moved,  air carriers  are i n t r o d u c i n g a l l - c a r g o f l i g h t s f o r two reasons : - T o t a l volume, range and type o f commodities are  increasing.  - I t has been found t h a t a i r f r e i g h t and  origins  d e s t i n a t i o n s do not have, i n many  instances,  any r e l a t i o n  In t h i s sense, a i r c a r r i e r s  t o passenger  routes.  have been h e l p e d by a i r c r a f t  manufacturers who are p r o d u c i n g planes w i t h f u s e l a g e  and door  a c c e s s i b i l i t y b e t t e r adapted t o meet the demand f o r t r a n s p o r t o f bulky and l a r g e r s i z e  cargo, which would maximize u t i l i z a t i o n o f  the a v a i l a b l e a i r c r a f t cargo space.  The Lockheed L-100 H e r c u l e s  i s a good i l l u s t r a t i o n . Before d e a l i n g with, the i m p l i c a t i o n s o f a i r f r e i g h t t r a n s p o r t f o r the d i s t r i b u t i o n  system, a b r i e f a n a l y s i s o f the  demand f o r a i r f r e i g h t i s i n o r d e r .  GENERAL DEMAND FUNCTION IN AIR FREIGHT Air freight has  demand s i n c e the b e g i n n i n g o f the s i x t i e s  changed r a d i c a l l y .  Commodities and shipments moved by a i r are  i n c r e a s i n g i n range, volume and d e n s i t y , e s p e c i a l l y lower c o s t goods.  i n r e s p e c t to  Y e t , the t o t a l volume o f goods r e p r e s e n t s  very s m a l l p a r t o f the t o t a l f r e i g h t moved by s u r f a c e  a  transport.  In a microeconomic sense, the t r a n s p o r t a t i o n f u n c t i o n ( i . e . i n t h i s context, distribution  a i rfreight  system.  transport)  i s only one aspect  The demand f o r a i r f r e i g h t  can be  o f the  considered  as a second degree demand f u n c t i o n because i t i s dependent on the nature o f the commodity s h i p p e d , which i n turn i s dependent on the  market demand f o r a p a r t i c u l a r The  commodity.  demand f o r a i r t r a n s p o r t i s the t o t a l sum o f v a r i o u s  functions including  : the value o f the commodity, i t s c o m p e t i t i v e  s i t u a t i o n on the market, the c o m p e t i t i v e  s i t u a t i o n o f the a i r  and s u r f a c e c a r r i e r s i n r e s p e c t t o r o u t e s , l e n g t h o f h a u l , r a t e s , and  finally  the g e n e r a l economic a c t i v i t y .  From i n f o r m a t i o n  l e c t e d during interviews with a i r c a r r i e r executives  col-  and s h i p p e r s  (users and non-users o f a i r f r e i g h t ) the f o l l o w i n g i n f e r e n c e s can be made : ® x  - The g e n e r a l demand f o r a i r cargo  i s more e l a s t i c f o r  most commodities c h a r a c t e r i z e d by h i g h v a l u e , s m a l l s i z e , o r emergency need. - The.general  demand f o r a i r f r e i g h t i s more e l a s t i c  on s h o r t and medium h a u l d i s t a n c e s up t o 500 m i l e s because o f competition  from s u r f a c e c a r r i e r s . .  c e n t r e s can be "door-to-door  In B r i t i s h Columbia, a l l main  s e r v i c e d " w i t h i n 24 hours by road  transportation. - In r e g a r d to the n o r t h e r n f r e i g h t transport presents  traffic,  the demand f o r a i r  an i n e l a s t i c aspect because o f the  l a c k o f a l t e r n a t i v e modes o f t r a n s p o r t .  But i n the l o n g r u n ,  the growing economic development o f the n o r t h w i l l generate  an  i n c r e a s e d volume o f a i r f r e i g h t which w i l l change the aspect of the demand, r e n d e r i n g i t l e s s  inelastic.  - On the P a c i f i c r o u t e , demand f o r a i r f r e i g h t i s more p r i c e e l a s t i c on eastbound routes than on westbound r o u t e s . The  d i r e c t i o n a l imbalance on the P a c i f i c routes  (due t o the  nature of the  trade) i s f o u r to one  i n f a v o r of eastbound  routes. I t has  been mentioned t h a t the demand f o r a i r f r e i g h t i s  a l s o a f u n c t i o n o f the r a t e s t r u c t u r e . i n t e r n a t i o n a l as w e l l as the the r a t e f a c t o r has on  the g e n e r a l  v i n c i a l and  f a c t i s v a l i d at  regional level.  a more n o t i c e a b l e  But  the  i t seems t h a t  e f f e c t at the  regional  level  demand f o r a i r f r e i g h t t r a n s p o r t , because o f p r o -  federal regulations,  modes o p e r a t i n g  This  on many r o u t e s ,  competition and  from the  three  the s p e c i a l s i t u a t i o n o f  other the  r e g i o n a l c a r r i e r s i n Canada. We  will  t u r n now  to the T o t a l 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  THE  TOTAL DISTRIBUTION CONCEPT As has  been s t a t e d a t the b e g i n n i n g o f t h i s c h a p t e r ,  a i r freight transportation lengthy  transport.  i s one  o f the key  elements i n  p r o c e s s o f the d i s t r i b u t i o n f u n c t i o n .  t i o n Cost System i n c l u d e s  a l l the  functions  and  the  A Total Distribucosts  involved  i n moving goods from producer to consumer. Over the p a s t increased  f i f t e e n years,  at a r a p i d r a t e and  l a r l y consumer p r o d u c t s ) , the consumer d o l l a r .  f o r most o f the p r o d u c t s  have (particu-  they account f o r as much as 5<K  Thus, any  would generate s u b s t a n t i a l  d i s t r i b u t i o n costs  reduction  of  i n d i s t r i b u t i o n costs  savings.  Because the d i s t r i b u t i o n system a f f e c t s almost every organizational  f u n c t i o n o f a company, few  managers are  aware of  the  importance o f the d i s t r i b u t i o n  operation.  f u n c t i o n to t h e i r b u s i n e s s  The a i r c a r r i e r s , by n e c e s s i t y and n o t by c h o i c e , have  become s p e c i a l i z e d  i n distribution  system a n a l y s i s ,  t i a t e d a new marketing approach t o t a l l y  different  and have  ini-  from t h a t which  p l a c e d emphasis on speed o n l y . Although the importance o f speed i s n o t q u e s t i o n e d , air  c a r r i e r s have e s t i m a t e d t h a t the use o f a i r f r e i g h t as a mode  of t r a n s p o r t a f f e c t s by  the. p h y s i c a l  reducing i t s t o t a l c o s t s .  physical  x x  d i s t r i b u t i o n system d i r e c t l y  The f o l l o w i n g components o f the  d i s t r i b u t i o n f u n c t i o n ' h a v e been found t o be i n d i r e c t 12  r e l a t i o n t o the c h o i c e o f the mode o f t r a n s p o r t : - Inventory and warehousing, .-. C a p i t a l  i n v e s t e d and i n t e r e s t  charges,  - P a c k i n g , packaging and c r a t i n g , - Freight - Customer If  charges, service.  a l l these f u n c t i o n s were managed w i t h e f f i c i e n c y  does n o t imply m i n i m i z i n g c o s t s ) ,  the whole d i s t r i b u t i o n  might generate more revenue and improve p r o f i t s . tight control but  o f the d i s t r i b u t i o n  w i t h i n a medium-term p e r i o d  (which  system  The b e n e f i t s o f a  system are n o t f e l t  immediately  (one to three y e a r s ) , which i s  perhaps, one o f the reasons why so l i t t l e  attention  has been g i v e n  to the d i s t r i b u t i o n , f u n c t i o n by c o r p o r a t e management i n r e c e n t years. Another e x p l a n a t i o n o f t h i s s i t u a t i o n f u n c t i o n s and c o s t s are a l l o c a t e d  to d i f f e r e n t  i s that  distribution  company departments,  which are a l l attempting to reduce t h e i r r e s p e c t i v e c o s t s  regardless  of the impact of these c o s t s r e d u c t i o n s The  various  under the  elements of the  formal  on the other  departments.  d i s t r i b u t i o n should  c o n t r o l of a p h y s i c a l d i s t r i b u t i o n manager  be  placed  responsible  f o r each d e c i s i o n t h a t the company must take to meet customer's s e r v i c e requirements and  standards."^  d i s t r i b u t i o n f u n c t i o n should tribution organization who  i s also responsible  and  be  In other words,  coordinated  the  through formal  dis-  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  f o r the  t o t a l c o s t of  distribution,  e s p e c i a l l y as a f f e c t s t r a n s p o r t a t i o n . I t must be kept i n mind t h a t the c h o i c e between 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 i s also, a choice between d i f f e r e n t modes of p h y s i c a l d i s t r i b u t i o n . respect no  Therefore,  to a mode of t r a n s p o r t may  longer v a l i d when c o n s i d e r e d We  will  look now  t r i b u t i o n f u n c t i o n and  at the  a d e c i s i o n taken w i t h  be v a l i d i n the s h o r t run  and  from a long-term p o i n t of view. components of the p h y s i c a l  dis-  t h e i r r e l a t i o n to a i r f r e i g h t t r a n s p o r -  tation.  Inventory and warehousing  functions  High speed t r a n s p o r t a t i o n allows l e r i n v e n t o r i e s and be of two  kinds  a company to c a r r y smal-  thus reduce t h e i r c o s t s .  : t r a n s i t or storage  The  warehousing.  on storage  and warehousing i n v e n t o r i e s are  savings  t r a n s i t warehousing c o s t s , s i n c e the  on  difficult t r y vary  to e v a l u a t e . from one  Although the  inventories The  savings  l e s s obvious than former are more  c h a r a c t e r i s t i c s of an  another, i t i s e v i d e n t  can  that the  f a s t e r and  indusmore  r e l i a b l e the d e l i v e r y , the s m a l l e r the stock which must be carried.  By  the same token,  safety-margin Therefore, of  having  i f the d e l i v e r y system i s slow, a  stock i s needed, when there i s a f a s t t u r n  over.  the warehousing c o s t s i n c r e a s e as do a l s o the  costs  c a p i t a l t i e d up f o r a longer p e r i o d  rance, obsolescence  and  deterioration.  The  : interests, insu-  use of a i r f r e i g h t  w i l l e f f e c t c o s t - r e d u c t i o n s i n the f u n c t i o n s of i n v e n t o r y and ware housing,  thereby  generating p r o f i t centres  ; f o r example, e l i m i n a -  t i o n or r e d u c t i o n i n the number of warehouses or d i s t r i b u t i o n t r e s and p e n e t r a t i o n of new But,  markets with minimum i n v e n t o r i e s . -  as i n v e n t o r y and warehousing f u n c t i o n s are dependent  on so many v a r i a b l e s (such as type of p r o d u c t , competition,  cen-  and  market l o c a t i o n  s a l e s volume), many companies do not have  and  accu-  r a t e f i g u r e s w i t h r e s p e c t to t h e i r i n v e n t o r y and warehousing c o s t s S t u d i e s and  r e s e a r c h i n t h i s f i e l d have demonstrated t h a t  c o s t s reach 5% of the t o t a l s a l e s revenues ; and r a t i o n s , a r e d u c t i o n o f 50%  for large  corpo-  of these c o s t s c o u l d mean savings i n -  v o l v i n g hundreds of thousands o f  C a p i t a l i n v e s t e d and  these  dollars.  interest  charges  In the d i s t r i b u t i o n system, t h e r e i s c o n s t a n t l y p r e s e n t the c r i t i c a l problem o f working c a p i t a l t i e d up i n goods en or i d l e i n s t o c k . By r e d u c i n g warehouse space, and  thereby  the  amount of i n v e n t o r y , a l a r g e r amount of working c a p i t a l can r e l e a s e d i n a s h o r t e r p e r i o d of time and be purposes.  Preference  route  be  r e a p p l i e d to o t h e r  of a i r f r e i g h t t r a n s p o r t over o t h e r  surface  modes  ( e s p e c i a l l y on l o n g - h a u l  f i n a n c i a l considerations. c a p i t a l turnover  d i s t a n c e ) , should  be based a l s o on  When goods are i n t r a n s i t ,  and the c a r r y i n g charges on borrov/ed  the r a t e o f capital  c o n s t i t u t e 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, volume, more e f f i c i e n t p r o d u c t i o n The  larger sales  and t h e r e f o r e , h i g h e r  profits.  d e c i s i o n t o use a i r f r e i g h t i n s t e a d o f any o t h e r  g i v e n s u r f a c e mode would n e c e s s i t a t e b a l a n c i n g  a l l the c a p i t a l  c o s t s i n v o l v e d when the goods are en r o u t e .  Packaging and c r a t i n g In view o f the i n c r e a s e d volume o f goods s h i p p e d  by a l l  modes o f t r a n s p o r t , manufacturers o f paper, cardboard, f i b e r g l a s s and  aluminum a r e now o f f e r i n g new p a c k a g i n g systems - a new  ure i n the sense t h a t the new p a c k i n g labour  and h a n d l i n g  materials w i l l  reduce both  c o s t s and t o t a l package weight - thus  a t i n g more, e f f i c i e n t h a n d l i n g t r a n s i t time and h i g h e r  operation.  depart  facilit-  In view o f the s h o r t e r  f r e i g h t r a t e s i n a i r t r a n s p o r t , simple and  l i g h t weight p a c k a g i n g w i l l reduce the t a r e weight o f the shipment Bulky items are u s u a l l y 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  c o s t s a r e i n many i n s t a n c e s  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 p a c k a g i n g and c r a t i n g i s r e q u i r e d by t r u c k on long and even medium h a u l  distances.  Moreover, p i l f e r a g e , t h e f t and damages have the lowest of o c c u r r e n c e i n a i r f r e i g h t Since  incidence  transport.  the l a t e s i x t i e s ,  a i r c a r r i e r s have  introduced  68. the  concept o f contai.neriza,tion i n c o n j u n c t i o n  d i s t r i b u t i o n cost This First,  concept.  c o n t a i n e r i z a t i o n concept has a double i m p l i c a t i o n .  the a i r c a r r i e r w i l l  use t o optimum e f f i c i e n c y the a v a i l a -  b l e cargo space i n the a i r c r a f t . will two  w i t h the t o t a l  Second, i n t e r - m o d a l  containers  ease the problem o f c o m p a t i b i l i t y o f t r a n s f e r shipment between modes o r more. C o n t a i n e r i z a t i o n w i l l , i n the f o r e s e a b l e  a p o t e n t i a l means o f r e d u c i n g  future,  present  the t o t a l d i s t r i b u t i o n c o s t s by a i r .  At p r e s e n t , c o n t a i n e r i z a t i o n i n a i r f r e i g h t has been s u c c e s s f u l l y accepted on i n t e r n a t i o n a l routes b u t i t s use on r e g i o n a l i n Canada i s s t i l l  Freight  routes  very l i m i t e d .  charges  For a i r f r e i g h t , charges are a s s e s s e d on gross weight and/or d e n s i t y  and are a p p l i c a b l e  from a i r p o r t t o a i r p o r t o n l y .  Door-to-door s e r v i c e can be o f f e r e d a t an e x t r a charge. given  shipment, a' s t r a i g h t r a t e comparison w i l l  rable to surface  transport.  always be favou-  As i n o t h e r modes o f t r a n s p o r t , a i r  f r e i g h t r a t e s are a r e f l e c t i o n o f volume o f t r a f f i c , between c a r r i e r s o p e r a t i n g lly  For a  competition  the same type o f commodity and e s p e c i a -  the o r i g i n and d e s t i n a t i o n o f shipments.  In the case o f the  r e g i o n a l a i r c a r r i e r , r a t e s are based upon the weight o f shipment and  the r o u t e  centres,  (see P.W.A. t a r i f f s  from Vancouver t o Yukon, B.C.  A l b e r t a and Northwest T e r r i t o r i e s , Appendix C ) .  Customer s e r v i c e While i t i s d i f f i c u l t to e s t i m a t e the f i n a n c i a l on improved customer s e r v i c e , one  way  return  to measure approximately  i s by examining the volume of s a l e s . The  points discussed  above are c o n s i d e r e d  important elements i n the d i s t r i b u t i o n system. there  are "other  to be  Undoubtedly,  f a c t o r s i n v o l v e d , such as h a n d l i n g  market f o r e c a s t i n g .  Although these may  dary importance, they a l s o c o n t r i b u t e  be  the most  equipment  considered  and  of secon-  to a s u c c e s s f u l d i s t r i b u t i o n  system. The centre.  d i s t r i b u t i o n function i s usually considered  as a c o s t  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  c e n t r e , which maximizes p r o f i t s but which does not minimize c o s t s .  To ensure p r o f i t a b l e r e t u r n s  t i o n f u n c t i o n , a l l i t s elements should w i t h another.  Unfortunately,  generating  necessarily  from the  distribu-  perform i n harmony  one  the d i s t r i b u t i o n f u n c t i o n i s more  complex s i n c e i t i s intermeshed w i t h s t r u c t u r a l system o f  an  organization  sales  functions.  i . e . purchasing, production, Resolving  maintenance and  d i s t r i b u t i o n problems w i t h i n an  organiza-  t i o n would, i n v o l v e r e s t r u c t u r i n g the d i f f e r e n t f u n c t i o n s , s e t t i n g up goals  and  subgoals compatible and  functional operation,  i n c o o r d i n a t i o n w i t h every  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 i m p l i e s an e f f i c i e n t and  capable management o r g a n i z a t i o n .  SPECrFrC 'ADVANTAGES OF AIR DISTRIBUTION OVER SURFACE DISTRIBUTION When c o n s i d e r i n g  a l t e r n a t i v e modes of t r a n s p o r t , d e t a i l e d  70 . cost-comparisons which i n c l u d e a very u s e f u l  f r e i g h t and n o n - f r e i g h t charges are  t o o l when the time o f d e c i s i o n - m a k i n g i s a t hand.  U n f o r t u n a t e l y , n o n - f r e i g h t charges are e i t h e r i n t a n g i b l e c u l t to a l l o c a t e  and compile.  Many i n t e r e s t e d  or d i f f i -  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 d i s c o u r a g e d by the task o f u n d e r t a k i n g a cost the  analysis  comparison o f a i r / s u r f a c e  transportation,  based on  T o t a l Cost D i s t r i b u t i o n Concept. I t i s r e c o g n i z e d t h a t  cost  distribution'analysis  a total  i s c o s t l y i n terms o f time and money.  Shippers w i l l c o n s i d e r u n d e r t a k i n g such an a n a l y s i s • o n l y i s strong j u s t i f i c a t i o n that  a change i n the mode o f  i f there  transport  w i l l a f f e c t the w h o l e . p i c t u r e o f c o s t s and revenues. To t h i s end, the  S t a n f o r d Research I n s t i t u t e , a t the r e q u e s t o f Emery A i r  Freight  Corp. has developed a technique f o r i d e n t i f y i n g  presenting potential The studies  situations  advantages i n the use o f a i r f r e i g h t .  1 4  technique i s based on i n t e r v i e w s , and on a c t u a l  of successful  technique i s t h a t  users o f a i r f r e i g h t .  The m e r i t o f t h i s  i t i s n o t based on a p a r t i c u l a r i n d u s t r y  of commodity, b u t i s r e l a t e d  case  o r type  t o the c h a r a c t e r i s t i c s o f the f o l l o -  wing g e n e r a l 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 - Potential  problems o f d i s t r i b u t i o n , f o r market expansion.  Moreover, these c h a r a c t e r i s t i c s thirteen  s p e c i f i c reasons  air freight. gories  :  are c l o s e l y r e l a t e d to  ( l i s t e d i n the study) f o r the use o f  These t h i r t e e n  reasons can be reduced t o three  cate-  71.  - Use  of speed reduces t r a n s i t time, i n c r e a s e s s a l e s i n  a time l i m i t e d s i t u a t i o n , meets u n p r e d i c t a b l e  demands, and  reduces  investment i n goods i n t r a n s i t ; - Speed a l s o reduces i n v e n t o r y lescence  and  operating  t i e s and  services ; - Superior  by  investment, r i s k of obso-  expenses a s s o c i a t e d with  inventory  c o n d i t i o n s of c a r r i a g e reduce c o s t s  facili-  incurred  l o s s , damage, p i l f e r a g e o f shipments, whereas time f o r p r e s e r -  v i n g goods i n t r a n s i t and  for handling  These reasons seem-also to be advantages o f a i r f r e i g h t , and may  be  operations  The  and  l i s t e d as f o l l o w s : and  a v a i l a b i l i t y of s e r v i c e ,  c o n d i t i o n of c a r r i a g e .  method e v o l v e d by  the S t a n f o r d Research I n s t i t u t e has  been a p p l i e d here, as an i l l u s t r a t i o n organizations  to the case of two  Vancouver  : (a) Simpsons-Sears L t d , which i s u s i n g a i r f r e i g h t  on a n o n - r e g u l a r b a s i s  ; and  uses a i r f r e i g h t to serve  (b) Vancouver Fancy Sausage, which  i t s r e g i o n a l and  are a i r f r e i g h t e d as f a r as  n a t i o n a l markets  allows  s i t u a t i o n s while,  (goods  Toronto).  T h i s method o f i d e n t i f y i n g p o t e n t i a l use i s use'ful and  the  costs,  - Reliability - Superior  shortened.  a l o g i c a l consequence of  - Speed reduces time i n t r a n s i t inventory  are  f o r s e l e c t i v e use  of a i r f r e i g h t  of a i r f r e i g h t f o r s p e c i f i c  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  does not i n d i c a t e , however, t h a t a i r f r e i g h t w i l l i n f a c t i n a net c o s t s a v i n g over s u r f a c e  method result  t r a n s p o r t a t i o n i n any p a r t i c u l a r  72. situation.  I f the. p r e l i m i n a r y  study i n d i c a t e s t h a t a i r f r e i g h t  can be used advantageously, then s h i p p e r s  are a d v i s e d  a detailed  analysis for a i r trans-  comparative t o t a l d i s t r i b u t i o n  p o r t versus s u r f a c e w i l l r e s u l t i n a net The  transport,  to determine i f a i r f r e i g h t  use  gain.  method o f the T o t a l D i s t r i b u t i o n  most a i r f r e i g h t c a r r i e r s space.  to conduct  Cost Concept i s used by  as a marketing t o o l to s e l l  Problems a r i s e because i t i s d i f f i c u l t ,  a i r cargo  i f not o f t e n  p o s s i b l e , to q u a n t i f y every advantage o f a i r f r e i g h t s i n c e t r a n s p o r t a t i o n system i s not a homogeneous p r o d u c t .  use  the  Thus i n the  l a t e 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 m o d i f i c a t i o n s marketing methods.  in their  Rather than merely s e l l i n g the i d e a t h a t  o f 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,  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  the  carriers  are a l s o attempting to demonstrate the t o t a l b e n e f i t o f the  ciency  im-  use  effi- .  functions. T r a f f i c managers are becoming aware o f the importance  an e f f i c i e n t t r a n s p o r t a t i o n system which w i l l improve functions  and  organizational operations.  view t h a t "there p o r t a t i o n and I  They no  i s nothing t o choose between one  In t h i s r e s p e c t ,  t i o n needs but  air freight  longer h o l d form o f  the  trans-  c a r r i e r s o f f e r a complete  a l s o t h e i r marketing o p e r a t i o n s .  c a r r i e r s w i l l seek to open up new and  distribution  another."  s e r v i c e to t h e i r customers by meeting not only  shippers  of  suppliers into  their For  transportainstance,  channels f o r trade or to b r i n g  contact.  The  f o l l o w i n g s e c t i o n w i l l analyse the T o t a l  Distribution  Cost Concept, comparing d i s t r i b u t i o n c o s t s f o r s p e c i f i c  commodi-  t i e s between a i r and s u r f a c e t r a n s p o r t .  SURFACE TRANSPORTATION VERSUS AIR TRANSPORTATION AND  ANALYSIS OF THE  : APPLICATION  TOTAL DISTRIBUTION COST CONCEPT.  S e l e c t i o n o f route and  commodities  T h i s a n a l y s i s focuses on B.C.  imports  from Japan. T h i s  country has been s e l e c t e d f o r three main reasons i s B.C.'s most important  : first,  t r a d i n g p a r t n e r a f t e r the U.S.A. ;  s e c o n d l y , most of the s i t u a t i o n s and problems encountered a n a l y s i s can be a p p l i e d t o o t h e r P a c i f i c Rim with B.C.  i n this  c o u n t r i e s which trade  ; t h i r d l y , Vancouver i s the r e g i o n a l head o f f i c e f o r  s e v e r a l s h i p p i n g companies and a i r l i n e s as w e l l as an d i s t r i b u t i o n c e n t r e i n Canada f o r Japanese imports. concerns  Japan  are a l l d i r e c t l y i n v o l v e d i n the movement o f  between B.C. The  important  The  various  freight  and the P a c i f i c Rim c o u n t r i e s . f o u r commodities  Sewing machines, T.V.  (Auto spare p a r t s , T y p e w r i t e r s  s e t s and E l e c t r o n i c Equipment, and  have been s e l e c t e d because  : a) t h e i r volume  i s c o n s t a n t l y i n c r e a s i n g i n B.C.-  and  Textiles)  (and value shipments)  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 o n l y on an emergency b a s i s . The or wholesale  companies i n t e r v i e w e d were the Canadian s u b s i d i a r i e s d i s t r i b u t o r s of the p a r e n t Japanese companies.  Owing  to the r e p e t i t i o u s nature of much of the m a t e r i a l , i t has been  r e l e g a t e d to Appendix C, nent to the  together  computation of the  w i t h a l l the i n f o r m a t i o n  t o t a l d i s t r i b u t i o n cost.  r e s u l t s of comparative c o s t a n a l y s e s ,  pertiThe  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 i m p l i c a t i o n s f o r a i r f r e i g h t are d i s c u s s e d  i n the  following  section. Air  versus Surface D i s t r i b u t i o n  As was  mentioned  above, these analyses  comparison of p h y s i c a l d i s t r i b u t i o n c o s t s tages and  disadvantages o f a i r and  f o u r types o f  and  surface  are based on  the  relative  commodities.  e x t r a c o s t must be  this  j u s t i f i e d , e i t h e r by e x t r a b e n e f i t s or  a s s o c i a t e d reduced c o s t s . A change i n mode of t r a n s p o r t case, sea to a i r ) i s t r a n s l a t e d i n t o i n c r e a s e s v a r i a b l e c o s t s r e l a t e d to d i s t r i b u t i o n .  The  measured i n terms of d o l l a r s appear i n the Others which c o u l d not be measured d u r i n g they were u n a v a i l a b l e  at a l l i n the  (in this  o r decreases i n  c o s t s which c o u l d  t o t a l cost the  be  comparison.  f i e l d work  (e.g. c a p i t a l c o s t s )  (since  t h a t f o r an i d e n t i c a l commodity the volume l e s s by  or  not  t o t a l cost analysis.  For comparative c o s t computations, i t has  shipment i s 15%  by  o r c l a s s i f i e d ) have been e i t h e r e s t i m a t e d  on the b a s i s o f p a s t e x p e r i e n c e  a i r than by  been assumed  (or weight) o f  sea c o n t a i n e r  (except  case o f E l e c t r o n i c Equipment where the volume i s from 40 s m a l l e r by  advan-  t r a n s p o r t a t i o n f o r the  N a t u r a l l y a i r f r e i g h t charges a premium r a t e and  considered  the  a i r transport).  The  explanation  of t h i s  agreed i n the course o f f i e l d work by s h i p p e r s  and  the in to  the 60%  assumption,  carriers alike,  i s t h a t l i g h t e r packaging i s r e q u i r e d f o r a i r t r a n s p o r t ,  and  a l s o the volume charged by sea c o n t a i n e r i s h i g h e r than the a c t u a l volume o f the shipment  (a sea c o n t a i n e r i s r a r e l y packed  c i t y to ensure v e n t i l a t i o n and to a v o i d breakage  and  to capa-  spoilage).  A i r f r e i g h t charges were e i t h e r based upon S p e c i f i c Commodity Rates  (S.C.R.) or U n i t Load Device Rates  (U.L.D.R.),  whichever were' lower, a c c o r d i n g to the weight/volume r a t i o o f each particular  shipment.  P a c k i n g , c r a t i n g and warehousing  c o s t s were not taken i n t o  account, s i n c e the companies i n t e r v i e w e d were unable to supply the r e q u i r e d i n f o r m a t i o n , but they a l l agreed t h a t the use o f a i r t r a n s p o r t would reduce these c o s t s , p a r t i c u l a r l y Auto Spare P a r t s and E l e c t r o n i c Equipment.  i n the case o f  These  three costs r e -  p r e s e n t approximately 12% of the t o t a l d i s t r i b u t i o n c o s t s , can be reduced by 50% i f a i r f r e i g h t i s used  which  (Typewriters and  E l e c t r o n i c Equipment seem l i k e l y t o b e n e f i t most from these reductions) .  ANALYSIS OF THE  TOTAL DISTRIBUTION COST APPLIED TO SPECIFIC CASES  Transportation  charges  These show the h i g h e s t f i g u r e s f o r a i r f r e i g h t which  charges,  are from f o u r t o s i x times h i g h e r than those by sea and  i n c l u d e wharfage,  l o a d i n g , u n l o a d i n g , h a n d l i n g and  containeri-  z a t i o n charges. The  f r e i g h t charges on e i t h e r mode are i n f l u e n c e d by the  weight and volume o f shipment.  A i r f r e i g h t r a t e s are c a l c u l a t e d  on the weight o f the shipment unless  the volume/weight  ratio  exceeds 19 4 c u b i c f e e t p e r pound, i n which case r a t e s are c a l c u l a t e d on the volume.  Sea c o n t a i n e r r a t e s have a volume/weight  r a t i o l i m i t o f 34 c u b i c f e e t p e r pound. considered,  In the shipments  only s i x were charged on a volume b a s i s 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 b a s i s by sea c o n t a i n e r .  A i r f r e i g h t r a t e s do p e n a l i z e bulky b u t n o t  l i g h t weight shipments, as i s i l l u s t r a t e d by the computation o f f r e i g h t charges f o r T e x t i l e s and E l e c t r o n i c Equipment.  (See Appen-  d i x C.) .  Insurance charges Insurance c o s t s r e p r e s e n t a n e g l i g i b l e f r a c t i o n t o t a l a i r cost.  Since i n s u r a n c e  of.the:  premiums take i n t o account the  value o f the shipment, t r a n s i t time and h a n d l i n g o p e r a t i o n s , the c o s t s are much h i g h e r f o r s u r f a c e t r a n s p o r t a t i o n .  A i r insurance  r a t e s never exceed 0.30% o f the value o f the shipment, whereas f o r the same route  and the same shipment, sea c o n t a i n e r  insurance  r a t e s may run from a low o f 0.50% t o a h i g h o f 1.50% o f the v a l u e o f the shipment  Capital  (Cf..Insurance  r a t e s , Appendix C ) .  costs  Owing t o the r e t i c e n c e on the p a r t o f d i s t r i b u t o r s i n g i v i n g accurate  information i n regard  holding'inventory,  to the c o s t s i n v o l v e d i n  i t has been assumed t h a t , because the companies  p l a c e d orders on a three t o f o u r month c y c l e , the l e n g t h o f time  of m a i n t a i n i n g cycle  t h i s inventory  (less t r a n s i t time).  t h e r e f o r e be equal  should be based on t h i s  The  to the value  value  the minimum i n v e n t o r y  of the i n v e n t o r y  of the shipment.  of f a s t replacement d e l i v e r i e s by  The  a i r decreases the  : thus i t was  period must possibility  requirement  on  assumed t h a t the p e r i o d c y c l e  c o u l d be reduced to three or f o u r weeks when a i r t r a n s p o r t i s used, thereby r e d u c i n g Depreciation tions.  inventory  costs.  c o s t estimates, were based on  the same assump-  C a p i t a l c o s t s f i g u r e s - which i n c l u d e c o s t s o f c a p i t a l  goods i n t r a n s i t , i n i n v e n t o r y ,  d e p r e c i a t i o n and  on  obsolescence  c o s t s - are, f o r each shipment, much lower f o r a i r t r a n s p o r t . C a p i t a l c o s t s by s u r f a c e t r a n s p o r t are s i x to ten times than those by  a i r because o f slow d e l i v e r y and  Each company i n t e r v i e w e d would indeed  longer  s t a t e d t h a t the use  higher  transit  time.  of a i r f r e i g h t  a l l o w a r e d u c t i o n o f the c a p i t a l c o s t s but might  i n v o l v e more c l e r i c a l work, s i n c e shipments by  a i r would be more  numerous.  favoured  frequent  T r a n s p o r t a t i o n managers i n t e r v i e w e d  a more  use.of a i r f r e i g h t , which would reduce t r a n s i t time  c o n t r o l i n v e n t o r y more e f f i c i e n t l y , g i v e b e t t e r s e r v i c e and  and result  in benefits accruing  from c o s t d i f f e r e n c e s i n m a i n t a i n i n g  warehouses  auto p a r t s warehouses were not a t the same  (e.g. two  l o c a t i o n ) . In p a r t i c u l a r Auto Spare P a r t s , T.V.  s e t s and  large  Elec-  t r o n i c Equipment, f i r m s were unanimous on these p o i n t s but i n d i v i d u a l managers were, i n n e i t h e r 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 t r a n s p o r t a t i o n system of the T h e i r recommendations f o r an e f f i c i e n t and  the  frequent  use  company.  of a i r  78.  f r e i g h t were f a v o u r a b l y  r e c e i v e d but have not y e t been acted  Cost analyses conducted f o r each shipment show the t i o n a l cost of a i r  f r e i g h t over the p r e s e n t c o s t of sea  t r a n s p o r t a t i o n , which may tangible be  and  represent  i n t a n g i b l e costs i n  reduced i f s u f f i c i e n t c o s t s  higher costs For  the  amount by which  total  the d i s t r i b u t i o n f u n c t i o n must  savings are  to be  r e a l i z e d to o f f s e t  for a i r transport. the  firms interviewed  (and e s p e c i a l l y f o r Auto Spare  f a c t o r i n the  f r e i g h t s e r v i c e s , no matter how  i r r e g u l a r t h i s demand may  demand f o r a i r  high c o s t of a i r f r e i g h t i n g e s s e n t i a l spare p a r t s to p o s s i b l e The  addicontainer  P.arts) , f a s t s e r v i c e i s the key  son  upon.  i n small  revenue l o s s e s o c c a s i o n e d by p r o d u c t i o n  i n t e n t i o n o f t h i s study i s not  p o t e n t i a l f o r a i r f r e i g h t can b e s t be i f such a r e a l i z a t i o n i s p o s s i b l e .  :  compari-  breakdowns.  to e x p l a i n how  r e a l i z e d but  Two  be  the  r a t h e r to  state  methods, however, appear 17  u s e f u l 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 is  to educate p o t e n t i a l users i n the  second i s to lower the  first  advantages of a i r f r e i g h t  the T o t a l D i s t r i b u t i o n Cost Concept as a p p l i e d i n the The  : the  a i r freight rates.  combination of both methods appears d e s i r a b l e .  cases  In r e a l i t y , The  and  studied. a  effectiveness  o f e i t h e r o f 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 difficult  to e s t i m a t e although, a c c o r d i n g  t a t i v e s , some success method.  A reduction  a major i n c r e a s e air.  has  been already  to cargo s a l e s  a c h i e v e d w i t h the  represenfirst  of a i r f r e i g h t r a t e s w i l l p r o b a b l y r e s u l t i n  i n volume and  value o f consumer goods shipped  by  79.  Assuming t h a t a i r f r e i g h t can i n c r e a s e , o r a t l e a s t maintain  i t s present  i s every  reason  t r y outputs will  advantage over s u r f a c e t r a n s p o r t a t i o n , there  t o b e l i e v e t h a t as the number o f secondary  indus-  i n c r e a s e . a d d i t i o n a l demand f o r a i r f r e i g h t s e r v i c e s  result. Reduced a i r f r e i g h t r a t e s , combined w i t h  o f the T o t a l D i s t r i b u t i o n Cost Concept, w i l l each t r a n s p o r t a t i o n manager c o n f i r m e d , of i n v e n t o r y  the a p p l i c a t i o n  r e s u l t p r i m a r i l y , as  i n "substantial" reduction  costs.  However, on the assumption t h a t there i s no r e d u c t i o n o f inventory  and r e l a t e d c o s t s r e s u l t i n g from the use o f a i r f r e i g h t  then some s h i p p e r s , as was made c l e a r i n i n t e r v i e w s w i t h  depart-  18 ment s t o r e s T r a f f i c  and T r a n s p o r t a t i o n managers  , w i l l use a i r  t r a n s p o r t o n l y when a i r f r e i g h t and s e a c o n t a i n e r s  charges become  more comparable. In t h i s case,  as i l l u s t r a t e d by F i g u r e  3.1, the demand  curve would be i n e l a s t i c a t e x i s t i n g a i r r a t e s and e l a s t i c when a i r r a t e s are more c o m p e t i t i v e air freight w i l l  with  sea r a t e s .  i n c r e a s e when a new r a t e s t r u c t u r e i s designed  f o r h i g h e r d e n s i t y and lower v a l u e  commodity (see Appendix C ) .  However, the c o n t i n u i n g e d u c a t i o n transportation  The demand f o r  o f those who  direct  and d i s t r i b u t i o n p o l i c i e s o f a company i n under-  s t a n d i n g the p o s i t i v e advantages and long term i m p l i c a t i o n s o f a i r f r e i g h t may allow a i r f r e i g h t r a t e s t o continue high  level.  assess  a t the p r e s e n t  I t i s the task o f each T r a n s p o r t a t i o n manager t o  the p a r t i c u l a r s i t u a t i o n  and the needs o f the company  BO.  FIGURE 3.1 DEMAND CURVE FOR AIR FREIGHT WHEN AIH AND SEA RATES ARE THE SAME Present Rate $ Air  Sea  Present Air Freight  Quantity of A i r F r e i g h t (lbs)  with r e s p e c t t o the d i s t r i b u t i o n  f u n c t i o n and t o decide which a i r  f r e i g h t r a t e w i l l b e n e f i t him most. curve, from b e i n g (Figure 3.2).  In t h i s i n s t a n c e ,  the demand  i n e l a s t i c would become almost e l a s t i c  Probably i n t h i s case, a s m a l l decrease i n a i r  r a t e s might p r o p o r t i o n a t e l y p o t e n t i a l shippers  increase  revenues, p r o v i d e d  that  are v j e l l informed and. knowledgeable i n r e s p e c t  t o T o t a l D i s t r i b u t i o n C o s t Concept. According C., r e g r e s s i o n  to regression  a n a l y s i s and graphs  a n a l y s i s and graph) f o r the t o t a l  (See Appendix  distribution  19 c o s t o f the t h i r t y shipments  , i t i s evident  t h a t wxth the  81.  FIGURE  3.2  DEMAND CURVE FOR AIR FREIGHT WITH APPLICATION OF TOTAL DISTRIBUTION COST CONCEPT Present Rate $  lis  Air  \  '\ \ 1  1 i  \  i i  ^ ^ ^ ^  •  Sea  i  » i i •  » i  Present Air Freight  present  Air Freight w i t h reduced r a t e  Air  Quantity Freight  r a t e s i n f o r c e , i t i s more economical to use a i r f r e i g h t  f o r shipments under 1,250 l b s and with a value  o f $ 7,300 o r l e s s  i f a i r f r e i g h t r a t e s were t o decrease by 30%, shipments under 5,500 l b s w i t h a value transport.  o f $ 16,000 o r l e s s , should  be u s i n g a i r  (See Appendix C., r e s u l t s o f r e g r e s s i o n a n a l y s i s graph)  Considering  the weight and value  o f each o f the t h i r t y  shipments, i t appears t h a t , w i t h the p r e s e n t  a i r freight  i n effect,, none o f these shipments would r e a l i z e c o s t through the use o f a i r t r a n s p o r t .  rates  savings  With a 30% a i r f r e i g h t  rate  82.  r e d u c t i o n , only e i g h t shipments e f f e c t e d by  a i r transport w i l l  show a net advantage i n terms o f c o s t . I t must be p o i n t e d out t h a t , whereas the impact of the  value  of the shipment does not a p p r e c i a b l y a f f e c t 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 , 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 s u r f a c e t r a n s p o r t a t i o n (owing mainly to h i g h i n v e n t o r y c o s t s ) . These f i n d i n g s 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 f o r a i r f r e i g h t s e r v i c e , but suggest r a t h e r t h a t growth w i l l  come from companies able to pay  t r a n s p o r t a t i o n charges i n o r d e r to a c q u i r e to operate  the s e r v i c e s they  need  w i t h most e f f i c i e n c y .  From t h i s a n a l y s i s the q u e s t i o n  a r i s e s : should  reduce f r e i g h t r a t e s on the P a c i f i c routes the volume o f f r e i g h t  ?  t i v e f o r v a r i o u s reasons corresponding maintained. sult in a  h i g h premium  We  9%  s t u d i e d , a 30%  revenues are to be  r a t e r e d u c t i o n would r e -  i n c r e a s e i n volume o f f r e i g h t , most of which  c o n s i s t s o f s m a l l s i z e and h i g h v a l u e to 70%  k e l y , would be distribution  i n the nega-  rate reduction w i l l require a  i n c r e a s e i n volume i f p r e s e n t In the cases  A 60  i n o r d e r to i n c r e a s e  must answer t h i s q u e s t i o n  : any  air carriers  r a t e s r e d u c t i o n , which seems extremely  required  costs.  shipments.  to e q u a l i z e a i r and  Even a s m a l l r e d u c t i o n  r a t e s would not change p r e s e n t  sea  unli-  container  (10 or 15%)  in air  demand f o r a i r f r e i g h t , s i n c e  the  i n c r e a s e d 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 comparison  to p o s s i b l e l o s t revenues. Moreover, s i n c e sea c a r r i e r s on the P a c i f i c routes  have  83.  already  increased  since a general 1973,  the  container  r a t e s as of November 19 72,  adjustment r a t e i s expected to take e f f e c t i n A p r i l  a i r c a r r i e r s would be w e l l a d v i s e d  r a t e s t r u c t u r e and  more f u l l y e x p l o i t e d w i t h i n a r a t e r e d u c t i o n be  the  low  value  framework o f the e x i s t i n g s t r u c t u r e ,  considered.  As mentioned p r e v i o u s l y ,  primary i n d u s t r y cannot be  a i r t r a n s p o r t are d i f f i c u l t commodities.  reduce  air freight potential is  transported  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 , s i n c e most o f the o f f e r e d by  the  economiadvantages  to r e a l i z e w i t h bulky  and  Thus i t seems t h a t the p r e s e n t s i t u a t i o n ,  ( v i z . 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)  will  p r e v a i l i n the near f u t u r e . The  shortage of back h a u l  f r e i g h t on these routes  t h a t a i r f r e i g h t r a t e s must be h i g h enough to cover the the r e t u r n f l i g h t . r e g u l a r back h a u l  The  implies  cost  of  p o s s i b i l i t y o f some s m a l l measure of  f r e i g h t , even a t reduced r a t e s , would c e r t a i n l y  improve the o v e r a l l average l o a d f a c t o r and  eventually  lead  to  reduced f r e i g h t r a t e s i n both d i r e c t i o n s . T h i s s i t u a t i o n a l s o a p p l i e s i n c h a r t e r i n g a i r c r a f t on  the Vancouver-Tokyo run  (see  Appendix on A i r F r e i g h t Rates) .• . Sea but  c a r r i e r s are f a c e d w i t h the same back h a u l  to a l e s s e r e x t e n t  b u l k y and  problems  : eastbound f r e i g h t i s c h a r a c t e r i z e d  l a r g e tonnage commodity  f r e i g h t i s c h a r a c t e r i z e d by  .  operations.  However, only when the p r e s e n t  p r o d u c t s o f B.C.  to m a i n t a i n t h e i r p r e s e n t  a t the same time improve s e r v i c e and  c o s t s i n v o l v e d i n ground h a n d l i n g  can  and  by  ( m i n e r a l s ) , w h i l e westbound  relatively  smaller  tonnage and  higher  84.  value  commodity  (consumer p r o d u c t s ) .  Analyses yield  of a i r versus  the f o l l o w i n g c o n c l u s i o n s - Air carriers  sea c o n t a i n e r d i s t r i b u t i o n :  should not reduce t h e i r  i n an attempt to i n c r e a s e volume o f s i n c e such a r e d u c t i o n may  very  volume of back h a u l f r e i g h t limited,  is  industry ;  f o r as much as 35% of the t o t a l a source  account  distribution  of c o s t s a v i n g which  would tend to e q u a l i z e a i r and costs.  ;  from B.C.  - Reduced i n v e n t o r y c o s t s , which may  freight  freight,  owing to the absence of  secondary export  c o s t s , can be  rates  l e a d to a c o r r e s -  ponding decrease i n t o t a l . r e v e n u e - The  costs  sea  container  85.  FOOTNOTES CHAPTER I I I 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 c o s t s , f o r t y p i c a l shipment o f c l o t h i n g , s u p p l i e d by Simpsons-Sears D i s t r i b u t i o n Manager, 1972. 3. Brewer, S.H., The Nature o f A i r Cargo Cost . Graduate School of B u s i n e s s A d m i n i s t r a t i o n , U n i v e r s i t y of Washington, 1967. 4. See Appendix C., P.W.A. G e n e r a l Cargo Rates. 5. Brewer, S.H., 6  Op. C i t . , I n d i r e c t C o s t s .  Gorham, James, E., How to I d e n t i f y P o t e n t i a l A i r F r e i g h t . , a paper p r e p a r e d f o r Emery A i r F r e i g h t C o r p o r a t i o n , Southern C a l i f o r n i a L a b o r a t o r i e s , S t a n f o r d 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. I n f o r m a t i o n s u p p l i e d d u r i n g i n t e r v i e w w i t h C P . A . Representative. 8. See Appendix B., Vancouver Fancy Sausage •9. See Table  Cargo S a l e s  case.  2.11  10. These i n f e r e n c e s have been An Econometric A n a l y s i s o f T h e s i s , Graduate School o f U n i v e r s i t y , December 196 8,  c o r r o b o r a t e d by Mac K i n n e l l , H. A., U.S. A i r F r e i g h t Market., Ph.D. Business Administration, Stanford p.38.  11. Groenewege, A.P., A i r F r e i g h t Key t o G r e a t e r Aerad P u b l i s h e d , London, 1968.  Profits.  12. I b i d . , p. 43. 13. S t o l l e , John, F., " How t o Manage P h y s i c a l D i s t r i b u t i o n " Harvard B u s i n e s s Review, 45 J u l y 1967, 93-100. 14. Gorham, J . E . , Op. C i t . , p. 7 15. I b i d . , p. 18 16. See Appendices A, & B,, Vancouver Fancy Sausage Simpsons-Sears cases.  and  86  17.  Ottawa, Economic I n t e l l i g e n c e U n i t . ' A t l a n t i c P r o v i n c e s Transportation : A P o t e n t i a l A i r Cargo S e r v i c e . , Ottawa, Queen's P r i n t e r , 1967, p. 11  18.  I n t e r v i e w with the Bay and T r a f f i c and T r a n s p o r t a t i o n February 1973.  19.  See Appendix C, T o t a l D i s t r i b u t i o n Cost Concept to t h i r t y s p e c i f i c shipments.  Eaton Department S t o r e s , managers. January 1972, applied  CHAPTER IV  POTENTIAL AIR  FREIGHT IN THE  CONTAINER MARKET  In a study made by the Research Department of Reynolds Metal Company i n 1961,  c o n t a i n e r i z a t i o n was  d e f i n e d as :  ... the p r i n c i p l e of u s i n g a p h y s i c a l envelope..., to c o n s o l i d a t e a number of i n d i v i d u a l s m a l l packages or u n i t s f o r shipment."1 T h i s d e f i n i t i o n a p p l i e s both to s u r f a c e and transport.  Although a i r cargo shipments are i n c r e a s i n g both i n  s i z e and volume, a t the p r e s e n t  they  shipments made v i a s u r f a c e modes.  are not y e t comparable to  With the e x c e p t i o n  wheat and o i l , almost a l l commodities are moved by ship containers. ner s t i l l  to a i r  .The  of  coal,  truck, r a i l  or  breakdown of a i r f r e i g h t by type of c o n t a i -  shows a market c o n c e n t r a t i o n on bulk  s m a l l , loose commodities not  shipments, i . e .  consolidated.  From the f i g u r e given i n Table  4.1,  i t would appear t h a t ,  w i t h i n the next t h r e e y e a r s , u n i t i z e d and c o n t a i n e r i z e d a i r s h i p ments w i l l  represent  80% of t o t a l a i r f r e i g h t , w h i l e  20% w i l l be bulk shipment ; 25% shipped  i n inter-modal  the  remaining  of the t o t a l a i r f r e i g h t w i l l  containers.  be  88.  TABLE 4.1 COMPOSITION OF AIR FREIGHT BY TYPE OF CONTAINER IN THE FREE WORLD 1965  1970  1975**  1980**  (% of tons o f a i r f r e i g h t handled) 74%  - Bulk shipments - P a l l e t s , Igloos,  43%  23^  12%  Bellys  - Unitized at terminal - U n i t i z e d by s h i p p e r  24%  • 32%  27%  25%  1%  25%  25%  17%  *  18%  32%  n.a.  7%  14?  - Van C o n t a i n e r - 8x8x10 and 20  *  - 8x8x over 20 *  l e s s than 1%.  **  estimates. Sources  '  n.a.  : S t o e s s e l Robert, F., A i r F r e i g h t - From Acorn t o Oak, Lockheed - C a l i f o r n i a Company, 1968.  AIR CARGO  CONTAINERIZATION  Advantages and disadvantages o f c o n t a i n e r i z a t i o n Containerization  i s an added advantage i n a i r f r e i g h t  s e r v i c e , a f f e c t i n g a l l d i s t r i b u t i o n c o s t s by r e d u c i n g  handling  c o s t s , t r a n s i t time, warehousing, packaging, breakage, p i l f e r a g e , i n s u r a n c e and i n v e n t o r i e s .  Customer s e r v i c e i s a l s o  Moreover, c o n t a i n e r i z a t i o n f a c i l i t a t e s For  the a i r c a r r i e r , as l o a d i n g  inter-modal t r a n s f e r . and u n l o a d i n g time are  reduced, a i r c r a f t u t i l i z a t i o n can a p p r e c i a b l y the  improved.  increase.  Whereas  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 p e r day,  B r a n i f f I n t e r n a t i o n a l has a c h i e v e d  fourteen.  89.  At the p r e s e n t  time, the  b i t i n g the expansion of the use  f o l l o w i n g f a c t o r s make f o r i n h i of van  containers  : the c o s t of 2  containers  (from $ 2,500 to $ 6,000 f o r a i r c o n t a i n e r )  weight, s p e c i a l h a n d l i n g which do not p r o v i d e  equipment and  f o r van  container  an unbalanced movement of f r e i g h t , the  above a l l , r a t e rates.  or t h e i r temporary i d l e use  CONTAINERS AND  AIRCRAFT used by  There are now I.A.T.A. c o n t a i n e r s . i n s i z e and  there  have to be  and  over two  considered.  hundred r e g i s t e r e d non-standard  Because o f t h i s p r o l i f e r a t i o n of  intra-modal  containers  toward  c a p a b i l i t y have s e t up,  o f the I.A.T.A., seventeen standard  foot capacity)  i s often  airlines  number, the a i r c a r r i e r s i n an e f f o r t  standardization help  As  structures  c o s t or r e t u r n i n g empty  the c o n t a i n e r s  Containers  , tare  s i z e (up  i n the P a l l e t , I g l o o , B e l l y and  with  to 600  the  cubic-  Van-sized  container  categories. 3 P a l l e t s and  Igloos  (or U n i t Load Device) • They are the most  commonly s h i p p i n g means f o r c o n t a i n e r i z a t i o n employed by a i r freight services.  The  p l a s t i c cover and  nets.  f i b e r g l a s s i n the  case o f the  r e l a t i v e l y t h i n - 3/4  goods are f i x e d on p a l l e t s , wrapped w i t h Since  the p a l l e t s are made o f wood  (or  cover s h e l l o f the i g l o o ) and  are  i n c h , t a r e weight  t h e i r c o s t i s i n s i g n i f i c a n t but years, be  i s r e l a t i v e l y short.  loaded  and  ( l e s s than 600  their service l i f e ,  up  lbs) to  two  T h e i r advantages are t h a t they  unloaded from any  s i d e and may  can  assume a l l d i f f e r e n t  90.  shape a c c o r d i n g type).  The  to the nature  of the commodity  maximum c a p a c i t y f o r these  550 c u b i c f o o t and  8,000  lbs.  two  (except  types  the  of c o n t a i n e r s i s  4  B e l l y c o n t a i n e r s . T h e i r maximum c u b i c space has achieved  been  at the expenses of i n t e r c h a n g e a b i l i t y , because  shape i s p a t t e r n e d  igloo  on the a i r c r a f t f u s e l a g e .  changeable between the same type of  They are o n l y  inter-  aircraft.  I t s h o u l d be noted t h a t i n each o f these ( v i z . p a l l e t s , i g l o o s and b e l l y  their  three  categories,  c o n t a i n e r s ) , i n d i v i d u a l models  vary i n s i z e , volume, d e n s i t y and m a t e r i a l . Van use  containers.  i n inter-modal  (S.A.E.) and  transport.  and  s e c t i o n o f 8'x8'  8 ' x 8 ' x l 0 ' and  The  and  I.S.O. i n t e r - m o d a l  a l e n g t h of 6 ' to 4 0'. to be used by  (I.S.O.) are  specifications  -  c o n t a i n e r s have a c r o s s The  dimensions o f  a i r f r e i g h t are  the  8'x8'xl0'  A i r l i n e s i s c a r r y i n g i n the B-747 f r e i g h t e r  20' van  c o n t a i n e r s on the F r a n k f u r t - New  c o n t a i n e r s i n the 19 80's w i l l be  f r e i g h t i n the 1960's was  from 50,000  i n 1970  York  I t i s estimated  a l l I.A.T.A. a i r l i n e s w i l l  to 177,000  route.  to a i r f r e i g h t what a i r  to a i r t r a n s p o r t .  the number of c o n t a i n e r s used by crease  standard  Engineers  (and"occasionally 4 0 ' ) . Lufthansa  Van  containers with  c o n t a i n e r most l i k e l y  o r 20'  S o c i e t y o f Automotive  for  s t r u c t u r a l - f o r a i r / l a n d cargo c o n t a i n e r s , which  can be dismantled.  van  The  distinct possibilities  the I n t e r n a t i o n a l Standards O r g a n i z a t i o n  working to p r o v i d e van dimensional  They p r e s e n t  in 1975,  5  that in-.,  by which time, more  than 80% o f the a n t i c i p a t e d volume of a i r cargo w i l l be moved i n  containers.  CAPABILITY AND CAPACITY OF AIRCRAFT The  i n t r o d u c t i o n o f the Jumbo j e t f r e i g h t e r has r a i s e d  the q u e s t i o n whether i t i s more economical t o s h i p by p a l l e t s o r by van c o n t a i n e r s .  A study made i n 19 69 by Lockheed-Georgia^  showed t h a t f o r s h i p p i n g mile  flight,  an S'xS'xlO' van c o n t a i n e r  on a 3,000  the breakeven c o s t s o c c u r a t a lower f r e i g h t l o a d  factor  (33%) f o r van c o n t a i n e r s 7 terminal labour costs.  than f o r p a l l e t s (38%) due t o lowe  T h i s study shows t h a t c o n t a i n e r i z a t i o n produces savings  cost  which can be passed on to the customer i n the form o f more  a t t r a c t i v e container  rates.  Figure  4.1 r e p r e s e n t s  graphically  comparative c o s t s f o r p a l l e t i z e d and c o n t a i n e r i z e d shipments and t h e i r . r e l a t i o n t o the l o a d -factor.  I t i s i n t e r e s t i n g to note  that  w h i l e the t r e n d o f the c o s t p e r ton/mile f o r u n i t i z e d and c o n t a i n e r i z e d a i r cargo i s d e c r e a s i n g ,  i t seems t h a t costs  t r a n s p o r t are on the i n c r e a s e , i n view o f r e c e n t However, the r e c e n t has  rate  f o r sea increases.  introduction of large-capacity container  ships  a f f e c t e d s i g n i f i c a n t economies o f s c a l e which may o f f s e t c o s t  increases  due t o s i t u a t i o n s beyond the c o n t r o l o f the c a r r i e r s  (e.g. longshoremen  strikes).  D i r e c t operating  c o s t s o f 3.25 cents  are expected t o drop to a l e v e l o f 2.50 cents  f o r the B-707 o r DC-8 p e r ton/mile f o r  the B-747 f r e i g h t e r w i t h a p a y l o a d c a p a c i t y o f 2 30,000 pounds. Furthermore, Lockheed i s a n t i c i p a t i n g f o r the L-1101, a 2 cent  FJGURE  4.1  COST COMPARISON; FOR P A L L E T I Z E D AND CONTAINERIZED SHIPMENTS ON 3,000 M I L E F L I G H T S  20  33 38  6.0  80  100  % LOAD FACTOR  Source  Containerized A i rFreight Bulletin, Georgia  direct operating  Company, M a r r i e t t a , G e o r g i a ,  cost per ton/mile  f o r a payload  Lockheed1969.  capacity of  360,000 p o u n d s . 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 a s t h e DC-8, t h e  DC-8-62 s t r e c h e d ^ v e r s i o n , a n d t h e Br-707-320 C h a v e n o p r o v i s i o n f o r handling  van-sized  B-747 a n d l a t e r ,  containers.  The L o c k h e e d H e r c u l e s  t h e L o c k h e e d L - 5 0 0 a n d t h e Mc D o n n e l l  L-100, the Douglas  DC-10-C-4 make, o r a r e p l a n n i n g van  t o make, p r o v i s i o n f o r c a r r y i n g  containers. The  ners  B o e i n g B-74 7 f r e i g h t e r  8'x8'xl0'  i n t h e main deck  a c c o m m o d a t e s up t o 30 b e l l y The  c a n c a r r y up t o 2 8 v a n c o n t a i -  (17,000 c u b i c f e e t o f s p a c e ) a n d  c o n t a i n e r s below t h e main deck.  L o c k h e e d L-100 H e r c u l e s ,  w h i c h may u s e m a k e s h i f t  w a y s , c a n c a r r y up t o 45,000 p o u n d s o f c a r g o a n d c a n  run-  handle,  t h a n k s t o t h e s h a p e o f i t s f u s e l a g e , an 8 x 8 ' x 4 0 ' v a n c o n t a i n e r . ,  The  L o c k h e e d L-500 c i v i l  d a t e two rows o f f o u r t e e n  v e r s i o n o f t h e C-5A w i l l  8'x8'xl0'  van c o n t a i n e r s  accommo-  (15,000  cubic  f e e t ) i n t h e m a i n c o m p a r t m e n t a n d a n 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 the upper deck b e i n g Its  total  The  4'x4'xl0  with pallet,  (60,000 c u b i c or i g l o o -type  containers.  be 33,000 c u b i c f e e t o r a p a y l o a d  D o u g l a s DC-10-C-4 w i l l h a v e a p a y l o a d  Although  feet),  capacity  tons..  200,000 l b s a n d w i l l  designed  loaded  capacity w i l l  o f 160 m e t r i c  ners.  containers  c a r r y up t o t w e n t y f o u r S ' x S ' x l O ' v a n c o n t a i -  i t s capacity i s not impressive,  t o operate  capacity of  on l o n g - r a n g e h a u l s  i t has been  (3,500 m i l e s  non-stop)  w i t h a c r u i s i n g s p e e d o f 630 m.p.h., a n d t o be l o a d e d  o r unloaded  w i t h i n m i n u t e s . The t w e n t y 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  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  Except f o r the D O 1 0 - O 4 , a l l these loaded For  and u n l o a d e d o f t h e i r t o t a l  As  technology  operations.  j e t f r e i g h t e r s c a n be  cargo w i t h i n t h i r t y  t h e D C - 1 0 - O 4 , t h i s - t i m e wi;!! be  be  minutes.  halved,  i s i n t r o d u c i n g more a n d more s o p h i s t i c a t e d  types o f a i r c r a f t and t h e r e f o r e more expensive, the buying d e c i s i o n i s a s t r a t e g i c component i n the f u t u r e o f the i n d i v i d u a l a i r l i n e company, as a l s o f o r the a i r f r e i g h t i n d u s t r y as a whole ( c - f . the r e c e n t Pan-Am purchase o f twenty-four B-747's i n a passenger version only). aircraft,  A i r c a r r i e r s i n general  the lower the o p e r a t i n g  assumed the l a r g e r the  c o s t s are ; by the same  token, i n c r e a s e d c a p a c i t y i m p l i e s a c o r r e s p o n d i n g l y of i n c u r r i n g l o s s e s through o p e r a t i n g l o a d f a c t o r . o v e r a l o n g e r h a u l with  greater  risk  a i r c r a f t a t the breakeven  increased  payload.  However, the growth o f the movement o f a i r c o n t a i n e r s i s governed n o t o n l y by the c h a r a c t e r i s t i c s o f the a i r c r a f t o r i t s operating  c o s t s , b u t a l s o by the weight, volume o f the shipment,  r a t e s t r u c t u r e , the nature o f the commodity i n v o l v e d and e s p e c i a l l y i t s inter-modal and  c o m p a t i b i l i t y , s i n c e more than one -  a t l e a s t two - modes o f t r a n s p o r t w i l l be used, p a r t i c u l a r l y  f o r medium and long h a u l  shipments.  POTENTIAL OF AIR FREIGHT CONTAINER IN THE SURFACE CONTAINER MARKET A i r f r e i g h t i s g r a d u a l l y making i n r o a d s p r e v i o u s l y monopolized by s u r f a c e modes.  i n t o the market  P a r t o f a i r f r e i g h t has  a l r e a d y been d i v e r t e d from sea and t r u c k f r e i g h t , w h i l e s t a n t i a l amount r e p r e s e n t s  a sub-  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 w i t h motor c a r r i e r s when, there i s good l a n d t r a n s p o r t a v a i l a b l e and. wirth sea c a r r i e r s l i m i t e d s c a l e ) i n trans-ocean techniques  freight.  Con a much more  In view o f improved  i n a i r c r a f t manufacturing and the widespread  .  .  c o n t a i n e r i z a t i o n programme now underway i n the U.S.A., a competit i v e s i t u a t i o n may a r i s e between a i r and s u r f a c e  c a r r i e r s which  would r e s u l t i n c l o s e r c o o r d i n a t i o n , between the two modes. I n t e r c h a n g e a b i l i t y w i l l thus become a r e a l i t y .  AIR/TRUCK  COORDINATION  The still  interchange  o f shipments between a i r and truck i s  o f r e l a t i v e l y s m a l l s c a l e i n comparison w i t h  carriers'  total freight.  the motor  In the U.S. t h i s i n t e r c h a n g e  of ship9  ments accounts f o r about 1 0 % o f 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 o f a i r cargo concentrated  traffic  on a few major a i r routes w i t h o u t c o n n e c t i n g  to s m a l l e r c e n t r e s .  services  T h i s s i t u a t i o n i s even more n o t i c e a b l e i n  Canada where most o f the Canadian c e n t r e s U.S. b o r d e r on a hundred m i l e wide s t r i p o f f e r s more f l e x i b i l i t y  are l o c a t e d along the and where road  transport  and a d a p t a b i l i t y , w i t h p r o f i c i e n t  door-  to-door s e r v i c e . The  elements which f a v o r e f f i c i e n c y i n a i r / t r u c k c o o r d i -  n a t i o n are t h a t , commodities shipped long haul distance present f r e i g h t shipments  by t r u c k over medium and  many s i m i l a r c h a r a c t e r i s t i c s t o a i r  ; e.g. c o m p a r a b i l i t y  i n value p e r pound o f  shipment, low o r medium d e n s i t y and l i m i t e d packaging because o f mimimum h a n d l i n g service.  operations,  Moreover, both modes o f t r a n s p o r t o f f e r  advantages i n a v a i l a b i l i t y schedules.  s h o r t t r a n s i t time and f a s t d e l i v e r y  and r e l i a b i l i t y  comparable  o f s e r v i c e and  The  f a c t o r s which appear to i n h i b i t the growth of a i r /  truck c o o r d i n a t i o n are  : r a t e s t r u c t u r e of a i r f r e i g h t ,  a i r shipments on l o n g h a u l d i s t a n c e p o t e n t i a l has  c o n t a i n e r i z a t i o n whose  not y e t f u l l y been e x p l o i t e d .  c a p a c i t y i s i n c r e a s i n g and a i r transport, increased a i r and  and  However, as  c o s t s are d e c r e a s i n g  for  s h o r t h a u l d i s t a n c e s , whereas over  a i r and motor c a r r i e r s w i l l be i n  Differences with  aircraft  c o o r d i n a t i o n w i l l be necessary between  t r u c k on medium and  long haul distances  operating  lighter  competition.  r e s p e c t to volume, d e n s i t y and  type o f  commodity c a r r i e d are narrowing f o r a i r and motor c a r r i e r s . Cooperation  has  a l r e a d y begun between the  two  r i e r s are o f t e n a i r f r e i g h t forwarders and p i c k up  and  are a l s o i n v o l v e d i n  d e l i v e r y o r a i r f r e i g h t shipments.  of i n t e r c h a n g e a b l e truck  modes : motor c a r -  containers w i l l  J o i n t development  a c c e l e r a t e and  complete a i r /  coordination.  AIR/SEA COMPETITION AND  COORDINATION  While i n t e r c h a n g e a b i l i t y o f c o n t a i n e r i z e d shipments i s • u n l i k e l y to happen between a i r and seem to be  rail,  the  following facts  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 E a s t and West coasts which l a s t e d f o r s e v e r a l months., a i r b o r n e exports  i n c r e a s e d by  doubled i n volume.  Yet,, at the end  t o t a l volume o f exports from 1967  t o 1971,  40% while  and  o f 1971,  imports was  owing t o three  U.S.  airborne  imports  j u s t over 1% o f  airborne  U.S.  the  though value  long dock s t r i k e s i n c r e a s e d  by  42%  which r e p r e s e n t e d  imports.  17.4% o f the t o t a l value  Even when the s t r i k e ended, some o c c a s i o n a l  continue t o use a i r f r e i g h t on a r e g u l a r b a s i s . f r a c t i o n o f the s e a f r e i g h t market seems l i k e l y by  o f e x p o r t s and  a i r f r e i g h t cargo c o n t a i n e r .  This  users  Thus a s m a l l t o be  cornered  i s n o t to say t h a t a i r  t r a n s p o r t w i l l become, even i n the near f u t u r e , a s e r i o u s competitor  f o r the s e a f r e i g h t c o n t a i n e r  moved, s i n c e the former w i l l factors.  market w i t h r e s p e c t  always be l i m i t e d by obvious p h y s i c a l  As the s e a mode i s p r e s e n t l y  change (e.g. s p e c i a l c o n t a i n e r installations  ships,  a t major p o r t s , v e s s e l s  undergoing fundamental container-handling capable o f h i g h e r  problems may a r i s e f o r a i r f r e i g h t c a r r i e r s competition  THE  from s u r f a c e  to volume  faced with  speed), tougher  carriers.  LAND-BRIDGE CONCEPT APPLIED TO AIR FREIGHT T r a d i t i o n a l l y , the l a n d - b r i d g e  utilization  concept i m p l i e s the  o f l a n d t r a n s p o r t f o r p a r t o f what would n o r m a l l y be  an ocean voyage'. " Since s i v e than other  truck  t r a n s p o r t i s g e n e r a l l y more expen-  s u r f a c e modes, i t i s more economical, when moving  goods, t o u t i l i z e water t r a n s p o r t  as much as p o s s i b l e ,  providing  t r a n s i t time i s n o t o f c r u c i a l "importance. C o n t a i n e r i z a t i o n has reduced the costs o f t r a n s f e r from one  s u r f a c e mode t o another.  In any l a n d - b r i d g e  movement the  lowest c o s t o f land t r a n s p o r t has always been and s t i l l transport, e s p e c i a l l y i n unit trains. increased  aircr-aft capacity  Since  is, rail  the advent o f  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 f a c e d w i t h a problem, v i z :  "... the p o s s i b i l i t y o f an a t t a c k on the l a n d - b r i d g e concept by the growing c a p a b i l i t i e s of a i r cargo... What t h i s means (speed, c a p a b i l i t y , c a p a c i t y o f the a i r c r a f t ) i s a s u b t r a c t i o n o f some c o n t a i n e r volume ( p a r t i c u l a r l y of high value commodities) from s u r f a c e routes a n d . t h e r e f o r e , a d i m i n u t i o n of a v a i l a b l e 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 h i g h value commodity shipments. s u r f a c e movement c o u l d be  l e f t with bulky  To a l a r g e e x t e n t ,  and  low-value c o n t a i -  n e r i z e d commodities, which i s . f a r  from b e i n g the case  However, a combination  modes of t r a n s p o r t - sea  o f the two  at the moment. and  a i r - from Japan to Europe has been s u c c e s s f u l l y i n i t i a t e d on limited scale.  a  Commodities were b e i n g shipped by sea from Japan  to Vancouver and  thence by a i r to d i f f e r e n t d e s t i n a t i o n s i n  Europe, Canada b e i n g used as an ". a i r b r i d g e Costs  f o r the combined use of the two modes of t r a n s p o r t ,  sea - a i r r o u t e , are approximately h i g h e r than a l l - s e a c o s t s . t o Europe has been reduced  h a l f of a l l a i r c o s t s but  still  However, the d e l i v e r y time from Japan to 23 days, a s a v i n g o f more than  weeks on the t r a d i t i o n a l l a n d - b r i d g e , f o r which few  three  commodities  12 w i l l pay  a h i g h e r premium r a t e . I f the p r e d i c t e d t r e n d 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 o p e r a t i n g a t minimal c o s t , and  a f a r g r e a t e r amount and  variety  of commodities from the sea c o n t a i n e r market w i l l be e l i g i b l e f o r air freight.  C o n t a i n e r i z e d f r e i g h t may  enable  a i r carriers  to  p r o v i d e s h i p p e r s w i t h a more complete p e r s o n a l i z e d s e r v i c e than i s  p r e s e n t l y o f f e r e d by The sees the  air freight.  cargo s a l e s D i r e c t o r of A i r Canada, Mr,  f u t u r e development of a i r cargo as a p a r t of an  ted t r a n s p o r t system and but  "...  not only  integra-  f l y i n g b.etween two  points,  i n the sense t h a t , " We  must reach the  stage whereby each *  t r a n s p o r t system has The  i t s own  particular role."  c o n t a i n e r i z a t i o n concept seems to be  a catalyst in  the development of an i n t e g r a t e d t r a n s p o r t system. and  Hugh<Johnston  r a i l c a r r i e r s are c o n s i d e r e d  as complementary r a t h e r  as competing modes, each having i t s own  of f a c i l i t a t i n g  a  sea  than  s e r v i c e to o f f e r .  a l s o apparent t h a t c o n t a i n e r i z a t i o n p r e s e n t s opportunity  Already,  It is  considerable  the movement of goods to the Canadian  North. However/ b e f o r e t r a n s p o r t system can be containers  a, completely i n t e g r a t e d a i r / s u r f a c e a c h i e v e d , the use  of  w i l l promote p o s i t i v e c o m p e t i t i o n  o r d i n a t i o n between a i r and  surface 'transport.  c o n t a i n e r i z a t i o n concept and  the  inter-modal and  closer  co-  Hopefully,  advantages t h i s e n t a i l s ,  u l t i m a t e l y r e s u l t i n reduced c o s t s  and  the will  improved customer s e r v i c e .  100.  FOOTNOTES CHAPTER IV  1. Reynolds Metal Company, Department o f Research ; An Economic Study o f C o n t a i n e r i z a t i o n and I t s Market, 1961, p, 1. 2. P r i c e v a r i e s a c c o r d i n g to the dimensions, the m a t e r i a l used f o r the f a b r i c a t i o n and the d e n s i t y o f the c o n t a i n e r . 3. Reynolds M e t a l Company, Op. C i t . , pp. 49, 70. 4. I n f o r m a t i o n s u p p l i e d by C P . A i r and Northwest A i r l i n e s , February 19 73.  Orient  5. Reynolds M e t a l Company, Op. C i t . , p. 6 . 6. 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 , Company, M a r r i e t t a , G e o r g i a , 1969.  Lockheed-Georgia  7. Ibid.. 8. Immer, John, R. ,' C o n t a i n e r S e r v i c e s o f the A t l a n t i c , L o g i s t i c s o f A i r Cargo, Work S a v i n g I n t e r n a t i o n a l Management C o n s u l t a n t , Washington, D . C , 1970.. 9. U.S. A i r b o r n e Trade 196 7- 19 71, Lockheed-Georgia Company M a r r i e t t a , G e o r g i a , March 19 72. 10. I b i d , p. 4 . 11. Mann, Mr., Chairman o f the N a t i o n a l Harbours Board o f Canada, J o u r n a l o f Commerce, New York, N.Y., May 1968. 12. I n t e r v i e w w i t h Japan A i r l i n e s , Cargo February 1972.  Supervisor,  CHAPTER V  CONCLUSIONS AND RECOMMENDATIONS  T h i s study has attempted t o e v a l u a t e be  what changes  i n i t i a t e d whereby a i r f r e i g h t volume would i n c r e a s e  could  as a r e s u l t  of the a p p l i c a t i o n o f the T o t a l D i s t r i b u t i o n Cost Concept. As  s t a t e d p r e v i o u s l y , B.C. trade  volume and v a l u e , more towards e x p o r t s (manufactured p r o d u c t s ) . w i t h i n .B.C.  i s o r i e n t e d i n both (raw m a t e r i a l )  than imports  Unbalanced t r a f f i c o f commodities both  and on the t r a n s - P a c i f i c routes  increases  the c o s t o f  s e r v i c e by r e s t r a i n i n g a i r c a r r i e r s from f u r t h e r d e v e l o p i n g freight service.  But, as most shipments a t the moment t r a v e l on  passenger a i r c r a f t , conceivably  the c o s t o f a i r f r e i g h t s e r v i c e  could  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  l a r g e p o r t i o n o f the d i r e c t c o s t s service)  air  (already  charged t o passenger  t o v a r i a b l e costs i n c u r r e d by f r e i g h t s e r v i c e .  However, under the p r e s e n t  c o n d i t i o n s , any r a t e decrease  designed t o i n c r e a s e volume o f f r e i g h t would n o t s u b s t a n t i a l l y increase  demand f o r a i r t r a n s p o r t , unless  i n the o r d e r by  the r a t e r e d u c t i o n were  o f 60%. Moreover, the expansion o f c o n t a i n e r i z a t i o n  a i r c a r r i e r s w i l l widen b o t h the range and the volume o f •  102.  commodities compatible  with both a i r and s u r f a c e t r a n s p o r t a t i o n ,  s i n c e a i r and s u r f a c e modes w i l l become i n the near f u t u r e complementary to each o t h e r , i n r e s p e c t o f a major p o r t i o n o f freight  traffic. The  conclusions  reached i n t h i s study  show t h a t :  - Given the p r e s e n t h i g h r a t e s f o r a i r f r e i g h t , advantages and c o s t savings  d e r i v e d from the use  o f a i r f r e i g h t do not appear to o f f s e t i t s h i g h transportation  charges.  - 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, unless p o t e n t i a l demand can be f u r t h e r e x p l o i t e d by user-education.- Demand f o r a i r f r e i g h t i s u n l i k e l y t o i n c r e a s e d r a m a t i c a l l y i n the near f u t u r e w i t h i n B.C. and on the t r a n s - P a c i f i c r o u t e s . any  T h i s not t o deny  p o t e n t i a l growth i n the demand f o r a i r f r e i g h t :  but i t seems e v i d e n t t h a t such growth w i l l emerge from a b e t t e r b a l a n c e d  east-west t r a f f i c and from  f u r t h e r expansion o f secondary i n d u s t r y which can c a r r y h i g h f r e i g h t charges f o r the sake o f o p e r a t i n g a t maximum e f f i c i e n c y . - F i n a l l y , the i n t r o d u c t i o n o f the Jumbo j e t cooperation  r  improved  and i n c r e a s e d c o o r d i n a t i o n from s u r f a c e  c a r r i e r s , widespread c o n t a i n e r i z a t i o n and the f u l l  a p p l i c a t i o n o f the t o t a l c o s t concept to the d i s t r i b u t i o n f u n c t i o n , would a l l appear to be s i g n i f i c a n t f a c t o r s i n h a s t e n i n g 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 r e g u l a r mode of  transportation.  104  BIBLIOGRAPHY  BOOKS Brewer, S t a n l e y , H., A i r Cargo Comes to Age. 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F a c t s 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 o f 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 . a d e i n the 70' s Through B.C. V i c t o r i a , B.C. , .1970. T r  Custom P o r t s ,  Government o f Japan : F o r e i g n Trade o f Japan, Japan E x t e r n a l Trade O r g a n i z a t i o n , Tokyo, 19 70.  107.  PERSONAL INTERVIEWS  Mr. A. G. C r o n e , C a n a d i a n P a c i f i c C a r g o O p e r a t i o n s V a n c o u v e r , B.C. - November 19 72. Mr.  R.C. J a m e s o n , 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. - M a r c h 1 9 7 2 .  Mr.  P. L o s s , G e n e r a l S a l e s M a n a g e r , V a n c o u v e r F a n c y V a n c o u v e r , B.C. - J a n u a r y 19 72.  Mr. W. M o o r e , T r a f f i c S u p e r v i s o r , T. B u r n a b y , November 19 72.  Eaton  Sausage,  Co.,  Mr. A . J . 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' APPENDIX A  THE ON  The  "HOW  STANFORD RESEARCH INSTITUTE METHOD TO  IDENTIFY POTENTIAL USES OF  o b j e c t i v e o f t h i s study-'- has  various c h a r a c t e r i s t i c s  been to i d e n t i f y  and d i s t r i b u t i o n  the itself,  characteristics)  i n f l u e n c e 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 . also provide detailed  FREIGHT"  (those r e l a t i n g to the commodity  i t s market, i t s p r o d u c t i o n which may  AIR  The  S t a n f o r d method would  a company with r e l i a b l e i n f o r m a t i o n whether as t o a  d i s t r i b u t i o n cost analysis  as compared to s u r f a c e mode  is justified. The  r e s e a r c h procedures  used i n the composition  f i n a l q u e s t i o n n a i r e were a r r i v e d  at by means o f a s e r i e s  interviews with a i r c a r r i e r s , a i r shippers and  f r e i g h t forwarders.  The  r e s e a r c h team was  Table A.2  users)  then able to draw, f o r use  and  (Table A . l ) . 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  p r o d u c t i o n , market mode. combination  the  of  (even o c c a s i o n a l  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 type o f s i t u a t i o n  of  Table A,2  of c h a r a c t e r i s t i c s  geous use o f a i r - f r e i g h t .  also  o f commodity  i l l u s t r a t e s the r e q u i r e d  a s h i p p e r must show f o r advanta-  Each column r e p r e s e n t s  a type  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  of  109.  situation  are  the  l e t t e r s R,  A,  B, M,  which i n d i c a t e  :  - R : r e q u i r e d 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 a d v a n t a g e o u s l y ) . - A & B : alternative characteristic within g i v e n group (at l e a s t one of each i s required) . - M  q u e s t i o n n a i r e as d e t a i l e d  t r e d t o each i n t e r v i e w e e .  The  questionnaire  i n Table A.2  l e t t e r s R,  i n f r o n t of each q u e s t i o n answered by  A,  yes,  r e a d i n g down each column i t i s p o s s i b l e  s i t u a t i o n are  In the  and  at l e a s t one  company i s to b e n e f i t  A and by  I f more than one the  probability  situation modes of  can  that  benefit  the by  the  M,  adminisappearing  circled.  use  Then,  by  a l l the  of a i r i n a g i v e n  company s i t u a t i o n column, a l l the  one  B must be  use  A and  was  to check t h a t  for a satisfactory  included.  B and  are  required characteristics  R's,  •  : makeweight c h a r a c t e r i s t i c ( t h i s might constitute a s i g n i f i c a n t factor i n a g i v e n s i t u a t i o n , but i t i s not required).  Procedures f o l l o w e d i n a d m i n i s t e r i n g the The  a  c i r c l e d i f a given  of a i r f r e i g h t .  B are  circled,  this w i l l  company i n t h i s p a r t i c u l a r  type  increase of  u s i n g a i r f r e i g h t r a t h e r than s u r f a c e  transport.  1. Gbrham, James, E,, " How to I d e n t i f y P o t e n t i a l A i r F r e i g h t ", a study p r e p a r e d f o r Emery A i r F r e i g h t C o r p o r a t i o n , Southern C a l i f o r n i a L a b o r a t o r i e s of S t a n f o r d 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  Specific Use aaaa (reason)  Ceatral Uaa Q u a  INCRCASE SALES OR IMPROVE SERVICE IN TIME-LIMITED SITUATIONS  Situation A.l.  Demand l a t l m o - l l m l t u d : a. b. e.  I n a market f o r t i m e - o r s t y l e - d a t e d e o m n o d i t l e a I n a premium-price market I n a s e a s o n a l o r h o l i d a y market  K a r k o t f o r p c r i s h a b l n commodities can be d. o.  Us* af spaed *• rcdwca lie* U trenail  INCREASE UTILIZATION OF PRODUCTION F A C I L I T I E S AND EOUtPMCNT  REDUCE COMPANY OR CUSTOMER INVESTMENT IN GOODS IN TRANSIT A.4.  MEET UNPREDICTABLE DEMANDS AND EMERGENCIES REDUCE INVENTORY  A.2.  Typa  extended:  I n time Geographically  U t i l i z a t i o n c a n ba I n c r e a s e d f o r : a. b. c.  A p r o d u c t i o n u n i t by r e d u c i n g tlmo l o s t w h i l e w a i t i n g f o r p a r t s o r m a t e r i a l s A f i x e d f a c i l i t y by e x t e n d i n g supply o r market a r e a A m o b i l e p r o d u c t i o n f a c i l i t y o r equipment by r e d u c i n g time spent i n moving between Job*  A.3.  Tho company d e s i r e s to speed up investment  t u r n o v e r l n commodities which c a n 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 p o s s l b l w t r a n s i t  I n v e n t o r y i s used s p e c i f i c a l l y t o s e r v l c o p r o d u c t i o n and s a l e s r e q u i r e m e n t s  INVESTMENT  because demand i s u n p r e d i c t a b l e a s t o t i m e ,  or variety  Use af apero" to reduce cost* of holditiir goods la inventory while eeiolainiag or improving service  Uat of air freight because • f suprrlar conditions of carriage  time location,  :  REDUCE RISK OF INVENTORY LOSS OR OBSOLESCENCE  B.2.  i n v e n t o r y used t o s e r v l c o p r o d u c t i o n and s a l e s I s 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 , o r s t y l o p e r i s h a b l e and domnm. I s u n p r e d i c t a b l e  REDUCE INVESTMENT AND OPERATtNG EXPENSES ASSOCIATED WITH INVENTORY F A C I L I T I E S AND SERVICES  B.3.  R e d u c t i o n o r e l i m i n a t i o n of i n v e n t o r y w i l l permit  U.S.  s. b. c.  REDUCE COSTS INCURRED BY HAVING JOBBERS OR WHOLESALERS PERFORM INVENTORY FUNCTION  0.4.  A company's procurement o r d i s t r i b u t i o n p r o c e s s e s w i l l permit b y p a s s i n g Jobbers o r w h o l e s a l e r s  REDUCE RISK OF HAVING COMMODITIES LOST, STOLEN. DAMAGED, OR SPOILED IN TRANSIT  C.l.  A l t e r n a t i v e means u l t r a n s p o r t have:  REDUCE COSTS AND TIME OVER WHICH PROVISIONS FOR PRESERVING OR PROTECTING GOODS IN TRANSIT ARE REQUIREO  C.2.  ENHANCE CONTROL OR MANAGEMENT OF GOODS IN TRANSIT  C.3.  REDUCE DUTIES IN INTERNATIONAL MOVEMENTS  C-4.  Duty I s a s s e s s e d on a g r o s s 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  EXPEDITE HANDLING OF SMALL LOTS  CS.  a.  -  s. b. c,  reducing:  S i z e o r c o m p l e t e l y e l i m i n a t i n g an Inventory f a c i l i t y a t one o r more l o c a t i o n s I n v e n t o r y s e r v i c i n g c o s t s even w i t h o u t r e d u c i n g warehouse f a c i l i t i e s I n v e n t o r y can be c e n t r a l i z e d t o 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 c o s t s evon w i t h o u t r e d u c i n g inventory  total  A h i g h I n c i d e n c e of s t o l e n o r l o s t commodities A h i g h r a t e of p h y s i c a l damage A h i g h i n c i d e n c e of s p o i l e d o r d e t e r i o r a t e d commodities  A l t e r n a t i v e means of t r a n s p o r t I n c u r : C o s t l y guarding a g a l n s i t h e f t or dlsappeorance H e a v i e r o r 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 H i g h e r Insurance c o s t s 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 o f t r a n s p o r t c h a r a c t e r i s t i c a l l y ficulty  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 -  l n c o o r d i n a t i o n and documentation  Departure  packaging  o r a r r i v a l tlmoB o r the r o u t e c o n n e c t i o n s r e q u i r e d by a l t e r n a t i v e forms o f t r o n s p o r t a r o not c o n v e n i e n t o r  predictable b.  Volume t o be moved I s s u f f i c i e n t t o take advantage o f r a t o b r e a k s 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  t o take  advantage  ' o f r a t e b r e a k s o f f e r e d by o t h e r forms o f t r a n s p o r t Source:  S t a n f o r d Research  Institute.  Gorham> James, E., "How t o I d e n t i f y P o t e n t i a l Uses o f A i r F r e i g h t " _ (a paper p r e p a r e d f o r Emery A i r F r e i g h t C o r p o r a t i o n , W i l t o n C o n n e c t i c u t by Souther C a l i f o r n i a L a b o r a t o r i e s o f S t a n f o r d Research I n s t i t u t e , 1963) p. 9.  TABLE A.2 1. t — — — —  R A B M  0 t  H O  C L A S S OF USE AND S I T U A T I O N  Requirement Alternate requirement (first group) Alternate requirement ( s e c o n d group) Makeweight factor  Use of Speed to Reduce Time in Transit.  CHARACTERISTICS  £ ~i S *  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 shortened by adverse conditions of cartiaRe* b. lis rare of deterioration is such that transportation lime can limit its sales volume*  •I 0  c. d.  1. ). 4.  6.  t  K  It is subject to rapid style or technological o b s o l e s c e n c e ' It must be available at a particular location by a particular date or used within a specified time* Is commodity valuable relative to its weight*  7. 6. 9.  >• X *i at  b. c.  e  Si M \  R  .i b  b.  2  4  J  i  c  A  M M  A  M  1 b t  -  2  a  b C  d  4  e  A  R  Si M M  R R  A A  5 •  b  M  Si  M  b. c.  A  M M R  M  d.  M  W  M  M M  M  2. M  J.  M M Si R M M M M M M M M M  4.  M Si  3. 6.  AA  Beginning or termination date*  B  nA A  Premium prices are available (or a limited period of time? The production volume of a company or its customers can be increased by (educing time lost while wait ing for this commodity.  1  c  M M R R  A A  Specific geographic locations at s p e c i f i c l i m e s ' Particular s u e s or styles within l i n e s , either in total or at specific locations or times?  Are there known seasonal variations in the quantity, type, or geographic locations of demand for this commodity? Is the demand infrequent? 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?  MaiDlaiaiBS ot J 4  1  Is demand for commodity unpredictable in the short-run with respect to:  pt-|jJJ fe» 3  2  I b c d  Is commodity purchased or sold in a variety of s i t e s , colors, or styles within commodity l i n e * Are storage ot handling requirements costly because storage of commodity require* s p e c i a l costs (or servicing or protection? Does prohibitive expense, perishability, o b a o l r s c e n c r , variety o( line, or high value make it unfeasible to store commodity?  Use of Air Freight Because of Supetior Conditions ca* Carriage.  Inrvotna Servare.  a 1.  TYPE  C.  B, Use of Speed to Reduce Cost* oi Holdioa Ooo.li ia lavcaicxr *hilr  A.  8 AA  AAM AAM  MA M A  AA  M  M  H R  A  B  AAAA AAAA  b.  B  AAAA  e.  B  M M M M M M M \\ \i \\  7. 8. 9. a.  M St Si M Si  R R R R  b. R  The productivity of the commodity (mobile productive unit) can be increased and investment requirements reduced by reducing time spent moving between jobs? 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 • 10. Ate there emergency or completely unexpected and seldom occurring demands for (his commodity? 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 wjj b. It is produced to order? B jjj c . The supply or the capacity to produce it within a given area 3 is limited? B  c.  d.  3  12. 13.  D o c s or can your company control or influence the choice of transportation media? (Between r a i l , truck, water or air) * o u l d a shift to air transportation reduce total elapsed time in transportation?  R d. R R  e. 10.  M M M Si M M  a.  11.  A A A  AA AA AA  M M M M St M A  M  b.  MMMMM  c.  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 R R R  R  R R R R R R R R R R R R  M M Si  M M M M  12.  R  13.  Si Si M Si M Si M M St M M M M M St M M s\ M M M Si M M j l . ' i s cc-mmodity supplied from oi marketed overseas or internationally? M Si M M M M M M M M M \\ M M Si R M M M Si M M M M M M 16. Ate (chedules or route connections offered by alternative forms of transportation less than satisfactory? M R 17. D o c s transportation time required to reach some supply or market areas by alternative forms of transportation limit production or s a l e s volume? M M M M R M R 18. D o you produce or distribute from more than one location? M R M R 19. Is the commodity moved between dispersed company f a c i l i t i e s in various stages of production or distribution? Si R 20. Does use of alternative forms of transportation result in a high incidence off a. L o s t or stolen commodities? R A b. P h y s i c a l damage or breakage? R A c. Spoiled ot deteriorated commodities? M R A 21. D o c s use of alternative forms of transportation incur high costs for m. Guarding against theft or disappearance? R M b. Heavy or s p e c i a l packaging? R M R c . Environmental control, such as temperature ot humidity regulation? M R d. S p e c i a l services or handling, such as feeding? R M 22. Docs use of alternative forms of transportation incur e i r e p t i o n a l management or transportation costs in e i p e d i t i n g through movements because of premium handling rates ot difficulty in cootdinatioo or documentation? R  14. 1%  14.  23.  D n e t transportation of commodity by alternative forms of transport characteristically esceed 24 hours?  Does your company ship or receive commodities in international trade on which duties are a s s e s s e d on a gross weight basis?  16. 17. 18. 1? 20. a. b. e, 21. a. b.  c. d.  22.  R  23.  24.  D o typical shipment s i z e s permit taking advantage of rate breaks offered by air carriers hut not rate breaks offered by alternative forms of transportation?  25,  D o c s your company maintain supply or distribution inventories?  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  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  29.  » i i l reduction or elimination of roial inventory permit reducing the size or completely eliminating an inventory facility?  Jl*.  • ' i l l reduction or elimination of inventory at any location permit reduction in inventory servicing costs even without reducing warehousing?  31.  l i t ] centralizing the inventory function, even without proportionate reduction in total inventory, permit reduction in lot al warehousing and service e i p e n c e ?  32,  f i l l use of air frrigbi to reduce need lor inventory permit bypassing wholesalers or jobbers?  SOU.CC:  R  R  28.  M M R  M M  29.  R  30.  H  31. R  STANFORD RCSEAftCH INSTITUTE.  COMBINATIONS OF CHARACTERISTICS REQUIRED FOR SPECIFIC TYPES OF SITUATIONS  Source : I b i d . , Gorham, p. 10.  24.  R R R R R  32.  112.  APPENDIX B  PRACTICAL APPLICATION OF THE STANFORD METHOD IN IDENTIFICATION OF POTENTIAL USE OF AIR FREIGHT  The q u e s t i o n n a i r e was administered on an e x p e r i m e n t a l b a s i s on two B.C. based companies.  The r e s u l t s were i n t e r p r e t e d  as r e f l e c t i n g the a c t u a l c u r r e n t s i t u a t i o n w i t h r e s p e c t to distribution  problems.  The f i r s t  i n t e r v i e w e e was Simpsons-Sears  Department S t o r e  which uses a i r f r e i g h t on an o c c a s i o n a l b a s i s o n l y .  The second  i n t e r v i e w e e , Vancouver Fancy Sausage, was chosen s i n c e a i r i s the s o l e mode o f t r a n s p o r t used f o r the d i s t r i b u t i o n o f i t s p r o d u c t s .  Simpsons-Sears ^ As can be seen i n the completed q u e s t i o n n a i r e  (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 c o u l d be used to the b e s t advantage  are : A4, B2, B3, B4, C2a, C2b, C2e and  C4 (these c a t e g o r i e s are found  In Table B . l )  The type o f commodity s e l e c t e d f o r t h e purpose o f the i n t e r v i e w was c l o t h i n g .  Simpsons-Sears  used a i r f r e i g h t on an  emergency b a s i s o n l y i n s i t u a t i o n A4 (-unpredictable  demand and  113 .  emergencies) o r i n s i t u a t i o n B2 (reduced  r i s k of inventory  through, unpredictable, demand ) , s i t u a t i o n B3c and B4 zed i n v e n t o r y )  insurance)  (centrali-  r e q u i r e a complete t r a n s f o r m a t i o n o f the t o t a l ,  d i s t r i b u t i o n system p r e s e n t l y i n use. disappearance  loss  S i t u a t i o n s C2a (higher  r a t e ) , C2b and C2e ( c o s t l i e r packaging  and h i g h e r  were a r e f l e c t i o n .of the p r e s e n t s t a t e o f the problems  i n h e r e n t 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 t h a t such important  i n Table B.2 as no.2  questions  (high-value commodity r e l a t i v e t o weight) o r no.9 (urgency o f demand a t the p o i n t o f use o r s a l e ) were answered i n the n e g a t i v e . These responses suggest, t h a t Simpsons-Sears does n o t present s u f f i c i e n t p o t e n t i a l f o r a i r f r e i g h t s e r v i c e s . l a t e r e x p l a i n e d t h a t , although were e v i d e n t  I t was  the advantages o f a i r f r e i g h t  , t h i s mode o f t r a n s p o r t was too expensive  f o r the  type o f commodity s o l d and the type o f market served by a d e p a r t ment s t o r e .  Moreover, i f use o f a i r f r e i g h t i s t o be regarded as  a r e g u l a r mode o f t r a n s p o r t , the f i r s t  step to take w i l l be to  r e o r g a n i z e and adapt the p r e s e n t s u r f a c e d i s t r i b u t i o n system t o an a i r b o r n e system. 2 Vancouver Fancy Sausage T h i s i s the l e a d i n g company i n the west i n the p r o d u c t i o n o f smoked meats and sausages o f a l l k i n d s . customers i n c l u d e s m a l l r e t a i l e r s  The company's  ( d e l i c a t e s s e n s t o r e s ) and  grocery c h a i n s t o r e s across Canada : Safeway, Super-Valu, S t e i n b e r g ' s , Shop-Easy.  Dominion,  SIMPSONS-SEARS  TABLE B.1 CLASSIFICATION OF AIR FREIGHT USAGE EY REASON FOR USE AND TYPE OF SITUATION  Specific Use Clasa (reaaea)  Ceaaral Use Qasa  INCREASE SALES Oft IMPROVE SERVICE IN TIME-LIMITED SITUATIONS  A.  UM ef speed lo redact U M ia traasit  Sitaetloa  A.i.  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  Dastnd  , INCREASE UTILIZATION OF PRODUCTION A.3. Utilization can be Increased for: FACILITIES AND EQUIPMENT 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-A.3. The company desires to speed up investment turnover ln commodities which can be used aa soon as received MENT IN GOODS IN TRANSIT MEET UNPREDICTABLE DEMANDS AND A.4J Any situation in which air freight will moot a critical requirement for the shortest possible transit time EMERGENClES D.l. Inventory is used specifically to service production and sales requirements because demand Is unpredictable as to time, location, REDUCE INVENTORY INVESTMENT or variety , REDUCE RISK OF INVENTORY LOSS OR B.2. Inventory used to sorvice production and sales Is physically, technologically, or atyle porishsblo and demand is unpredictable OBSOLESCENCE REDUCE INVESTMENT AND OPERATING B.3. Reduction or elimination of inventory will permit reducing: EXPENSES ASSOCIATED WITH INVENa. Size or completely eliminating an Inventory facility at one or more locations TORY FACILITIES AND SERVICES 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 ~J ^| A company'it procurement or distribution processes will permit bypassing Jobbers or wholesalers JOBBERS OR WHOLESALERS PERFORM INVENTORY FUNCTION REDUCE RISK OF HAVING COMMODITIES C.l. Alternative means of transport have: LOST, STOLEN, DAMAGED, OR SPOILED a. A high incidence of stolen or lost commodities IN TRANSIT b. A high rate of physical damage c. A high incidence of spoiled or deteriorated commodities REDUCE COSTS AND TIME OVER WHICH C.2. Alternative means of transport Incur: PROVISIONS FOR PRESERVING OR a. Costly guarding against theft or disappearance PROTECTING GOODS IN TRANSIT ARE f^b) Heavier or more costly packaging REQUIRED c. Costly environmental control d. Special service* or special handling fc\ Higher insurance costs Expediting through movements by alternative means of transport characteristically requires premium handling and greater difENHANCE CONTROL OR MANAGEMENT OF GOODS IN TRANSIT ficulty ln coordination and documentation REDUCE DUTIES IN INTERNATIONAL Duty Is assessed on a gross weight basis, which by definition includes packaging MOVEMENTS s. Departure or arrival times or the route connections roqulred by alternative forms of transport are not convenient or EXPEDITE HANOI.ING OF SMALL LOTS , 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  T3  B.  Use ef speed te red wee costs ef holding goods ta ievratory while malalainiog or improving service  -  C.2. C.  Uae of sir freight because of superior coeditiens of carriage  C.3. C.4. C.5.  Source: Stanford Research Institute.  Type  TABLE B.2 SIMPSONS-SEARS R A B M  COMMODITY  l t O C H O — Requirement — Alternate requirement ( ( i n t croup) - Alternate requirement (second i r o o p ) — Makeweight factor  C L A S S Of USE AND S I T U A T I O N  i f yes  CHARACTERISTICS  \S  i. c l.i  b.  J.  l a commodity purchased or told in a variety of s i z e s , colors, O* styles within commodity line?  4.  o  alb  r  c  d  S  M  \  l-V  b 1  R  MK f '  R  R  R  M *.  * /  rt  b.  A  c.  A  d.  .«.  R  M  rM  •I  M  *,  M  M  -  M N M  M  S  A A  A  V  R  A  * !v A  Are. storage or handling requirements costly because storage of commodity require* special costs for servirin*. or protection? ' 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?  U  TYPE  Use of A i r Fteight Because of Superior Conditions oi Carriage.  IB  ble  e  M  It* race oi deterioration ii m c h <hat transportation time can limit it* a * ! e * volu-n"'  S c . It it tubiect ro r i p , d *tvle or teehnolneira 1 obsole scene* » £ d . It mu*t be avatlaale at a particular location by a pjrticular date or u»ec wirhin a *r>eciiir.* tt:-e' 2. Is commodity valuable relative to i t * wcicht?  U s * of Speed to Reduce COJ:I of HoUiasC^od' lovralorv * h i Mj i»aiii|t o lropiv»rii Service.  Use of Speed to Reduce Time in Transit.  L, Doe» cwnmodiir have a short useful or sales tile because: • a. a . It is p h y s i c a l l y F « n i h i t > ! e and its useful life may be lurcher j shortened bv a j i e r s e conditions of c u r i a e ' e J  115. J a n u a r y 19 72  CLOTHING  2.  v  M '•)  M M  R  4.  e  M Iv V M M M  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 trespect to: • — 1- a . Beginning or termination date* B  M  VI  5. 6.  <  A  A  b. Specific itroeraphic l o c « ; i o n * at specific times? \y' R A A " P » ' « e « l * r s u e s or styles within l i n e s , either in total or at apecific location* o« tiroes? \,*"* B A A 7. Ate there known seasonal variation* io the quantify, type, or geographic l o c a t i o n * of demand for this commodity? V * /* M R 8. Ia the demand infrequent? ~9. I « the demand at the point of use or sale argent because:  JUJ  -  c  S  a.  at  P  A  B  A  A  M  M  A  B  b. -  c  f  t  A  A  A  A  A  \  b.  A  A  A  I  c.  A A  A  M  --- ~- -  M  A  B  A  M M M M tl M y, ki! ir  _.  7. 8. 9. m.  \\ M M  P  c.  d. R  f  v  V /*  w*ould a shift to air transportation reduce total elapsed time io transportation?  yy'  D o c s transportation of commodity by alternative forms of transport characteristically e i c e e d 24 hours? *  R  10. 11.  M M M Si M M  A  A  A  A  A  A  A  A  A  A  e  D o e i or can your company control or influence the choice of transportation media? (Between rail, truck, water or air)  -  M M M M M M >  b.  M M M M S! M  e.  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  P.  R  R  R  18. 1?.  D o yoo produce or distribute from more than one location? \^»* Ia the commodity moved between dispersed company f a c i l i t i e s ia various stages of production or distribution?  -  R  R  R  -  R  R  R  R  M  —.  V  / M  D o e s use of alternative forms of transportation result in a high incidence of? Lost or stolen commodities? .  b. e.  R."  d.  R  R  1  M  Does your company maintain supply or distribution inventories?  26.  Are inventories maintained so that commodities ate available when and wheie needed?  27.  If air transport at IOO can make commodities available when and where needed, will a reduction or elimination of inventory be feasible? ^ /  28.  Ia the supply inventory maintained at the point of use* or. Are distribution inventories maintained at dispersed locations? \S  vTill reduction or elimination of inventory at any location permit •eduction in inventory servicing costs even without teaucing warehousing? \ /  JL  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 r a p e n i - r * \ir  MAHWono  r  M  R  )  b.  M  e.  M  d.  !2.  R  \  R  )  2>.  R  30.  SOUftCf!  b. M  R  .  will reduction or elimination of total inventory permit reducing the s i t e or completely eliminating sn inventory facility?  will use of ait freight to reduce need for inventory permit bypassing wholesalers or tor-bets'  -  R"  / \S  \^»  R  R  R R  R  K  R  I  R  {  R  R  R  R  R  R  R  R  M M  R  \  IV  9 21. a.  A  R  23.  14.  16.  R  A R  Special services or handling, such as feeding*  D o typical shipment s i z e s permit taking advantage of rate breaks offcied by ait carriers but not rate breaks offered by alternative forms of transportation?  /  A R  R  24.  \  IS.  M  Does your company ship or receive commodities ia international , trade on which duties are a s s e s s e d or. a gross weight b a s i s ? V  12. n.  1? 20.  v  2}.  y K M M  it)  r' R  >  <  Does use of alternative forms of transportation incur eiceptiona] management or transportation costs in eipedicing through movements because of premium handling rates or difficulty in coordination or documentation?  R  —  R  22.  -  17.  M  P h y s i c a l damage or breakage? Spoiled or deteriorated commodities?  Heavy or s p e c i a l packaging? Environmental control, such as temperature or humidity regulation?  R  S  R  D o e s use of alternative forms of transport a tion incur high costs for a. Guarding against theft or disappearance? b. C.  R  M M  M  -  a.  32.  R  M ^t V  /  D o e s transportation time required to reach some supply or market areas by alternative forms of transportation limit production or sales volume? *. y M M M  29.  R  M M \! M M M M M M M M M M M M M M M M M M M Is commodity supplied from or msrketed overseas or internationally J t,« M V M M M M M M M M M M M M S( M M M Axe schedules or iwute connections offered by alternative forms " ** ~ of transportation less than satisfactory?  IT.  2L,  ..  A  R  It it produced to order? ^ * B *»p?ly ° * the capacity to produce it within a given area limited? . j B  l  A  b.  13.  20.  M  R  12.  15. 16.  M  P.  Are (here emergency ot completely uneipccted and seldom ^ occurring demands for this commodity? \.S Are there limitations on timely availability of this commodity or eoroponents to meet market or supply requirements because: a . Its production is seasonal? n  11. J ^ O  14.  A  d . T h e productivity of the commodity (mobile productive unit) can be increased and investment requirements reduced by reducing lime t p e n ; moving between jobs? 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?  10.  J--I M 3 3  T h e volume that will be t o l d or used can be increased by i o c i c a s i n g the supply available for a limited period of lime?  b. Premium prices are available fo: a limited period of time? c . T h e production volume of a company or its customers can be increased by reducing time lost while w i r i n g for this commodity.  >j X M 3  -  A  M  R  -  24. 25:  K  1  26.  R  )  27. 28.  R  29.  ^ ft  JO.  r  •  SI. R  )  OCsKAftCM INSTITUTC.  COMBINATIONS OF CHARACTERISTICS REQUIRED FOR SPECIFIC TYPES OF SITUATIONS  )2.  116.  Vancouver  Fancy Sausage was s e l e c t e d s i n c e t h i s  particular  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 r e g i o n a l and national distribution.  As can be seen, most o f the q u e s t i o n s were  answered i n the a f f i r m a t i v e .  A i r f r e i g h t i s used by t h i s  w i t h 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 no.25 i n T a b l e B.4  (maintenance  company  ; q u e s t i o n such as  o f supply o r d i s t r i b u t i o n i n v e n -  t o r i e s ) were answered i n the n e g a t i v e , b e i n g c o n s i d e r e d i r r e l e v a n t . Inventory l e v e l s and warehousing minimum a t the Vancouver  facilities  are reduced t o a  p l a n t , s i n c e the company makes no  p r o v i s i o n f o r the s t o r a g e o f f i n i s h e d p r o d u c t s . are  manufactured,  they are s h i p p e d to the w h o l e s a l e r s who a c t as  secondary c e n t r e s , f o r d i s t r i b u t i o n customers  As soon as these  to r e t a i l e r s  and large-volume  (grocery c h a i n s t o r e s ) .  The demand f o r t h i s  type o f commodity i s f a i r l y  stable  on a y e a r round b a s i s w i t h p r e d i c t a b l e peaks f o r Christmas, E a s t e r and T h a n k s g i v i n g h o l i d a y s .  The company's main concern  seems t o be the supply o f "raw m a t e r i a l " from s o u t h e r n B.C. and A l b e r t a : d u r i n g the 1971 Christmas season, a d e l a y i n meat d e l i v e r i e s i n t e r r u p t e d the p r o d u c t i o n p r o c e s s a t the p l a n t f o r almost 2 4 hours. Yet, the  the r e p l i e s  to the q u e s t i o n n a i r e items r e l a t i n g to  "use o f a i r i n s p e c i f i c s i t u a t i o n s show t h a t use o f speed  reduces time i n t r a n s i t , improves  service f o r perishable  commodi-  t i e s i n t i m e - l i m i t e d s i t u a t i o n s . Thus the market i s extended i n time and i n space improved  ( s i t u a t i o n A i d and A l e ) and customer  service i s  (both f o r buyer and producer) by the r e d u c t i o n o f  VANCOUVER FANCY SAUSAGE  TABLE B. 3-  !  CLASSIFICATION OF AIR FREIGHT USAGE BY REASON FOR USE AND TYPE OF SITUATION  Specific Use Das* (reaeea)  Cesaral U M Cleaa A.l.  INCREASE SALES OR IMPROVE SERVICE IN TIME-LIMITED SITUATIONS  Sitaatioa A.l.  Type  Demand is time-Halted: a. b. c.  In a market for time- or style-dated commodities In a premium-price market In a seasonal or holiday market  Market for perishable commodities can be extended:  A.  B*  Uac of speed to redace tiae ia traasil  Use of speed ta redace coots of holding goods la iaveatory white aaialeiaing or iaproving service  f*dj In time { t \ Geographically A.2.  Utilization can be Increased for: a. b. c.  A production unit by reducing time lost while waiting for parts or materials A fixed facility by extending supply or market area A mobile production facility or equipment by reducing time spent in moving between Jobs  ^A.3^ The company desires to speed up Investment turnover ln commodities which can be used as soon as received  REOUCE COMPANY OR CUSTOMER INVESTMENT IN GOODS IN TRANSIT  A.4.  MEET UNPREDICTABLE DEMANDS AND EMERGENCIES  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 INVENTORY FACILITIES ANO SERVICES  B.4.  REDUCE COSTS INCURRED BY HAVING JOBBERS OR WHOLESALERS PERFORM INVENTORY FUNCTION  Ct.  REDUCE RISK OF HAVING COMMODITIES LOST, STOLEN. DAMAGED. OR SPOILED IN TRANSIT  Any situation ln which air freight will meet a critical requirement for the shortest possible transit time  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.  A company's procurement or distribution processes will permit bypassing Jobbers or wholesolers  ^ 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  REOUCE COSTS AND TIME OVER WHICH PROVISIONS FOR PRESERVING OR PROTECTING GOODS IN TRANSIT ARE REQUIRED  C.2.  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 difficulty 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  Use of air freight beeease carrisge  Sourco:  A.2.  A.3.  C2.  C  INCREASE UTILIZATION OF PRODUCTION FACILITIES AND EQUIPMENT  Stsnford Research Institute.  Alternative means of transport incur: a. b. c. d. e.  Costly guarding against theft or disappearance Heavier or more costly packaging Costly environmental control Special services or special handling Higher insurance costs  TABLE B.4 "VANCOUVER FANCY SAUSAGE L e o E H o R — Requirement A — Alternate requirement (first group) B — Alternate requirement (second group) M - Makeweight factor  SMOKED MEATS  a b  *. Does commodity have a short useful or sairs life because: s. a. It is physically perishable and its useful life may be further . j shortened by advene conditions of carriage' \f' ? M as b. lis rate of deterioration is such iha: transportation time can M «.  ? C . It is liait its sales voli.me* •S subiect to ra^ -.d stvle or technological obsolescence? V O d. U most be avajlable at a pan.cular location by a particular * date er used within a specified time' - . 2 . Is commodity valuable relative to irs weight* la commodity purchased or sold in a vsriety of sires, colors, ,  /  A  R  H  A  R  A  IU M  A"  8. 9. > X g m 3  p  R R  Si  \  S  A A  R  M  R  M  M  \  M  -  : MM M HM  I* demand for commodity unpredictable in the short-ruo with _ respect to: •• Beginning or termination date* \/ B A A b. Specific geoEtaphic locations at specific times? Fl A A ' » " » r sizes or styles within lines, either in totsl or at specific locations or times? B A A Ar* there known sessonal variations in the quantity, type, ot • geographic locations of demand (or this commodity? \/ MR Is the demand infrequent? 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 b. Premium prices a.-e available for a limited period of time? ' •">t R c. The production volume of a company or its customers csn be increased by reducing time lost while waiting for this > commodity. y d. The productivity of the commodity (mobile productive unit) can be increased and investment requirements reduced by reducing time spent moving between jobs?  c  -  A  TC  M  stylesowithin commodity line? costly becsuse storage of >y 4 . Ateor storage r handling requirements 5. Does prohibitive erpense, perishability, variety commodity requires special com (or obsolescence, servicing or protect ionof, ?V line, or high value make it unfeasible to srore commodity? M S\ 6. J%r— JfJJ %5 5 7.  February 19 72  CLASS OF USE AND SITUATION TYPE B, Use ol Speed i Use of Speed to Redace Costs • Use of Air Freight Because of Superior Conditions of Reduce Time in Holding Good* Inventory while Carriage. Ttarjstt. Imfxtwnjt Service. 2 2 •3 4 1 5 3 4  if yes  CHARACTERISTICS  <  118.  M( -  M  S M "*  M  A  A  A  A  w  A  A  Si  lcul  R  St A B  A  A  A  M  A  b  A  A  A  \  M  A  R  A  A  A  A  Si  M  St  'st M  if \\  A ^  /  K \^  MMM  S K\  b. c.  R  :R  c. investment turnover of commodities used as soon as received can be speeded up for a company or its customers by reducing^ timeemergency in transport' 1 0 . Are there or completely une spec ted and seldom "y / occurring demands for this commodity? s 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  i  d.  R  s  J-p b. It is produced to order? j[3 c. The supply or the capacity to produce it wuhin a given area 3 is limited? ,  Ift^UUlWMWlWtiaWlilk* 1 2 , Does or can your company control or influence the choice of  transportation media? (Between rait, truck, water ot air) 13. To«Jd a *hift to air transportation reduce total elapsed time la transportation?  \f  j .  10. 11.  R  A  A  A  A  A  A  A  A  Si  st M St St M  St  M M M Si M  M A  St M st \i  * Ft R  R  R  R  R  R  R R  R  R  R  1  R  R  R  R  R  R  R  R  RPR  R R  R  R  a. b.  M  R  c.  B  R  R  R  R  R  MU  R  R  R  R  R  R  M \t M  R  if; 12.  R  l*  14. Does transportation of commodity by alternative forms of transport characteristically esceed 24 hours? \y f M MM M M Si M MSt Si M M St M \ Si St M M St M M M 15. Is commodity supplied from ot marketed overseas or internationally:1 M M MM M M M MSt MSJ M M M M \i Si Si St M M M R M 16, Are schedules or route connections offered by alternative forms R M * 7 . Does transportation time required to reach some supply or market of transportation lessforms than of satisfactory? v' ' areas by alternative transportation limit production or, sales volume? 4 M M •M R M R - st R U R * 18. Do yon produce or distribute from more than one location? V" > 19. la the commodity moved between dispersed company facilities in " various stages of production or distribution? \y* R M ( M / < 2 0 . Does use of alternative forms of transportation tesult in a high incidence of?  14.  -  16. 17. 18.  R  [ a. Lost or stolen commodities? L b. Physical damage or breakage? J C . Spoiled ot deteriorated commodities? * 2 U Does use ol alternative forms of transportation incur high costs for » a. Guarding against theft or disappearance? b. Heavy or special packaging? C . environmental control, such as temperature or humidity regulation?  R  M  —  „  R  c.  M  V(  d.  22.  R  R  23.  R  '  f  ) 28. la the supply inventory maintained et the point of use? or. Are  *  at dispersed ? \y* ( 2 9 . tilldistribution reduction orinventories eliminationmaintained o( total invenrory permitlocations reducing the size or completely eliminating an inventory facility? 3 0 . TtH reduction or elimination of inventory at any location permit reduction in inventory servicing cost* even without reducing warehousing? 3 1 . till centralizing th* inventory function, even • it hour proportionate t eduction in total inventory, permit reduction in total warehousing.-  INSTITUTK  M  R  v  tTANrono R E S E A R C H  21. a. b.  M  R  i5. Does your company maintain supply or distribution inventories? 2 6 . Ate inventories maintained so that commodities are available / when and where needed? \/ 2 7 . If «jr transportation can make commodities available when and where needed, will a reduction or elimination of inventory be * feasible?  »OU«CC:  A  R M  b.  A  R  d. Special services or handling, such ss feeding? 2 2 . Does use of alternative forms of transportation incur exceptional management or transportation costs in expediting through movements because ot premium handling rates or difficulty in coordination or documentation? 2 3 . Does your company ship or receive commodities in international trade on which duties sre assessed on a gross weight basis? 24. Do typical shipment sizes permit taking advantage of rate breaks offered by air carriers but not rate breaks offered by alternative forms of transportation?  J 2 . »ill use of air freight to reduce need lor inventory permit bypassing wholesalers or jobbers?  A  R  R  —•  19 20.  -T  I  R  R  R  R  R" R  R  R  R  R° R  R  R  R  R  R  R  M  M  R  Si  Si  24. 25.  R  26.  R  27.  R  28. 29.  R  (  30.  R1^  1  ("R  31.  1  > -  COMBINATIONS OF CHARACTERISTICS REQUIRED FOR SPECIFIC TYPES OF SITUATION'S  32.  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 meet u n p r e d i c t a b l e demand s i t u a t i o n Cle r e f l e c t s  ( s i t u a t i o n s A3 and A4).  produced  Toronto the very next  Moreover,  the h i g h r a t e o f s p o i l e d merchandise  would r e s u l t i f any o t h e r s u r f a c e mode were used. and sausages  to  which  Smoked meats  i n Vancouver can be o f f e r e d f o r s a l e i n day.  However, i n the course of the i n t e r v i e w i t was out t h a t a i r f r e i g h t t r a n s p o r t was  pointed  more e x p e n s i v e , w i t h r e s p e c t  to packaging, than s u r f a c e modes, which p r o v i d e a i r - c o n d i t i o n e d trailers.  N e v e r t h e l e s s , a i r f r e i g h t was  used p r i m a r i l y to  s e r v i c e , to extend the market i n time and i n space and inventories.  The  r e s u l t s of t h i s p o l i c y produced  s a l e s and e a r n i n g s .  The  improve  reduce  i n c r e a s e d volume,  a i r c a r r i e r concerned admitted e x p e r i e n -  c i n g s e r i o u s problems i n h a n d l i n g the i n c r e a s e d volume. The management o f Vancouver Fancy Sausage f e l t to  a i r t r a n s p o r t necessary  p e n e t r a t e new  the s w i t c h  i n o r d e r t o p e r m i t growth and to  markets w i t h minimal  c o s t and r i s k .  a i r f r e i g h t f o r t h i s p a r t i c u l a r company was  In o t h e r words,  used as a marketing  t o o l r a t h e r than a system o f d i s t r i b u t i o n per se.  1. I n t e r v i e w w i t h Hr. White law, SimpsonsT-SearsD i s t r i b u t i o n Manager, Burnaby-, B.C,, January  1972.  2. I n t e r v i e w w i t h Mr. P. L o s s , Vancouver Fancy Sausage General S a l e s Manager, Vancouver, B.C., February 1972.  120.  APPENDIX C  TOTAL DISTRIBUTION COST ANALYSIS AIR versus SEA  CASE n o . l - TYPEWRITERS, KNITTING & SEWING MACHINES, HAIR DRYERS  Data were s u p p l i e d by the Head O f f i c e of B r o t h e r International Corporation end o f J u l y 1972  (Canada)  and cover the p e r i o d from the  t o the b e g i n n i n g o f October 1972.  A p e r i o d of  90 days was mentioned as an average d e l i v e r y time from Tokyo to Vancouver.  The reasons f o r t h i s delay  appear to be t h a t the  Japanese p a r e n t company s u p p l i e s the U.S.A. and Canada by sea f r e i g h t through the p o r t o f S e a t t l e and o c c a s i o n a l l y through the p o r t o f Vancouver. trucked  Shipments  i n the same c o n t a i n e r  are u s u a l l y unloaded a t S e a t t l e and t o Vancouver.  were i n c l u d e d i n the e s t i m a t i o n In no i n s t a n c e air freight. Corporation  of t o t a l t r a n s p o r t a t i o n  costs.  d i d sea shipment show c o s t advantages over  Most o f the shipments made to B r o t h e r I n t e r n a t i o n a l (Canada)  (which are compact container!  These t r a n s f e r charges  involve typewriters  and sewing  machines  and cause a minimum o f wasted space i n the  and k n i t t i n g machines  (which are b u l k y and l i g h t w e i g h t ) .  These low-value commodities are never s h i p p e d by a i r , s i n c e  shorter  t r a n s i t time and/or lower i n v e n t o r y  sales  o r customer s e r v i c e .  cost w i l l not influence  COMMODITY : TYPEWRITERS & SEWING MACHINES CONTAINER(S)  CASE : .1  USED : 8 x 8 x 35  CONTAINER TARE WEIGHT : 5,900 l b s .  SHIPMENTS BY SEA CONTAINER  Net Weight ( l b s ) ( i n c l . packaging)  Volume * (Cubic f e e t )  Number o f containers  T o t a l Revenue (tons)  Value of Shipment  Date  12,200  884  1  22. 7  $ 58,200  J u l y 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 o c c u p i e d i n the c o n t a i n e r . A 20% r e d u c t i o n has been estimated f o r a i r volume. P e r i o d from o r d e r t o d e l i v e r y Sources  (average) : 3 months o r 90 days  : Brother I n t e r n a t i o n a l Corporation February  19 73.  ( A i r : 10 d a y s ) .  (Canada) L t d , Vancouver.  122 TOTAL DISTRIBUTION COST CASE Commodity  : 1  : TYPEWRITERS, SEWING MACHINES  Shipment no. : 1 BASIC DATA  S E A  A I R (est.)  Value o f the shipment ($) :  58,200  58,200  Size  12 ,200  12 ,200  18,100  N.A.  22.1  N.A.  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume  884  718  1,6 82  7,414  598  131  (AIR : 2 days)  378  55  (cu.ft.)  TRANSPORTATION COSTS I Handling @ $ Loading <  @ $  5.45/Ton or/40  cu.ft.  4.85/Ton or/40  cu.ft.  67C/Ton or/40  cu.ft.  Wharfage @ Containerization  @ $ 3.25/Ton or/40 c u . f t .  Freight  charges @ $ 62.25 /Ton (AIR : ; ; ' ) Rate Insurance @ 1.00% (AIR : 0.20%) U  L  D  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  In I n v e n t o r y @ 15% on 75  days  (AIR " 8 days)  1,890  219  Depreciation @  days  (AIR : 8 days)  630  73  5,178  7,892  5% on 75  TOTAL DIFFERENCE  . .  + 2,714  123.  TOTAL DISTRIBUTION COST CASE Commodity  : TYPEWRITERS, SEWING MACHINES  Shipment no. :  2  BASIC DATA  S E A  . A I R (est.)  Value o f the shipment ($) :  24,900  24,900  Size  10 ,400  10 ,400  16 ,300  N.A.  19.4  N.A.  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume  (cu.ft.)  766  614  1,521  6 ,267  (AIR: 0.20%)  264  62  (AIR : 2 days)  167  26  In Inventory @ 15% on 75 days  (AIR: 8 days)  834  104  Depreciation @  (AIR : 8 days)  278  35  3,064  6,494  TRANSPORTATION COSTS ( Handling @ $  ^  Loading  @ $  Wharfage  @  5.45/Ton or/40  4.85/Ton or/40 c u . f t . 6 7£/Ton or/40 c u . f t .  Containerization ^ Freight  cu.ft.  @ $ 3.25/Ton or/40 c u . f t .  charges @ $ 62.25/Ton  Insurance @ 1.00%  (AIR: g ^ ^ U  L  D  &  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  5% on 75 days  TOTAL DIFFERENCE ..  + 3,430  124.  TOTAL DISTRIBUTION COST CASE Commodity  : TYPEWRITERS, SEWING MACHINES  Shipment no.  :  3  BASIC DATA  S E A  A I R (est.)  Value o f the shipment .($)  17,900  17,900  S i z e o f the shipment : Net Weight ( l b s )  15,300  15 ,300  Gross Weight ( l b s ) Revenue Tons Volume  (cu.ft.)  24,100  N.A.  31. 8  N.A.  1,272  1,018  2, 4 3 1  9,170  (AIR:0.20%)  203  54  (AIR: 2 days)  129  23  In I n v e n t o r y @ 1 5 % on 7 5 days  (AIR: 8 days)  641  92  Depreciation @  (AIR: 8 days)  214  31  3,618  9,370  TRANSPORTATION COSTS ''Handling @ $ Loading  @ $  I Wharfage  5.45/Ton o r / 4 0  cu.ft.  4.85/Ton o r / 4 0  cu.ft.  67C/Ton or/40  cu.ft.  @  Containerization . , Freight  ~ * charges  Insurance CAPITAL  @ $ 3.25/Ton o r / 4 0 ,  @ $ 6 2 . 2 5 /Ton  @ 1.00%  cu.ft.  , (AIR:  U.L.D. &  s.c.R.  COSTS ON GOODS  In T r a n s i t  @ 1 5 % on 1 5 days  5 % on 7 5 days  TOTAL DIFFERENCE ..  5,752  125. TOTAL DISTRIBUTION COST CASE : 1 Commodity  : TYPEWRITERS, SEWING MACHINES  Shipment no.  4  :  BASIC DATA  S E A  A I R (est.)  Value o f the shipment ($)  42 ,500  42 ,500  S i z e o f the shipment : Net Weight ( l b s )  16 ,200  16,200  Gross Weight ( l b s )  22 ,100  N.A.  3.04  N.A.  1,136  910  (AIR: ' 1 1  2 ,065  9,670  (AIR-. 0.20%)  445  104  (AIR: 2 days)  281  44  days  (AIR: 8 days)  1,406  174  5% on 75 days  (AIR: 8 days)  468  58  4,665  10 ,050  Revenue Tons Volume  (cu.ft.)  TRANSPORTATION COSTS fHandling @ $ Loading  @ $  5.45/Ton or/40 c u . f t . 4.85/Ton or/40  cu.ft.  1  </ Wharfage  @  67£/Ton or/40 c u . f t .  Containerization I Freight  @ $ 3.25/Ton or/40 c u . f t .  charges @ $ 62. 25 /Ton  Insurance @ 1.00%  U  L  D  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  In I n v e n t o r y @ 15% on 75 Depreciation @  TOTAL DIFFERENCE ..  5,385  126. TOTAL DISTRIBUTION COST CASE : Commodity  : TYPEWRITERS,  1  SEWING MACHINES  Shipment no. : 5 BASIC DATA  S E A  A I R (est.)  V a l u e o f the shipment Size  ($) :  65,000  65 ,000  18,800  18,800  24.700  N.A.  32.9  N.A.  1,318  1,056  2,523  11,188  675  152  (AIR: 2 days)  426  63  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume  TRANSPORTATION  COSTS  handling @ $ Loading  (cu.ft.)  @ $  5.45/Ton or/40  cu.ft.  4.85/Ton or/40  cu.ft.  ,/ 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 @ $ 62.25 /Ton ( A I R ' . - - \. & S.CR. Insurance @ 1.00% (AIR: 0.20%) U  L  D  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15  days  In I n v e n t o r y @ 15% on 75  days  (AIR: 8 days)  2,131  Depreciation @  days  (AIR'• 8 days)  710  84  6,465  11,741  5% on 75  TOTAL DIFFERENCE ..  .  +  2  5  4  5,276  127. TOTAL DISTRIBUTION  COST CASE  Commodity  :  TYPEWRITERS, SEWING MACHINES  Shipment no.  :  6  B A S I C DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) :  66 ,000  66 ,000  S i z e o f the shipment : Net Weight ( l b s )  19 ,500  19,500  25 ,400  N.A.  35.1  N.A.  1,360  1,088  Gross Weight ( l b s ) Revenue Tons Volume  (cu.ft.)  TRANSPORTATION COSTS ^Handling @ $ Loading  5.45/Ton o r / 4 0 c u . f t .  @ $  4.85/Ton o r / 4 0 c u . f t .  ^Wharfage @  67£/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  F r e i g h t c h a r g e s @ $ 6 2 . 2 5 / T o n ( A I R : U.L.D. '& S.C.R. I n s u r a n c e @ 1.00% ( A I R : 0.20%)  2,752  11,790  687  155  433  65  C A P I T A L COSTS ON GOODS I n T r a n s i t @ 1 5 % o n 15 In Inventory  days  @ 15% on 75  Depreciation @  5% o n 75  ( A I R •. 2 d a y s )  days  (AIR: 8 days)  2,169  260  days  (AIR: 8 days)  724  86  6,763  12,356  TOTAL DIFFERENCE  ..  +  5,593  128. Appendix C CASE no.2  (Cont^dl - AUTO SPARE PARTS & ACCESSORIES  Data were s u p p l i e d by Canadian Motor I n d u s t r i e s Vancouver.  Auto p a r t s i n c l u d e body, engine and v a r i o u s  spare p a r t s .  Information  June 19 72 to J u l y 19 72. i n t e r v i e w as b e i n g production  120  on shipments covered D e l i v e r y time was  containers  mentioned d u r i n g full  at.the p l a n t i n Japan, as w e l l ' as packaging  a r r i v e two  The  other  the p e r i o d from  days, i n s p i t e of a p p a r e n t l y  c o n t a i n e r i z a t i o n problems.  (Toyota),  capacity  and  flow o f d e l i v e r y i s not  o r three at a time but  the  continuous;  a t 30-45 days  interval. A i r f r e i g h t shipments o f v a r i o u s s i z e s a r r i v e at an average o f at l e a s t one special  every  two weeks.  A i r f r e i g h t i s used i n  (and sometimes emergency) s i t u a t i o n s o r f o r shipments o f  s m a l l s i z e , h i g h value p a r t s , i n which case t o t a l d e l i v e r y time i s reduced t o two  weeks at the most.-  Items 1 to 5  represent  a c t u a l a i r f r e i g h t shipments f o r which sea c o s t s were whereas items 6 to 10 r e p r e s e n t  a c t u a l sea shipments f o r which -  a i r f r e i g h t c o s t s were e s t i m a t e d .  F o r each a i r shipment  a c o s t d i f f e r e n c e emerges i n favour of e s t i m a t e d (items  1 t o 5).  A s i m i l a r s i t u a t i o n obtained  of a i r f r e i g h t costs Due  (items  6 to  estimated,  sea  i n the  realized  costs estimation  10).  to expansion of s a l e s , Canadian Motor I n d u s t r i e s  w i l l be moving to new Richmond, thereby  premises p r e s e n t l y under c o n s t r u c t i o n i n  reducing  C.M.I, i s o b l i g e d to use  i n v e n t o r y c o s t s , ; i n the meantime,  two  warehouses l o c a t e d on  s i t e s , which i n c r e a s e i n v e n t o r y and  related costs.  different  COMMODITY :  AUTO.SPARE PARTS AND ACCESSORIES  CASE : 2  CONTAINER(S).; USED ; (Est.) 8x8x20 -  8x8x40 o r Less Than C o n t a i n e r (L.T.  CONTAINER TARE WEIGHT : 4,870 l b s  6,5 70 l b s  SHIPMENTS BY SEA CONTAINER (Estimates) Net Weight ( l b s ) ( i n c l . packaging)  Volume * (Cubic f e e t )  Number o f containers  T o t a l Revenue (tons)  Value of Shipment  Date  $  24,720  3,316  525  75  3.20 + 1.40  88.3  30,000  June 19 72  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  J u l y 1972  8,360  1,244  2.20  31.1  8.000  July  * A 20% i n c r e a s e over a i r f r e i g h t volume has been estimated  19 72  to obtain  volume by sea c o n t a i n e r . P e r i o d from order Sources  :  to delivery  (average) : 4 months o r 12 0 days  Canadian Motor I n d u s t r i e s  ( A i r : 15 days).  (Toyota), Vancouver, B.C., F e b r u a r y 1973.  130 TOTAL D I S T R I B U T I O N  COST CASE  Commodity  :  AUTO SPARE PARTS  Shipment no. : l B A S I C DATA  S E A  A I R  (Est.) V a l u e o f t h e s h i p m e n t ($) :  30 ,000  30,000  Size  24,720  24,720 (25,200) N.A.  of the shipment  : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume  45,900 88.3  (cu.ft.)  N.A.  3,316  2 ,734  TRANSPORTATION COSTS ^Handling @ $ Loading  5.45/Ton o r / 4 0 c u . f t . .  @ $  4.85/Ton o r / 4 0 c u . f t .  j Wharfage @  67£/Ton o r / 4 0 c u . f t .  Containerization Freight  @ $ 3.25/Ton o r / 4 0 c u . f t .  c h a r g e s @ $ 45.25/Ton  ( A I R : S.C.R.)  5 ,649  13,840  ( A I R : 0.12%)  250  52  (AIR: 2 days)  224  18  @ 15% on 1 0 5 d a y s (AIR:13 d a y s )  1,570  201  523  68  8,216  14,178  I n s u r a n c e @ 0.70% C A P I T A L COSTS ON GOODS In T r a n s i t  @ 1 5 % o n 15 d a y s  In Inventory  Depreciation @  5% o n 1 0 5 d a y s (AIR-.13 d a y s ) TOTAL DIFFERENCE  ..  ,+  5,962  131, TOTAL DISTRIBUTION COST CASE Commodity  : AUTO SPARE PARTS  Shipment no. : 2 BASIC DATA  S E A (Est.)  Value o f the shipment ("$) :  527  Size  525  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s )  730  Revenue Tons  2.1  Volume  (cu.ft.)  75  TRANSPORTATION COSTS ^Handling @ $ Loading ^ Wharfage  @ $  5.45/Ton or/40  cu.ft.  4.85/Ton or/40  cu.ft.  @  6 7C/Ton or/40 c u . f t .  Containerization Freight  @ $ 3.25/Ton or/40 c u . f t .  charges @ $ 49.25/Ton  Insurance @ o.70%  (AIR:S.C.R.)  127  (AIR : 0.12%)  4  (AIR : 2 days)  5  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  In I n v e n t o r y @ 15% on 105 days  (AIR13 days)  35  Depreciation @  (AIR13 days)  14  5% on 105 days  TOTAL DIFFERENCE .  185  132 TOTAL DISTRIBUTION COST CASE Commodity  :  Shipment no.  : 2  AUTO SPARE PARTS :  3  BASIC DATA  S E A  A I R  (Est.) V a l u e o f the shipment ($) :  18,700  18,700  Size  14 ,500  14 ,500  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume  (cu.ft.)  25,600  N.A.  40. 8  N.A.  1,628  1,357  2 ,221  8,120  (AIR: 0.12%)  146  32  (AIR: 2 days)  133  11  In I n v e n t o r y @ 15% on 105 days  (AIR 13 days)  937  123  Depreciation @  (AIR 13 days)  312  41  3,749  8,327  TRANSPORTATION COSTS ^Handling @ $ Loading /Wharfage  5.45/Ton or/40  @ $  4.85/Ton or/40 c u . f t .  @  67C/Ton or/40  Containerization ^Freight  cu.ft.  @ $ 3.25/Ton or/40 c u . f t .  charges @ $ 49.25/Ton  Insurance @  cu.ft.  0.70%  (AIR: S.C.R.)  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  5% on 105 days  TOTAL DIFFERENCE ..  + 4,578  133.  TOTAL DISTRIBUTION COST CASE : 2 Commodity  : AUTO SPARE PARTS  Shipment no. : 4 BASIC DATA  S E A  A I R  (Est. ) Value o f the shipment ($) :  8,300  8,300  S i z e o f the shipment : Net Weight ( l b s )  6 , 800  6 ,800  Gross Weight ( l b s ) Revenue Tons  12 ,200  N.A.  24.0  N.A.  960  764  1,530  3,814  (AIR: 0.12%)  69  14  (AIR: 2 days)  63  5  In I n v e n t o r y @ 15% on 105 days  (AIR 13 days)  435  55  Depreciation @  (AIR 13 days)  145  18  2,242  3,906  Volume  (cu.ft.)  TRANSPORTATION COSTS ^Handling @ $ Loading  @ $  I Wharfage §  5.45/Ton or/40  cu.ft.  4.85/Ton or/40  cu.ft.  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 charges @ $ 49.25 /Ton (AIR:S.C.R.) Insurance @  0.70%  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  5% on 105 days  TOTAL DIFFERENCE . .  + 1,664  134. TOTAL DISTRIBUTION COST CASE : 2 Commodity  :  Shipment no.  AUTO SPARE PARTS : 5  BASIC DATA  S E A  A I R  (Est. ) Value o f the shipment ($) :  8,000  8,000  S i z e o f the shipment : Net Weight ( l b s )  8,360  8,360 (8,890) N.A.  Gross Weight ( l b s ) Revenue Tons Volume  (cu.ft.)  18,700 31.1  N.A.  1,244  996  TRANSPORTATION COSTS fHandling @ $ Loading  @ $  Wharfage  @  5.45/Ton or/40  cu.ft.  4.85/Ton or/40  cu.ft.  67C/Ton or/40  cu.ft.  Containerization  @ $ 3.25/Ton or/40 c u . f t .  (^Freight charges @ $ 49.25/Ton Insurance @ 0.70%  (AIR: S.C.R.  2 ,031  4 ,970  (AIR:.0.12%)  70  15  (AIR 2 days)  64  5  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  In I n v e n t o r y @ 15% on 105days  (AIR 13 days)  448  55  Depreciation @  (AIR 13 days)  150  18  2,763  5,063  5% on 105days  TOTAL DIFFERENCE ..  + 2,300  COMMODITY :  AUTO SPARE PARTS AND ACCESSORIES  CONTAINER(S) . USED :  . 8x8x20  CONTAINER TARE WEIGHT :  4  '  8 7 0  l  b  -  CASE : 2 (Cont.)  8x8x40  ~ 6,750  s  SHIPMENTS BY SEA CONTAINER  Net Weight ( l b s ) ( i n c l . packaging)  Volume * (Cubic f e e t )  Number o f containers  T o t a l Revenue (tons)  Value o f Shipment  Date  $  • 16,600  3,365  6 ,400  810  6 ,500  785  16,800  1,290  2.20  40,000  8,748  . 4.20 + 4.40  5.20  84.1  52,000  June 19 72  1.20+1 P a l l e t  20.5  19,700  June'19 72  1.20+1 P a l l e t  19.6  16,800  July  34.0  38,000  J u l y 19 72  218.7  122,700  J u l y 1972  X ; * Volume occupied  i n sea container.  ; •  X  15% r e d u c t i o n has been  1972  >• X  estimated  f o r a i r f r e i g h t volume. Period Sources  from o r d e r :  to delivery  (average)  Canadian Motor I n d u s t r i e s  :  4 monts o r 120 days  ( A i r : 15 days) .  (Toyota), Vancouver, B.C., February 1973.  136. TOTAL DISTRIBUTION COST CASE Commodity  :  Shipment no. BASIC  AUTO SPARE PARTS & ACCESSORIES :  6  DATA  SEA  A I R (est.)  V a l u e o f t h e s h i p m e n t ($)  52 ,000  52,000  S i z e o f the shipment : Net Weight ( l b s )  16 ,600  16,600 (24,000) N.A.  Gross Weight ( l b s )  40,950 84.1  N.A.  3,365  2 ,693  5,395  13,440  ( A I R : 0.12%)  402  78  I n T r a n s i t @ 1 5 % o n 15 d a y s  (AIR 2 days)  362  54  I n I n v e n t o r y @ 15% on 1 0 5 d a y s  ( A I R 13 d a y s )  2,554  382  Depreciation @  ( A I R 13 d a y s )  842  127  9 ,555  14,081  Revenue Volume  Tons (cu.ft.)  TRANSPORTATION COSTS ^Handling @ $ Loading 1 Wharfage  5.45/Ton o r / 4 0 c u . f t .  @ $  4.85/Ton o r / 4 0 c u . f t .  @  67<=/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  ^ F r e i g h t c h a r g e s @ $ 49.25/Ton Insurance @ CAPITAL  0.70%  ( A I R : S.C.R.)  COSTS ON GOODS  5% on 1 0 5 d a y s  TOTAL DIFFERENCE  ..  +  4,526  137 TOTAL DISTRIBUTION COST CASE Commodity  :  A  U  T  SPARE PARTS & ACCESSORIES  0  Shipment no. :  7  BASIC DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) :  38,000  38,000  S i z e o f t h e shipment : N e t Weight ( l b s )  16,800  16 ,800  26,540  N.A.  34.0  N.A.  1,290  1,110  2 ,031  9 ,408  Gross Weight ( l b s ) Revenue Volume TRANSPORTATION  @ $  Wharfage  @  (cu.ft.)  COSTS  /'Handling @ $ Loading  Tons  5.45/Ton o r / 4 0 c u . f t . 4.85/Ton o r / 4 0 c u . f t . 6 7£/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  F r e i g h t c h a r g e s @ $ 49.25/Ton  ( A I R S.C.R.)  I n s u r a n c e @ 0.70%  ( A I R 0.12%)  280  57  I n T r a n s i t @ 1 5 % o n 15 d a y s  (AIR 2 days)  252  38  In Inventory  @ 1 5 % o n 105 d a y s  (AIR13 days)  1,763  257  Depreciation  @  ( A I R 13 d a y s )  588  85  4,914  9,845  CAPITAL  COSTS ON GOODS  5% o n 1 0 5 d a y s  TOTAL DIFFERENCE ..  + 4,931  138  TOTAL DISTRIBUTION COST CASE : 2 Commodity :  AUTO SPARE PARTS & ACCESSORIES  Shipment no,  8  BASIC DATA  S E A  A I R (est.)  V a l u e o f the shipment ..($) : S i z e o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Tons Volume  (cu.ft.)  19 ,700  19 ,700  6 ,400  6 ,400  12 ,400 20 . 5 810  TRANSPORTATION COSTS 'Handling @ $ Loading J Wharfage  @ $  5.45/Ton or/40  cu.ft.  4.85/Ton or/40  cu.ft.  6 7£/Ton or/40  cu.ft.  @  Containerization ^Freight  @ $ 3.25/Ton or/40 c u . f t .  charges @ $ 49. 25/Ton  Insurance @  0.70%  (AIR:.S.C.R.)  1,269  (AIR: 0.12%)  147  (AIR: 2 days)  132  In Inventory @ 15% onl05 days  (AIR 13 days)  923  Depreciation @  (AIR 13 days)  308  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  5% onl05 days  TOTAL DIFFERENCE ..  2,779  N.A. •  N.A. ,  692  139.  TOTAL D I S T R I B U T I O N COST CASE Commodity  :  AUTO SPARE PARTS & ACCESSORIES  S h i p m e n t no. BASIC  : 2  :  9  DATA  S E A  A I R (es t . )  V a l u e o f t h e s h i p m e n t ($) : Size  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue  Tons  Volume  (cu.ft.)  16,800  16 ,800  6 ,500  6 ,500  12 ,500  N.A.  19.6  N.A.  785  670  TRANSPORTATION COSTS ^Handling @ $ Loading  @ $  Wharfage  @  5.45/Ton o r / 4 0  cu.ft.  4.85/Ton o r / 4 0  cu.ft.  67<=/Ton o r / 4 0  cu.ft.  Containerization  @ $ 3.25/Ton o r / 4 0  cu.ft.  F r e i g h t c h a r g e s @ $ 49.25 /Ton  (AIR:S.C.R.)  Insurance @ CAPITAL  COSTS ON  In T r a n s i t In  0.70%  days  @ 15% on 105 d a y s  Depreciation @  3,6 40  (AIR:0.12%)  126  24  (AIR: 2 days)  113  17  ( A I R 13 d a y s )  791  110  ( A I R 13 d a y s )  263  36  2,435  3,827  GOODS  @ 15% on 15  Inventory  1,142  5% on 105 d a y s  TOTAL DIFFERENCE  ..  +  1,392  140. TOTAL DISTRIBUTION COST CASE Commodity  : AUTO SPARE PARTS AND  Shipment no. :  2  ACCESSORIES  10  BASIC DATA  S E A  A I R (est.)  Value o f the shipment ($) : Size  122 ,700  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s )  TRANSPORTATION  Revenue Tons  218. 7  N.A.  Volume  8,748  7 , 390  (cu.ft.)  5.45/Ton or/40 c u . f t .  @ $  4.85/Ton or/40 c u . f t .  ^ Wharfage @  67C/Ton or/40 c u . f t .  Containerization Freight  85,760  40,000 (65,000) N.A.  COSTS  'Handling @ $ Loading  40 ,000  122,700  @ $ 3.25/Ton or/40 c u . f t .  charges @ $ 49.25/Ton (AIR ; S.C.R.)  13,890  36,400  (AIR: 0.12%)  956  190  (AIR: 2 days)  860  132  In Inventory @ 15% onl05 days  (AIR 13 days)  6 ,020  •862  Depreciation @  (AIR 13 days)  2 ,006  287  23,732  37,871  Insurance @  0.70%  CAPITAL COSTS ON GOODS In T r a n s i t  @ 15% on 15 days  5% onl05 days  TOTAL DIFFERENCE ..  + 14,139  141. Appendix C  (Con.t * d l  CASE no.3  - T.V.  SETS, ELECTRONIC EQUIPMENT & RADIO COMPONENTS  Data concerning d e l i v e r y periods nature.  The  the value  of these shipments and  were not s u p p l i e d because o f t h e i r  f o r a 45 day  period.  represent  nature of the  the  i n volume by  the sea  i t s actual  ease o f s t a c k i n g .  The  is  dif-  explained a i r , extra  required.  and  and  container  s h o r t e r t r a n s i t time by  D e l i v e r y time averages 90  vessels  by  a i r as compared t o sea c o n t a i n e r  f a c t t h a t i n view o f the  bottlenecks  imports  Because of  r e q u i r e s more space than i s o c c u p i e d  space i s not  total  commodity, E l e c t r o n i c Equipment shipped i n  volume f o r reasons o f v e n t i l a t i o n and  by  the  Commodities were s h i p p e d by sea  from Tokyo to Vancouver v i a Japan L i n e L t d .  ference  "classified"  Western D i s t r i c t Manager of T o s h i b a of Canada  mentioned t h a t these shipments may  containers  their  to delays  to 120  days due  to  production  i n l o c a t i n g s u i t a b l e space.on  suitable loading  container  times.  Although producers such as Sony or H i t a c h i use  air freight  on an o c c a s i o n a l b a s i s , T o s h i b a o f Canada, as mentioned i n  the  interview,  intend  does not p r e s e n t l y  to change the p o l i c y i n t h i s However, the shipments  (items  a i r over sea  1,  use  a i r f r e i g h t and  does not  respect.  c o s t comparison a n a l y s i s shows t h a t 2 and  distribution.  3) p r e s e n t  a net  three  c o s t advantage by  COMMODITY : CONTAINER(S)  T.V. SETS, ELECTRONIC EQUIPMENT USED :  CASE : 3  8x8x20  CONTAINER TARE WEIGHT  :  4,870 l b s .  SHIPMENTS BY SEA CONTAINER  Net Weight ( l b s ) ( i n c l . packaging)  Volume * (Cubic f e e t )  Number o f containers  T o t a l Revenue (tons)  -•  Value of Shipment $  4, 060  965  1  24 .1  12, 450  2, 890  890  1  22 .2  10, 350  3, 170  920  1  23 .0  3, 590  1 1 , 250  1,060  1  26 5  3, 820  1 1 , 750  775  1  19. 3  1 3 , 300  3, 080  289  L T.C.  7. 2  15, 580  2, 495  241  L. T.C.  6. 3  12, 600  1, 050  96  L. T.C.  2. 4  4, 670  * Volume o c c u p i e d  i nthesea container.  estimated.for Period Sources  a i r volume, according  from order : Toshiba  to delivery  Date  N Q m T S  u  p p  X  Jj I E D  40 t o 6 0 % r e d u c t i o n h a s b e e n  t o t h e commodity. .  ( a v e r a g e ) : 3 months o r 9 0 " d a y s ( A i r : 12 d a y s ) .  o f C a n a d a L t d . , V a n c o u v e r , B.C. - F e b r u a r y 19 73,  143. TOTAL D I S T R I B U T I O N COST CASE Commodity  : T.V.  Shipment no. BASIC  :  S E T S , ELECTRONIC EQUIPMENT  1  DATA  s E A  AIR (est.)  V a l u e o f t h e s h i p m e n t (.$) :  12 ,450 4 ,060  S i z e o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Volume  8 ,860 24.1  Tons  12 ,450 4,060 (4,200) N.A. N.A.  965  471  1,751  2 ,478  (AIR . 0.23%)  178  34  ( A I R : 1 day)  90  6  (cu.ft.)  TRANSPORTATION COSTS f  Handling  @ $  5.45/Ton o r / 4 0 c u . f t .  Loading  @ $  4.85/Ton o r / 4 0 c u . f t .  <V W h a r f a g e  @  67<=/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  F r e i g h t c h a r g e s @ $ 58. 75 /Ton Insurance @ CAPITAL  1.25%  COSTS ON  In T r a n s i t  (AIR.S.C.R.) -  GOODS  @ 15% on 15  days  In Inventory  @ 15% on 75  days  (AIR: H  days  450  68  Depreciation  @  days  ( A I R 11 d a y s )  150  23  2,619  2,609  5% on 75  TOTAL DIFFERENCE  ..  10  144. TOTAL DISTRIBUTION COST CASE : 3 Commodity  :  T . V . S E T S , ELECTRONIC EQUIPMENT  S h i p m e n t no. BASIC  :  2  DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) :  10 ,350  S i z e of the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Volume  Tons (cu.ft.)  2,890  10,350  7,690  2 , 890 (3,400) N.A.  22.2  N.A.  890  389  TRANSPORTATION COSTS Handling @ $  5.45/Ton o r / 4 0 c u . f t .  Loading  @ $  4.85/Ton o r / 4 0 c u . f t .  Wharfage  @  67<:/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  ^ F r e i g h t c h a r g e s @ $ 5 8.75/Ton I n s u r a n c e @ 1.25% CAPITAL  ( A I R S.C.R.)  1,679  2 ,006  ( A I R 0.23%)  151  28  ( A I R 1 day)  76  5  COSTS ON GOODS  In T r a n s i t  @ 1 5 % on 15 d a y s  In Inventory  @ 15% on  Depreciation @  75 d a y s  ( A I R 11 d a y s )  381  56  5% on 75 d a y s  ( A I R 11 d a y s )  127  18  2,414  2,113  TOTAL DIFFERENCE  301  145.  TOTAL D I S T R I B U T I O N  COST CASE  Commodity  :  :  3  T . V . S E T S , ELECTRONIC EQUIPMENT  S h i p m e n t no.  :  3  B A S I C DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) : Size  of the shipment  11,250  : Net Weight ( l b s )  3,170  11,250  7,970  3,170 (3,700) N.A.  23.0  N.A.  920  407  1,678  2,183  ( A I R : 0.23%)  161  32  (AIR: 1 day)  82  6  Gross Weight ( l b s ) Revenue  Tons  Volume  (cu.ft.)  TRANSPORTATION COSTS ^Handling  @ $  5.45/Ton  or/40  cu.ft.  Loading  @ $  4.85/Ton  or/40  cu.ft.  67<r/Ton o r / 4 0  cu.ft.  Wharfage @ Containerization Freight  @ $ 3.25/Ton  c h a r g e s @ $ 58. 75 / T o n  Insurance  @ 1.25%  or/40  cu.ft.  (AIRrS.C.R.)  C A P I T A L COSTS ON GOODS In T r a n s i t In  @ 1 5 % o n 15  Inventory  Depreciation  days  @ 15% o n 75  days  ( A I R 11 d a y s )  410  61  @  days  ( A I R 11 d a y s )  137  20  2,468  2,302  5% on 75  TOTAL DIFFERENCE  ..  166  146.  TOTAL D I S T R I B U T I O N COST CASE Commodity  :  3  : T.V. S E T S , ELECTRONICS EQUIPMENT.  S h i p m e n t no.  : 4  B A S I C DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) : Size o f the shipment  11,750  : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Volume  Tons (cu.ft.)  3,590  11,750  8,390  3,590 (4,310) N.A.  26.5  N.A.  1,060  484  1,970  2 ,542  TRANSPORTATION COSTS f  Handling @ $  5.45/Ton o r / 4 0 c u . f t .  Loading  4.85/Ton o r / 4 0 c u . f t .  ^ Wharfage  @ $ @  6 7<VTon o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 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.)  Insurance  ( A I R : 0.23%)  172  33  (AIR 1 day)  87  6  CAPITAL  1.25%  COSTS ON GOODS  In T r a n s i t In  @  @ 1 5 % o n 15 d a y s  Inventory  Depreciation  @ 1 5 % o n 75 d a y s  ( A I R 11 d a y s )  435  67  @  (AIR 11 d a y s )  145  23  2,809  2 ,921  5% o n 75 d a y s  TOTAL DIFFERENCE ..  112.  147.  TOTAL DISTRIBUTION COST CASE Commodity  : T.V..SETS,  S h i p m e n t no.  :  ELECTRONIC  :  3  EQUIPMENT  5  B A S I C DATA  S E A  A I R (est.)  Value o f the shipment Size  ($) :  13,300  13,300  3,820  3,820  8,620  N.A.  19. 3  N.A.  775  426  1,459  2 ,254  ( A I R : 0.23%)  184  36  ( A I R : 1 day)  93  7  of the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) R e v e n u e Tons Volume  (cu.ft.)  TRANSPORTATION COSTS 1  Handling @ $  5.45/Ton o r / 4 0 c u . f t .  Loading  4.85/Ton o r / 4 0 c u . f t .  @ $  J Wharfage @  67^/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  ^ F r e i g h t c h a r g e s @ $ 58.75/Ton Insurance  § 1.25%  (AIR:S.C.R.)  C A P I T A L COSTS ON GOODS In T r a n s i t  @ 1 5 % o n 15 d a y s  I n I n v e n t o r y @ 15% on 75 d a y s  ( A I R 11 d a y s )  466  77  Depreciation  ( A I R 11 d a y s )  156  26  2,358  2,400  @  5% on 75 d a y s  TOTAL DIFFERENCE  ..  42  148. TOTAL D I S T R I B U T I O N COST CASE Commodity  : RADIO RECEIVERS & COMPONENTS  S h i p m e n t no. BASIC  :  :  3  t  6  DATA  S E A  A I R (es t . )  V a l u e o f t h e s h i p m e n t (^$) : Size  of the shipment : Net Weight ( l b s ) Gross Weight ( l b s )  15,580  15 ,580  3,080  3,080  3,800  N.A. N.A.  Revenue  Tons  7.2  Volume  (cu.ft.)  289  247  TRANSPORTATION COSTS ^Handling @ $ Loading ^Wharfage  @ $  5.45/Ton o r / 4 0  cu.ft.  4.85/Ton o r / 4 0  cu.ft.  67£/Ton o r / 4 0  cu.ft.  @  Containerization  @ $ 3.25/Ton o r / 4 0  cu.ft.  F r e i g h t c h a r g e s § $ 58.75/Ton  ( A I R : S.C.R.)  511  1,817  I n s u r a n c e @ 1.25%  ( A I R : 0.23%)  201  40  ( A I R : 1 day)  102  7  ( A I R 11 d a y s )  510  79  ( A I R 11 d a y s )  170  26  1,494  1,969  CAPITAL  COSTS ON GOODS  In T r a n s i t In  @ 1 5 % on 15 d a y s  I n v e n t o r y @ 1 5 % o n 75 d a y s  Depreciation  @  5% on 75 d a y s  TOTAL DIFFERENCE  ..  +  475  149. TOTAL D I S T R I B U T I O N COST CASE Commodity  :  RADIO RECEIVERS  Shipment no.  : 3  & COMPONENTS  : 7  B A S I C DATA  SEA  A I R (est.)  Value o f the shipment Size  o f the shipment  ($) :  12 ,600  12 ,600  2,495  2 ,495  3,200  N.A.  Revenue Tons  6.3  N.A.  Volume  241  205  438  1,472  162  32  83  6  : Net Weight ( l b s ) Gross Weight ( l b s )  (cu.ft.)  TRANSPORTATION COSTS ''Handling @ $ Loading  @ $  Wharfage  @  5.45/Ton o r / 4 0  cu.ft.  4.85/Ton o r / 4 0  cu.ft.  67<r/Ton o r / 4 0  cu.ft.  Containerization ^Freight  @ $ 3.25/Ton o r / 4 0  cu.ft.  c h a r g e s @ $ 58.75/Ton ( A I R S.C.R.)  Insurance  @ 1.25%  ( A I R o.23%)  C A P I T A L COSTS ON GOODS In T r a n s i t In  @ 15% on  Inventory  Depreciation  15 d a y s  (AIR  1 day)  @ 15% on;75 days  ( A I R 11 d a y s )  410  64  @  ( A I R 11 d a y s )  137  21  1,093  1,585  5% o n  75 d a y s  TOTAL DIFFERENCE  ..  492  150. TOTAL DISTRIBUTION COST CASE Commodity  :  RADIO RECEIVERS & COMPONENTS  Shipment no. : BASIC  8  DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t (•$) :  4 ,670  4„670  S i z e o f the shipment : Net Weight ( l b s )  1,050  1,050  1,800  N.A.  2.4  N.A.  96  82  219  620  Gross Weight ( l b s ) Revenue Volume TRANSPORTATION f  Tons (cu.ft.)  COSTS  Handling § $  5.45/Ton o r / 4 0 c u . f t .  Loading  4.85/Ton o r / 4 0 c u . f t .  <| W h a r f a g e  @ $ @  6 7'$/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  F r e i g h t c h a r g e s @ $ 58.75/Ton  (AIR  Insurance  ( A I R 0.23%)  62  12  (AIR 1 day)  31  2  155  24  52  8  CAPITAL  @ 1.25%  S.C.R.)  COSTS ON GOODS  In T r a n s i t  @ 1 5 % o n 15 d a y s  I n I n v e n t o r y @ 1 5 % o n 75 d a y s  ( A I R 11 d a y s )  Depreciation @  ( A I R 11 d a y s )  5% o n 75 d a y s  TOTAL DIFFERENCE ..  519  666 +  147  Appendix C  CASE no.4  151.  CCqnt • d).  - TEXTILES  Data s u p p l i e d by Schenke Co. over a p e r i o d o f approximately one days  (and  sometimes longer) was  L t d . , covered  month.  operations  D e l i v e r y time o f  a l s o i n t h i s case to  full  capacity production.  D e l i v e r y time i s important because  demand f o r d i f f e r e n t  types of t e x t i l e s i s t i m e - l i m i t e d i n  and premium-price markets.  Most o f the  (the c o n t a i n e r  I t was  the seasonal  t e x t i l e shipments  r e q u i r e d e x t r a packaging s i n c e they were shipped i n container  i s d e s t u f f e d on the  mentioned d u r i n g the i n t e r v i e w  less-than-a-  dockside). that a i r freight  would i n v o l v e l e s s packaging, improve customer s a t i s f a c t i o n at a h i g h  c o s t which was  not  j u s t i f i e d by  the medium to low-value c h a r a c t e r i s t i c s  90  but  the volume of s a l e s  o f the  commodity  and  imported.  COMMODITY :  TEXTILES  CONTAINER(S)  USED :  CASE : 4 8x8x20  CONTAINER TARE WEIGHT :  o r L e s s Than C o n t a i n e r  (L.T.C.)  4,870  SHIPMENTS BY SEA CONTAINER  Net Weight ( l b s ) ( i n c l . packaging)  Volume * (Cubic f e e t )  Number o f containers  T o t a l Revenue (tons)  Value o f Shipment•  Date  $ . 6,955  844  3,936  373  92 8  ,1  21.2  16,827  L.T.C.  9.3  7,290  238  L.T.C.  6.2  2 ,930  6 ,254  779  1  19. 8  19,470  4 ,492  665  1  16.4  13,680  5,676  807  1  20.1  10,510  834  32  L.T.C.  1.5  748  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 .  N O T S U P. P T ±J  I E D  15% r e d u c t i o n h a s b e e n  e s t i m a t e d f o r a i r f r e i g h t volume.  Period Sources  from o r d e r t o d e l i v e r y :  (average)  :  3 months o r 90 d a y s ( A i r : 1 5  S c h e n c k e , E. , Co. L t d . , V a n c o u v e r , B.C. - F e b r u a r y 1973.  days). £  153. TOTAL D I S T R I B U T I O N COST CASE Commodity  :  4  TEXTILES  S h i p m e n t no. BASIC  :  :  i  DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) : S i z e of the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Volume  Tons (cu.ft.)  16 ,927  16 ,927  6,955  6 ,955  8, 800  N.A.  21.2  N.A.  844  710  TRANSPORTATION COSTS ''Handling @ $ Loading  @ $  Wharfage  @  5.45/Ton o r / 4 0 c u . f t . 4.85/Ton o r / 4 0 c u . f t . 67C/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  ^ F r e i g h t c h a r g e s @ $ 55.75/Ton Insurance @ .75% CAPITAL  COSTS ON  In T r a n s i t  (AIR  S.C.R.)  (AIR  (AIR  1,540  4,720  0.15%)  138  31  2 days)  116  17  GOODS  @ 1 5 % on 15  days  In Inventory  @ 15% on 75  days  ( A I R 13 d a y s )  581  115  Depreciation  @  days  ( A I R 13 d a y s )  194  38  2,569  4 ,921  5% on 75  TOTAL DIFFERENCE  ..  + 2,352  154 TOTAL DISTRIBUTION COST CASE Commodity  :  TEXTILES  Shipment no.  :  2  BASIC DATA  S E A  A I R (est. )  Value o f the shipment ($) :  7,290  7,290  S i z e o f the shipment : Net Weight ( l b s )  3,936  3,936  Gross Weight ( l b s ) Revenue Tons  9.3  N.A.  Volume  373  328  700  2,577  (AIR 0.15%)  60  15  (AIR  2 days)  50  9  (cu.ft.)  TRANSPORTATION COSTS ' Handling @ $ Loading ^ Wharfage  @ $ @  5.45/Ton o r / 4 0  cu.ft.  4.85/Ton o r / 4 0  cu.ft.  6 7C/Ton o r / 4 0  cu.ft.  C o n t a i n e r i z a t i o n @ $ 3.25/Ton o r / 4 0  cu.ft.  F r e i g h t charges @ $ 55.75/Ton (AIR  S.C.R. )|  Insurance @  0.75%  CAPITAL COSTS ON GOODS In T r a n s i t  @ 1 5 % on  15 days  In I n v e n t o r y @ 1 5 % on 75  days  (AIR 13 days)  251  56  Depreciation @  days  (AIR 13 days)  84  18  5% on 75  TOTAL DIFFERENCE ..  1,145  2,675 + 1,530  155. TOTAL D I S T R I B U T I O N COST CASE Commodity  :  TEXTILES  S h i p m e n t no. BASIC  :  3  DATA  S E A  A I R (est.)  Value of the shipment Size  ($) :  o f the shipment : Net Weight ( l b s )  2,930  2,930  928  928  Gross Weight ( l b s ) Revenue Volume  Tons (cu.ft.)  6.2  N.A.  238  205  TRANSPORTATION COSTS ''Handling @ $ Loading <^ W h a r f a g e  5.45/Ton o r / 4 0 c u . f t .  @ $  4.85/Ton o r / 4 0 c u . f t .  @  6 7<=/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 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.)  Insurance @  (AIR  (AIR  CAPITAL  0.75  %  490  696  0.15%)  26  4  2 days)  22  3  ( A I R 13 d a y s )  110  19  ( A I R 13 d a y s )  37  7  685  729  COSTS ON GOODS  In T r a n s i t  @ 1 5 % on 15 d a y s  In Inventory  @ 15% on 75 d a y s  Depreciation @  5% o n 75 d a y s  TOTAL DIFFERENCE  ..  +  44  156. TOTAL D I S T R I B U T I O N  COST CASE  :  4  Commodity : Shipment no. : BASIC  4  DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) Size  19 ,470  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue Volume  Tons (cu.ft.)  6 ,254 .  1?,4 70 6,254  11,120  N.A.  19. 8  N.A.  779  664  TRANSPORTATION COSTS 5.45/Ton or/40 c u . f t .  ^Handling @ $ Loading  @ $  Wharfage  @  4.85/Ton o r / 4 0 c u . f t . 67^/Ton  Containerization  or/40 c u . f t .  @ $ 3.25/Ton o r / 4 0 c u . f t .  ^ F r e i g h t charges @ $ 55.75/Ton Insurance @ CAPITAL  0.75%  ( A I R : S.C.R.)  1,400  4 ,252  157  35  (AIR: 2 days)  131  19  (AIR:  0.15%)  COSTS ON GOODS  In T r a n s i t  @ 1 5 % o n 15 d a y s  In Inventory  @ 15% o n 75 d a y s  ( A I R 13 d a y s )  653  128  Depreciation  @  ( A I R 13 d a y s )  217  42  2,188  4 ,476  5% o n 75 d a y s  TOTAL DIFFERENCE ..  + 2,288  157. TOTAL D I S T R I B U T I O N COST CASE Commodity  :  TEXTILES  Shipment no. BASIC  :  5  DATA  S E A  A I R (est.)  Value o f the shipment  ($) :  13,680  S i z e o f the shipment : Net Weight ( l b s )  4 ,492  Gross Weight ( l b s ) Revenue Volume  13,680  Tons (cu.ft.)  9 ,360  4 ,492 (4,800) N.A.  16. 4  N.A.  665  542  1,190  3,264  TRANSPORTATION COSTS ^Handling @ $ Loading I Wharfage  5.45/Ton o r / 4 0 c u . f t .  @ $  4.85/Ton o r / 4 0 c u . f t .  @  67<=/Ton o r / 4 0 c u . f t .  Containerization  @ $ 3.25/Ton o r / 4 0 c u . f t .  F r e i g h t c h a r g e s @ $ 55.75/Ton  ( A I R : S.C.R.)  Insurance @  ( A I R : 0.15%)  111  25  (AIR: 2 days)  93  14  I n I n v e n t o r y @ 15% o n 75 d a y s  ( A I R 13 d a y s )  465  91  Depreciation  ( A I R 13 d a y s )  155  30  1,914  3,424  CAPITAL  0.75%  COSTS ON GOODS  In T r a n s i t  @ 15% on 15 d a y s  @  5% on 75  days  TOTAL DIFFERENCE  ..  +  1,510  158.  TOTAL DISTRIBUTION COST CASE Commodity  :  Shipment no.  • 4  TEXTILES :  6  BASIC DATA  S E A  A I R (est.)  Value o f the shipment Size  10 ,510  ($) :  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s )  5 ,676 10 ,540  10,510 5 ,676 (6,100) N.A.  20.1  N.A.  807  687  1 ,470  4,148  (AIR: 0.15%)  90  22  (AIR : 2 days)  75  12  In Inventory @ 15% on 75 days  (AIR 13 days)  377  80  Depreciation @  (AIR 13 days)  125  26  2 ,137  4,288  Revenue Tons Volume  (cu.ft.)  TRANSPORTATION COSTS r  Handling @ $  5.45/Ton o r / 4 0  cu.ft.  Loading  4.85/Ton o r / 4 0  cu.ft.  6 7C/Ton o r / 4 0  cu.ft.  1 Wharfage  @ $ @  Containerization ^Freight  @ $ 3. 25/Ton o r / 4 0  charges @ $ 5 5 . 75/Ton  Insurance @ 0.75 %  cu.ft.  (AIR: S.C.R.)  CAPITAL COSTS ON GOODS In T r a n s i t  @ 1 5 % on 15 days  5% on 75 days  TOTAL DIFFERENCE .,  + 2,151  159. TOTAL D I S T R I B U T I O N COST CASE Commodity  :  TEXTILES  Shipment no. : BASIC  7  DATA  S E A  A I R (est.)  V a l u e o f t h e s h i p m e n t ($) :  748  748  Size  834  834  o f the shipment : Net Weight ( l b s ) Gross Weight ( l b s ) Revenue  Tons  N.A. 1.5  N.A.  32  27  140  625  0.15%)  7  7  I n T r a n s i t @ 1 5 % o n 15 d a y s  (AIR 2 days)  6  1  In Inventory  @ 1 5 % o n 75 d a y s  ( A I R 13 d a y s )  30  7  Depreciation  @  ( A I R 13 d a y s )  10  2  193  637  Volume  (cu.ft.)  TRANSPORTATION COSTS 'Handling @ $ Loading { Wharfage  5.45/Ton o r / 4 0 c u . f t .  @ $  4.85/Ton o r / 4 0 c u . f t .  @  67^/Ton  Containerization  or/40 c u . f t .  @ $ 3.25/Ton o r / 4 0 c u . f t .  ^ F r e i g h t c h a r g e s @ $ 55. 75 /Ton Insurance @ CAPITAL  0.75%  ( A I R S.C.R.) (AIR  COSTS ON GOODS  5% o n 75 d a y s  TOTAL DIFFERENCE . .  + 444  160. Appendix  C  A n a l y s i s of r e g r e s s i o n model used to compare T o t a l 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 C o n t a i n e r or U n i t 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 o f the d e n s i t y tations.  and minimum weight  limi-  A i r f r e i g h t r a t e s are based on 194 c u b i c f e e t per pound,  w h i l e sea r a t e s are based on 34 c u b i c f e e t per pound.  Moreover,  mimimum weight shipments o f 2,200 l b s to b e n e f i t by lower a i r f r e i g h t r a t e s do not o f f e r enough i n c e n t i v e to t r a n s p o r t  large  volume shipments. As shown i n the computation o f t r a n s p o r t a t i o n c o s t s f o r each shipment c o n s i d e r e d , a i r f r e i g h t charges are from 4 to 6 times h i g h e r 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 c o s t s are compared, the r e l a t i o n i s s t i l l  1 to  1.5  o r 2 i n f a v o u r o f sea t r a n s p o r t . The t o t a l c o s t f o r each s p e c i f i c shipment by sea and a i r and the s i z e (weight) and the v a l u e o f shipment were p l o t t e d i n a r e g r e s s i o n model. S i z e o r weight and v a l u e o f shipment were e s t i m a t e d to be important f a c t o r s i n the t o t a l d i s t r i b u t i o n c o s t s , since  a)- t r a n s p o r t a t i o n charges which may  r e p r e s e n t 40% o f the  t o t a l d i s t r i b u t i o n c o s t s , are computed on the weight of the shipment f o r a i r or-, s u r f a c e mode and which may costs,  (or volume)  b) c a p i t a l  costs,  account f o r as much: a,s 35% o f the t o t a l d i s t r i b u t i o n  take  i n t o account the v a l u e o f the i n v e n t o r y .  study v a l u e o f shipment was  (In t h i s  assumed to be v a l u e o f i n v e n t o r y ) .  Appendix C  The  (Cont'd)  161.  regression equations which represent t o t a l  distribution  c o s t f u n c t i o n s by a i r and by s e a a r e as f o l l o w s ;  where  Xa = 313 + 0.5467 Xw + 0.0178 X y  (1)  Ys  (2)  = 669 + 0.2166 Xw + 0.0269 X v  Ya = T o t a l a i r d i s t r i b u t i o n  cost  Ys  cost  = Total sea d i s t r i b u t i o n  Yw = W e i g h t o f s h i p m e n t Xv  = Value of shipment  From e q u a t i o n s Xv, by has  v a l u e o f s h i p m e n t by s e a , i s l a r g e r air.  This indicates  less  total in  effect  than the c o e f f i c i e n t  on t h e t o t a l . a i r d i s t r i b u t i o n  sea d i s t r i b u t i o n  sea d i s t r i b u t i o n The  equation  costs.  c o s t s t h a n on t h e  However, t h e s i t u a t i o n  c o s t s t h a n on t o t a l  ( 1 ) , may i n d i c a t e  t h a n by s e a .  on costs.  function,  l o w - v a l u e ) a r e more e c o n o m i c a l t o s h i p b y a i r i s c o n f i r m e d b y C a s e n o . 3 - T.V.  sets  Equipment.  F i g u r e C . l , based on t h e r e g r e s s i o n r e s u l t s , the  effect  t h a t shipments o f s m a l l volume (and  This s i t u a t i o n  Electronic  i s different  air distribution  constant term, which i s lower f o r a i r c o s t  correspondingly  Xv  that f o r i d e n t i c a l shipments, the value  the case o f the w e i g h t c o e f f i c i e n t , which has l e s s  total  and  (1) a n d ( 2 ) , we c a n s e e t h e c o e f f i c i e n t o f  represents  curves 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 .  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  For  o n t h e same.  g r a p h . The t w o 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. s h i p m e n t v a l u e d a t $ 7,300 a n d a w e i g h t o f 1,250 l b s w i l l tribution  costs  dis-  ($ 1,350) b y a i r o r b y s e a mode ; t h e r e f o r e , a l l  s h i p m e n t s b e l o w t h e s e two l i m i t s carried  have e q u a l  more e c o n o m i c a l l y v i a a i r  ($ 7,300 a n d 1,250 l b s ) w i l l freight.  be  Appendix C  162.  (Cont dl l  In a d d i t i o n , F i g u r e C . l shows, t h a t , g i v e n a 30%  reduction  i n a i r f r e i g h t r a t e s , shipments under 5,500 l b s and v a l u e d  at l e s s  than $ 16,000 would p r e s e n t  a net d i s t r i b u t i o n c o s t advantage by  air freight.  values  For these  two  (5,500 l b s and  $ 16,000), the  t o t a l d i s t r i b u t i o n c o s t i s $ 2,300, whether sea o r a i r t r a n s p o r t is  used. Assuming a 30%  r a t e r e d u c t i o n , the r e g r e s s i o n  equation  of T o t a l A i r D i s t r i b u t i o n Cost f u n c t i o n i s as f o l l o w s : Ya r The  =  c o e f f i c i e n t of Xv  222  + 0.3853 Xw  + 0.0109 Xv  (3)  (value of shipment) c r e a t e s 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 c o s t , whereas the c o e f f i c i e n t  Xw  (weight of shipment) i s s t i l l  (2) based on p r e s e n t considered  higher  rate structures.  than the one  in  equation  However, i n the shipments  (Cases nos: .1,2,3 & 4) , a r a t e r e d u c t i o n would  i n a 7% volume i n c r e a s e f o r a i r f r e i g h t at the expense o f sea f r e i g h t .  I t appears t h a t t h i s  the other hand, a 1Q o r 20%  result the  7% i n c r e a s e i n volume would  ..compemsate f o r l o s t revenues i n c u r r e d by a. 30% On  of  eare  reduction.  r a t e r e d u c t i o n 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 m a j o r i t y of p o t e n t i a l customers. A 30%  rate reduction  given the p r e s e n t probably  be  (which i s out o f the q u e s t i o n  o p e r a t i n g c o s t s f a c e d by  f o r the moment,  the a i r c a r r i e r s ) would  f e a s i b l e when p r e s e n t 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 x p l o i t e d and when d i r e c t o p e r a t i n g c o s t s p a r t i c u l a r l y ground h a n d l i n g o p e r a t i o n s ) d u c t i o n of the new  Jumbo j e t s .  (and  decrease w i t h the  intror-  164.  FIGURE C.2 - AIR FREIGHT TARIFFS SPECIFIC COMMODITY RATES  1  Minimum s i z e shipment ( l b s ) 440 660 1,100 2,200  COMMODITY  INSURANCE  Auto spare p a r t s s e : 4204  N.A.  75*  63*  56*  0.12%  Typewriters sc : 4318  N.A-  75*  68*  N.A.  0.20%  T.V., E l e c . Equipment sc : 4417  75*  N.A.  61*  59*  0.23%  Textiles sc : 2195  N.A.  75*  68*  N.A.  0.15%  AIR  CONTAINER OR UNIT LOAD DEVICE RATES AND SPECIFICATIONS 2 '  RATES *  MEASUREMENT, (inches)  $ 3,125 f o r the f i r s t 5,060 l b s then 56* p e r pound $ 2,400 f o r the f i r s t 3,6 30 l b s then 59* p e r pound  MAX. PAYLOAD (pounds)  MAX. VOLUME (cubic f e e t )  8,000  425  7,000  350  88x87x125  88x86x108  * These r a t e s and s p e c i f i c a t i o n s are f o r P a l l e t o r I g l o o - t y p e containers  ( t a r e weight o f the c o n t a i n e r i s f r e e o f c h a r g e ) .  FIGURE C. 2, Continued,  CHARTER RATES 3 RATES  ROUTE  App. $ 18,000  Vancouver-Tokyo  App. $ 32,000  Return t r i p  AIRCRAFT Boeing 707-320C (cargo  MAX.PAYLOAD 85,000 l b s  version)  Sources : 1 - Rates s u p p l i e d by C P . A i r , Emery A i r F r e i g h t , F l y i n g  Tiger  Northwest O r i e n t A i r l i n e s , Japan A i r l i n e s , Vancouver, B.C. January 1973 2 - C o n t a i n e r r a t e s s u p p l i e d by F l y i n g T i g e r , Northwest  Orient  A i r l i n e s , Vancouver, B.C., January 1973. 3 - Approximate  c h a r t e r r a t e s u p p l i e d by P.W.A., Vancouver, B.  February 19 73.  166.  FIGURE C,3 SEA CONTAINER RATES COMMODITY Auto p a r t s  R A T E S  & Accessories  INSURANCE  $ 49.25/2,000 l b s / 4 0 '  0.70%  3  T y p e w r i t e r s , Sewing Machines  $ 62.25/2,000 lbs/40'3  T.V. s e t s & E l e c . Equipment  $ 58.75/2 ,000 lbs/40 3  Textiles  $ 55.75/2,000 l b s / 4 0 '  1.00% 1.25%  1  0.75%  3  General charges a p p l i c a b l e t o a l l c o n t a i n e r i z e d commodities : - C o n t a i n e r i z a t i o n @ $ 3.25/2,000 l b s o r 40 c u b i c  feet  - Handling  @ $ 5.45/2,000 l b s o r 40 c u b i c  feet  - Loading  @ $ 4.85/2,000 l b s o r 40 c u b i c  feet  - Wharfage  @ $ 0.67/2,000 l b s o r 40 c u b i c  feet  - F r e i g h t and above charges are a p p l i e d to each 2,000 l b s o r 40 c u b i c f e e t , whichever i s g r e a t e r . - Insurance.  CONTAINER MAX.  CHARACTERISTICS  MEASUREMENT  TARE WEIGHT  VOLUME  MAX.  PAYLOAD  MAX.  GROSS WEIGHT  8x8x20  4,870 l b s  1,116 c u . f t .  39,930 l b s  44,800 l b s  8x8x35  5,900 l b s  2,000 c u . f t .  48,500 l b s  54,400 l b s  8x8x40  6,570 l b s  2,387 c u . f t .  60,630 l b s  67,200 l b s  Sources :. Western Overseas S h i p p i n g L t d , Vancouver, B.C. Adanac I n t e r n a t i o n a l Forwarders, Vancouver,. B,C, Westward S h i p p i n g L t d , Vancouver, B.C, Border B r o k e r s , Vancouver, B.C. Japan L i n e , C o n t a i n e r S e r v i c e , Guide n o . l , Equipment S p 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  i Mode  Container  Air  S'xS'xlO  Sea.  Container capacity cu.ft.  Container t a r e weight (pounds)  Maximum c a p a c i t y , —  Average  capacity  640  900  15 ,000 l b s @ 25 l b s cu. f t .  7,500 l b s @ 12 l b s cu. f t .  B'xS'xlO'  550  2 ,400  20 ,000 l b s @ 37 lbs cu. f t .  12,000 l b s @ 22 l b s cu. f t .  Air  8'x8*x20<  1, 200  1 ,800  30 ,000 l b s @ 25 l b s cu. f t .  14,500 l b s @ 12 l b s cu. f t .  Sea  8'x8'x20<  1, 116  4 ,870  40 ,000 lbs @ 37 l b s cu. f t .  25,000 l b s @ 22 l b s cu. f t .  Sources  1  : Reynolds M e t a l Company, Department o f Research ; An Economic Study o f C o n t a i n e r i z a t i o n Containerization  and I t s Market, 1961.  I n t e r n a t i o n a l Year Book, London, 1969.  Japan L i n e C o n t a i n e r s e r v i c e , Guide n o . l , Equipment S p e c i f i c a t i o n and Data, Japan, March 19 71.  i— en  1  GENERAL CARGO RATES.  TC~\  VANCOUVER  VANCOUVER  FROM' Rate City Code Per L b  iSLLA BELLA EA L3 3 L L A COOLA YC lALGARY j lAXBRIDOE 3AY CB :A!-:?BELL RIV. BL CG iASTLi GAR £ *«* ICMOX 9 :RAN3R00X £ XC DQ :AV/50K CR^EK XD .DKCKTGN £ 'ORT CHI P O T AN PY 'CRT HURRAY >2-I ORT RESOL'N FR CRT SIKrSON J FS CRT SMITH • .1 SM R,U:D FORKS $ XZ HY AY RIVER EV 1,-UVIK KA A K LOOPS % LW ZLQ.7NA $  26 24 47 07 11  07  %  Lbs t o Min  Rate Per Cut  10.50 21.50  11 ' 23  09 • 20 17  27 • 27  23  14 ! 24  !  ! 33 03 • 1 08  8.00 17.00  14.50  INORKAN WELLS .01 •OCEAN FALLS PEACE RIVER .01 PENTICTON £ .01 .01 iPORT HARDY .01 IFOVSLL RIVER PRINCE GEORGE $ •PRINCE RUPERT .02 '^UESNEL ,50cut ,50cwt RAINBOW LAKE .50cv/t .RESOLUTE BAY  .75  42 124  2.00 2.00  ;  21 • 166 1.50 . 90 '.' • 1.50 ; 2.00 i 166 ; . 90 , 1.00 ^ : 2.00 I:- 1hi 11 ; 1.75 • ! 50 ; .75 ;  i  25.00 • ; 25.00 . ; 21.00 i NA  59 37 37 43 •  '-.75  •  35.00  71  I SMITHERS  ,50cwt ,50cv7t  o  7.50 7.50  •SAND3FIT  ,50cwt  TORINO  41 . .75 2 00 31 ; 133 133 . i .1.00 .  21.50  Its to Per  Per l b  Min  39  NA NA 7.00 44.00 6.00 10.50 6,00  08  Delivery  •  WILLIAMS LAKE WRIGLEY JELLOWKNIFE t  .02  30.00  VQ. i 32 OF ! 26 PS ! 19  07 . 09 07  Yr i 7 Lx  r p  NA  16.50 7.00 3.00 6.00 , 10 .CO l 10.00 |  |:  ?V/ :  xs i 1 1 12 PR j 10  QZ ; RD • R3  ZP YD TS XT AZ EE WY ZF  IO.OO ;  22 56  ;  142  .75 1.00  VS 142 ICO 100  1.75  20.00 j 52.50 ; 10.00  12  i  22  NA NA NA NA  IS zv  12' . 22  NA  j  .75  i  1,50 1.50  63 35 3o  ;  26.00.  26  1.00  46 17 S3 46 55 55  20.50;  >. 16 ' 23  2.00  31 39 52  24.50i  2.00.  ALL SHIPMENTS &ID.00 MINIMUM. t Denotes Canada Customs P o r t Of E n t r y . A l l r a t e s i n Canadian D o l l a r s u n l e s s other'-n P e s t a t e d " MOTS: THE  ABOVE  RAT?3  AR2  TO CHANGE. F D R O F F I C E THE OFFICAL AIR F R E I G H T  LMFQRMATIONAI:  R'J. E S .  RATES  TARIFF,  DN..Y,  AMD  AND  SUBJECT  REGULATIONS  10.00  I  V200 1 •00!  7.00  .08  7.07  10.10  A T T U C  CONSULT  £.00 {  _  5.00 j  DELlyE R V_ C H A Q& £ s_  I VICTORIA  VAMcouvt:^  ROM  To  VICTOR I A  OR CONTACT:  PACIFIC WESTERN AIRLINES JET CARGO  f  TO :  M  ?  1  N  1-50  3-2^  j  C w J  . 50 1.^7  CO  169.  NORMAN WELLS ©.  TERRACE PRINCE RUPERT SMITHERS IDSPIT  ^>©£L-2©, 0 KITIMAT OCEAN BELLA Q i NAMU ll  PORT HARDY  ?,?,,,. J^'A  \P£  ^^WILLIAMSSS  ^ "O  CAMPBELL R^SL/^vSr; ..V>V<j; TOFINb b,f>JS£?r^ VICTORIA  .  Oag^v.. °  i  GRAND  M  "^roTcRANBROOK  - « - ^ «  FORKS  (  CALGARY  _*<LEY  NELSON  CASTLEGAR TRAIL  PRCIFtC  LUEBTBin AIRUirs!E£S  \  DOMESTIC  SCHEDULED  SERVICES  INTERNATIONAL CHARTER  SERVICES  

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