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The role of transportation in logistics chain
Article · Januar y 2005
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THE ROLE OF TRANSPORTAT ION IN LOGISTICS CHAIN

Yung-yu TSENG PhD Candidate Transport Systems Centre University of South Australia GPO Box 2471 Adelaide, South Australia 5001 Australia
Fax: +61-8-8302-1880
Email: [anonimizat] Wen Long YUE
Program Director Transport Systems Centre University of South Australia GPO Box 2471 Adelaide, South Australia 5001 Australia Fax: +61-8-8302-1880
Email: [anonimizat]
Michael A P TAYLOR
Director Transport Systems Centre University of South Australia GPO Box 2471 Adelaide, South Australia 5001 Australia Fax: +61-8-8302 1880 Email: [anonimizat]
Abstract: The operation of transportation determines the efficiency of moving products. The
progress in techniques and mana gement principles improves the moving load, delivery speed,
service quality, operation costs, the usage of f acilities and energy saving. Transportation takes
a crucial part in the manipulation of logistic. Reviewing the current condition, a strong system
needs a clear frame of logistics and a proper tr ansport implements and techniques to link the
producing procedures. The objective of the paper is to define the role of transp ortation in
logistics for the reference of further improve ment. The research was undertaken to assist
logistics managers, researchers and transporta tion planners to define and comprehend the
basic views of logistics and its various applic ations and the relations hips between logistics
and transportation.
Key Words: Logistics, Transportation, City Logistics

1. INTRODUCTION
Since logistics advanced from 1950s, there were numerous researches focused on this area in
different applications. Due to the trend of na tionalisation and globalisa tion in recent decades,
the importance of logistics management has been growing in various areas. For industries,
logistics helps to optimise the existing produc tion and distribution processes based on the
same resources through management tec hniques for promoting the efficiency and
competitiveness of enterprises. The key element in a logistics chain is transportation system,
which joints the separated activities. Transporta tion occupies one-third of the amount in the
logistics costs and transportation systems infl uence the performance of logistics system
hugely. Transporting is required in the whole production proce dures, from manu facturing to
delivery to the final consumers and retu rns. Only a good coordination between each
component would bring the benefits to a maximum.
The purpose of this paper is to re-clarify and redefine the positi on relationship between
transportation and logistics sy stems through collecting and an alysing various application
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cases and practices in logistics from literatures. It is to provide a general framework and
expect to be referred for further developm ent and researches. The paper started from
introducing the development of logistics and tr ansport-related sectors based on a historical
review. Afterwards it discussed the interrelati onships of transportation and logistics. It
expresses the benefits that tran sportation brings to logistics activities and vice versa. For
instance the increase of the effici ency of logistics also would best ead to release traffic load in
the urban areas. Furthermore, some major logistic s activities and concepts were also discussed
in this paper. It especially presents City Logi stics independently due to it is considered as a
main tendency and an available method of future integration of transpor t and logistics in the
urban areas. Finally, this paper will discuss and conclude the potential further development of
logistics systems.
2. OVERVIEW OF LOGISTICS
2.1 Definitions
Council of Logistics Management ( 1991) defined that logistics is ‘ part of the supply chain
process that plans, implements, and controls the effic ient, effective forward and reverse flow
and storage of goods, services, and related inform ation between the point of origin and the
point of consumption in order to meet customers’ requirements’ . Johnson and Wood’s
definition (cited in Tilanus, 1997) uses ‘five important key terms’, which are logistics,
inbound logistics, materials management, physical distribution, and supply-chain
management, to interpret. Logistics describes th e entire process of materials and products
moving into, through, and out of firm. Inbound logistics covers the movement of material
received from suppliers. Materials management describes the movement of materials and
components within a firm. Physical distribu tion refers to the movem ent of goods outward
from the end of the assembly line to the customer. Finally, supply-chain management is
somewhat larger than logistics, and it links logistics more di rectly with th e user’s total
communications network and with the firm’s engineering staff.

The commonality of the recent definitions is that logistics is a process of moving and
handling goods and materials, from the beginning to the end of the pr oduction, sale process
and waste disposal, to satisfy customers and add business competitiveness. It is ‘ the process
of anticipating customer needs and wants; acquiring the capital, materials, people,
technologies, and information necessary to meet those needs and wants; optimising the
goods- or service-producing networ k to fulfil customer requests ; and utilizing the network to
fulfil customer requests in a timely way ’ (Tilanus, 1997). Simply to say, ‘logistics is
customer-oriented operation management’.
2.2 Components of Logistics System
Figure 1 provides an overview of the logistics system. Logistics services, information systems
and infrastructure/resources are the three comp onents of this system and closely linked. The
interaction of the three main components in th e logistics system is interpreted as follows.
Logistics services support the movement of materials and products from inputs through
production to consumers, as well as associated waste disposal and revers e flows. They include
activities undertaken in- house by the users of the services (e. g. storage or inventory control at
a manufacturer’s plant) and the opera tions of external service providers.

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Logistics services comprise physical activities (e .g. transport, storage) as well as non-physical
activities (e.g. supply chain desi gn, selection of contractors, freightage negotiations). Most
activities of logistics services are bi-direc tion. Information systems include modelling and
management of decision making, and more impor tant issues are trac king and tracing. It
provides essential data and consultation in ea ch step of the interaction among logistics
services and the target stations. Infrastructure comprises human resources, financial resources,
packaging materials, warehouses, transport an d communications. Most fixed capital is for
building those infrastructures. They are concre te foundations and baseme nts within logistics
systems.

Figure 1. Overview of Logistics System (source: BTRE, 2001)

2.3 History and Advancement of Logistics
Logistics was initially a military activity concer ned with getting soldiers and munitions to the
battlefront in time for flight, bu t it is now seen as an integral part of the modern production
process. The main background of its developmen t is that the recession of America in the
1950s caused the industrial to pl ace importance on goods circulat ions. The term, logistics,
was initially developed in the context of military activities in the late 18th and early 19th
centuries and it launched from the military logi stics of World War II. The probable origin of
the term is the Greek logistikos , meaning ‘skilled in calcul ating’. (BTRE, 2001) Military
definitions typically incorporate the supply, mo vement and quartering of troops in a set. And
now, a number of researches were taken and made logistics applications from military
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activities to business activities.
Business logistics was not an academic subject until the 1960s. A key element of logistics, the trade-off between transport and inventory costs, was formally recognized in economics at
least as early as the mid- 1880s. (BTRE, 2001) Based on the American experience, the
development of logistics could be divide d into four periods (Chang, 1998), which are
represented as Figure 2.

Figure 2. Logistics historical development

Before the 1950s, logistics was under the dorman t condition. Production was the main part of
the managers concerned, and industry logistics was once regarded as “necessary evil” in this
period. During the 1950s to and 1960s, applying new ideas of administration on business was
a tendency. Drucker (2001), who thought Logistics was The Economy’ s Dark Continent ,
regarded the procedure of physi cal distribution after producing products as the most possible
development area in American businesses but also the most neglected area. Lewis’s study
(cited in Chang, 1998) in 1956 on th e role of air transportation in physical distribution was the
application of “total cost c oncept” and it pointed out the notions of trade-off between
inventory and transportation. From the 1970s onwards, more and more applications and
researches of logistics appeare d. Due to petroleum price rise in 1973, the effects of logistics
activities on enterprises grew. Slow growth of market, pressu re of high stagflation, release of
transportation control, and co mpetitions of the third world on products and materials all
increased the significance of logistics syst em on planning and business at that time.
The further tendency of logistics in the early 21st century is logistics alliance, Third Party
Logistics (TPL) and globalised logistics. Logis tics circulation is an essential of business
activities and sustaining competitiveness, however, to conduct and manage a large company is cost consuming and not economic. Therefore, a lliance of international industries could save
working costs and cooperation with TPL could specialize in logistics area.

3. INTERRELATIONSHIPS BETWEEN TR ANSPORTATION AND LOGISTICS
Without well developed transportation systems, l ogistics could not bring its advantages into
full play. Besides, a good transport system in lo gistics activities could provide better logistics
efficiency, reduce operation cost, and promote service qua lity. The improvement of
transportation systems needs the effort from both public and private sectors. A well-operated
logistics system could increase both the competitiveness of the government and enterprises.

3.1 Transport Costs and Goods Characters in Logistics
Transport system is the most important ec onomic activity among the components of business
logistics systems. Around one third to two thirds of the expenses of enterprises’ logistics costs
are spent on transportation. Acco rding to the inves tigation of National Council of Physical Dormant
Years Development Years Take-off YearsLogistics Alliance 3rd Party
Logistics Globalisation
Logistics
1950s 1960s 1970s 1980s 1990s 21st Century
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Distribution Management (NCPDM) in 1982 (C hang, 1988), the cost of transportation, on
average, accounted for 6.5% of market revenue and 44% of logistics costs.

BTRE (2001) indicated that Aust ralian gross value added of th e transport and storage sector
was $34,496 million in 1999-2000, or 5.6% of GDP. Figure 3 shows the components of
logistics costs based on the estimation from Air Transportation Association (Chang, 1988).
This analysis shows transportation is the highest cost, which occupies 29.4% of logistics costs,
and then in order by inventor y, warehousing cost, packing cost , management cost, movement
cost and ordering cost. The ratio is almost one-third of the total logistics costs. The
transportation cost here includes the means of tr ansportation, corridors, containers, pallets,
terminals, labours, and time. This figure signif ies not only the cost structure of logistics
systems but also the importance order in impr ovement processing. It occupies an important
ratio in logistics activities. The improvement of the item of higher operation costs can get
better effects. Hence, logistics managers must comprehend transport system operation
thoroughly.
Transportation
29.40%
Management
11.00%
Ordering
5.50%Inventory
17.40%Warehousing
17.00%Packaging
11.90%Movement
7.8%

Figure 3. Cost ratio of logistics items (modified: Chang, 1998)
Transport system makes goods and products movable and provides timely and regional
efficacy to promote value-added under the least co st principle. Transport affects the results of
logistics activities and, of cour se, it influences production and sa le. In the logistics system,
transportation cost could be re garded as a restriction of the objective market. Value of
transportation varies with different industrie s. For those products with small volume, low
weight and high value, transportation cost simply occupies a very small part of sale and is less
regarded; for those big, heavy and low-valued products, transportation occupies a very big
part of sale and affects profits more , and therefore it is more regarded.

3.2 The Effects of Transportation on Logistics Activities
Transportation plays a connective role among the several steps that result in the conversion of
resources into useful goods in the name of th e ultimate consumer. It is the planning of all
these functions and sub-functions into a system of goods movement in order to minimize cost
maximize service to the customers that constitu tes the concept of busi ness logistics. The
system, once put in place, must be effectively managed. (Fair et al. , 1981)

Traditionally these steps involved separate co mpanies for production, storage, transportation,
wholesaling, and retail sale , however basically, production/ma nufacturing plants, warehousing
services, merchandising establishments are all about doing trans portation. Production or
manufacturing plants required th e assembly of materials, com ponents, and supplies, with or
without storage, processing and material hand ling within the plant and plant inventory.
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Warehousing services between plants and market ing outlets involved separate transport.
Merchandising establishments completed the chain with delivery to the consumers. The
manufacturers limited themselves to the production of goods, leaving marketing and
distribution to other firms. Warehousing and storag e can be considered in terms of services for
the production process and for product distribution. There have been major changes in the
number and location of facilities with the cl osure of many single-user warehouses and an
expansion of consolidation facilities and dist ribution centres. These developments reflect
factors such as better transport services a nd pressures to improve logistics performance.

3.3 The Role of Transportation in Service Quality
The role that transportation play s in logistics system is more complex than carrying goods for
the proprietors. Its complexity can take effect onl y through highly qual ity management. By
means of well-handled transport system, goods coul d be sent to the right place at right time in
order to satisfy customers’ demands. It brings efficacy, and also it builds a bridge between
producers and consumers. Therefor e, transportation is the base of efficiency and economy in
business logistics and expands other functions of logistics system. In addition, a good
transport system performing in l ogistics activities brings benef its not only to service quality
but also to company competitiveness.

4. FORMS OF LOGISTICS OPERATION
4.1 Supply Chain Management
Supply Chain Management (SCM) is the concep t for handling the production procedures in
broad sense. An effective SCM application coul d promote the industry to satisfy the demand
of new business environment. Ross (1998) defined SCM as ‘ a continuously evolving
management philosophy that seeks to unify the collective productive competencies and
resources of the business functions found both w ithin the enterprise and outside in the firm’ s
allied business partners located along intersect ing supply channels into a highly competitive,
customer-enriching supply system focuse d on developing innovative solutions and
synchronizing the flow of mark etplace products, services, and information to create unique,
individualized sources of customer value. ’

SCM can be divided into three main activitie s – purchase, manufacture and transport (Thomas
et al. , 1996). Cooper et al. (1997) analyzed the three elem ents of SCM – supply chain
business processes, supply chain manageme nt components, and supply chain network
structure. Figure 4 shows the entire elements in SCM frame. It displays the details of the whole processes from purchasing, management , production, and distri bution to customers.
The information flow is like an individual system to link the whole supply chain from
supplier and manufacturer to consumer. Unim peded information flow could increase the
operation accuracy for costs saving and promot e the competitiveness of firms. The product
flow proceeds through the whole producti on processes from material supply via
manufactories till providing the finished prod ucts to consumers. The items in vertical
direction show the various management tasks with in the supply chain. Particularly, the return
flow, or reverse logistic, is one of the elements in the system but with converse direction from
the others.
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Figure 4. Interaction of business processe s and supply chain (source: Cooper et al. , 1997)

4.2 Reverse Logistics
The concept of reverse logis tics has been applied in promoting costumer service and
resources recycling. Concerning quality contro l, the defective components and finished
products will be returned to their producers through reverse logistics systems. Nowadays,
reverse logistics has been developed rapidly for increasing industries’ competitiveness,
promoting customer service level, and recy cling the reusable material. Meanwhile, the
demand of reverse logistics brings out a new ma rket for the third-part y logistics industries.
Rogers et al. (1998) defined reverse logistics as ‘ the process of planning, implementing, and
controlling the efficient, cost effective flow of raw material s, in-process inventory, finished
goods and related information from the point of consumption to the point of origin for the
purpose of recapturing va lue or proper disposal ’. Figure 5 shows the structure of logistics
systems, which includes forward logistics, back ward logistics and information flow. The flow
in black arrows presents the direction of revers e logistics, whose direc tion is counter to the
ordinary logistics represented in hollow arro ws. The information flow interlaces between
different stakeholders within the system. Each stakeholder can communi cate with the others
directly to maximum their profitability. Revers e logistics will be adopted in various modes
and applications in the future due to its effi ciency and benefits in environment protection.
The two main reasons behind the rise of reverse logistics are the globalisation of markets and
policies for environment protecti on. A successful reverse logistic s could help to increase the
service level of companies and reduce the co sts of producing processes. More and more
companies want to build their reverse logistics system, however the system needs professional knowledge in logistics management and particular facilities. Thus the third-party logistics
service provides another option for small to middle size companies to have their reverse
logistics system. Figure 6 shows a system of reverse logistic s service on how FedEx, a third-
party logistics provider, serves Acer computer, the customer company. At the first step of the
system, the customer applies a request for returning the product through the Internet, and then
FedEx builds the data of the products; meanwh ile the system organizes the route of the
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delivery trips of the product. The customer can check the processing condition and wait for
sending back at the right time.

Figure 5. Consumer supply chain (source: Krumwiede et al. , 2002)

Figure 6. Third-party reverse logistics
(source: http://www.fedex.com/us/ solutions/downloads/acer.pdf)

4.3 Maritime Logistics
Maritime industry plays an important role in in ternational freight. It can provide a cheap and
high carrying capacity conveyance for consumers. Therefore, it has a vital position in the
transportation of particular goods, such as crude oil and grains. Its disadvantage is that it
needs longer transport time and its schedule is strongly affected by the weather factors. To
save costs and enhance competitiveness, current maritime logistics firms tend to use large-
scaled ships and cooperative operation techniques. Moreover, current maritime customers care about service quality more than the delivery price. Thus, it is necessary to build new logistics concepts in order to increase servi ce satisfaction, e.g. real-t ime information, accurate
time windows and goods tracking systems. The operation of maritime transport industry can
be divided into three main types: (1) Liner Shipping : The business is based on the same ships,
routes, price, and regular voyages. (2) Tramp Shipping : The characters of this kind of
shipping are irregular transport price, unsteady transport rout es, and schedule. It usually
delivers particular goods, such as Dr y Bulk Cargo and crude oil. (3) Industry Shipping : The
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main purpose of industry shipping is to ensure the supply of raw materials. This sometimes
needs specialized containers, such as the high-pressure containers for natural gas.

4.4 Air Freight Logistics
Air freight logistics is necessary for many indus tries and services to complete their supply
chain and functions. It provides the delivery with speed, lowe r risk of damage, security,
flexibility, accessibility and good frequency for re gular destinations, yet the disadvantage is
high delivery fee. Reynolds-Feighan (2001) sa id air freight logistics is selected ‘ when the
value per unit weight of shipments is relative ly high and the speed of delivery is an important
factor ’. The characteristics of air freight logistic s are that: (1) airplanes and airports are
separated. Therefore, the industries only need to prepare planes for opera tion; (2) it allows to
speed delivery at far destinat ions; (3) air freight transport is not affected by landforms.

Research data show that the freight transport market keeps growing. Given the trend of global
markets, air freight logistics also has to cha nge their services. The fu ture tendencies of air
freight development are integration with othe r transport modes and internationalisation and
alliance and merger between air transport companie s The future pattern of air freight logistics
is cooperative with other transport modes, such as maritime and land transport, to provide a
service base on Just-In- Time, and door-to-door.

4.5 Land Logistics
Land logistics is a very important link in logis tics activities. It extends the delivery services
for air and maritime transport from airports and seaports. The most positive characteristic of
land logistics is the high accessi bility level in land areas. The main transport modes of land
logistics are railway trans port, road freight transpor t and pipeline transport.
Railway transport has advantages like high ca rrying capacity, lower influence by weather
conditions, and lower energy consumption while disadvantages as high cost of essential
facilities, difficult and expensive maintenance, lack of elasticity of urgent demands, and time
consumption in organizing railway carriages. Road freight transport has advantages as
cheaper investment funds, high accessibility, mob ility and availability. Its disadvantages are
low capacity, lower safety, and slow speed. The advantages of pipeline transport are high
capacity, less effect by weather conditions, cheaper operation f ee, and continuous conveyance;
the disadvantages are expensive infrastructures , harder supervision, goods specialization, and
regular maintenance needs.
The excessive usage of land transport also brings many problems, such as traffic jams,
pollution and traffic crashes. In the future, to improve the land transport in transport
efficiency and reliability, a revolution of tran sport policies and management is required, e.g.
pricing.
4.6 Express Delivery
As the increasing demand of time accuracy an d decentralization of production, the need to
reduce stock costs has led to the Just-In-Time (J IT) delivery principle, which involves more
frequent delivery of materials at the right tim e and at the right place in the production process.
The characteristics of express delivery are: (1) door-to-door se rvice; (2) efficiency; (3)
traceability; (4) Just-In-Time (JIT); (5) growing various delivery demands.

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The trend toward increasingly compact products is expected to improve the cost-benefit ratio
of express delivery by decreasing the transportati on cost share. Smaller products will enlarge
the market for express delivery services. Also, the increasing value of products requires rapid
transportation, because companies want to re duce the interest costs bound up in stock and
inventories. For future development, the indus tries should consider in tegrating the services
with 24-hour stores so that customers could choose a certain shop as the pick-up station.
Meanwhile, the services would become more e fficient and controlled due to more regular
routes to those shops instead of personal houses.

4.7 E-commerce
E-commerce is the future trend of business styl e. It brings many benefits for both companies
and consumers: (1) E-commerce expands the market area from regional to global; (2) E-
commerce uses electronic techniques instead of traditional paper works, which promotes the
industries’ efficiency and competitiveness; (3) The number of trips is increased. On the other
hand the average load of single trip is reduce d, which means it needs higher carriage if using
the same means of transportation; (4) E-commer ce will impact on transport system due to the
increased trips; (5) E-commer ce might reduce the number of warehouses and the stock cost.
Therefore the prices could be lowered. Figure 7 and Figure 8 express the differences between
the transport patterns of traditional trade and e-commerce. However other new topics, of
course, accompany with the system and need to be concerned, such as Internet security,
transport impacts and door-to-door servi ces. A healthy and successful e-commerce
environment is determined by the optimal logistics operation.

Figure 7. The transport pattern of traditional
business Figure 8. The transport pattern of e-commerce

5. CITY LOGISTICS
City Logistics is a concept trying to integrate the existing resources to solve the difficulties
caused by the impacts of increas ing population and vehicle owne rships in the urban area.
Many cities, such as Bangkok, London, and Tokyo, ha ve suffered from these problems due to
traffic congestions, environment impact, low tr ansport efficiency, and consequently the
competitiveness of business decreased. This kind of condition not only re duces the quality of
life in urban areas but also the future city development. City Logistics provides an opportunity
for innovative solutions to be developed fo r improving the quality of life in urban areas.
(Taniguchi et al., 2001a) It contains several advanced techniques, such as Geographic
Information System (GIS), Global Positioning Sy stem (GPS), logistics knowledge, Intelligent
Transport System (ITS) and modelling, to optimise the city environment. Moreover, it helps
to reduce both trans port cost and negative environment impact.
Retail 1
Retail 2
Retail 3
Retail 4 Industr y Consumers
Consumers
Industr y
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5.1 Definitions of City Logistics
City Logistics is the proce ss for totally optimis ing the logistics and transport activities
by private companies with the support of advanced information systems in urban
areas considering the traffic environment, its congestion, safety and energy savings
within the framework of a market economy. (Taniguchi et al., 2001b)

Cities are the main locations of business activi ties. Hence they play an important role in
economic development. However given the high concentrated development in urban areas,
many cities have serious traffic problems and negative environmental impacts, such as noise
and air pollution, this is the co st in both developing and devel oped countries. These negative
factors reduce the economic competitiveness of a city and make its life quality declined. The
residents become the victims in the highly deve loped cities. The way to solve and balance the
condition became a demanding issue in the recent years. City Logistics is a new and
innovative concept which aims to solve this complex problem.
Urban freight logistics can be broken down in ma ny elements, such as storage, transport and
handling. Conventional improvement of the logistics process is us ually only focused on single
element. However, from a macr o-viewpoint, the improvement can help bring the best profit to
the society. Figure 9 shows the principle of the cost matters with different transport modes.
Airfreight might be more expensive than land transport but the storag e cost might be less.
Thus in terms of total cost, airfreight might be the most reasonable transport mode for a
particular transport purpose, for example, transport of fresh seafood.

Figure 9. Transport patterns and total costs (source: Chang, 1998)
Before planning a City Logistics system, it is important to understand its elements. According
to Thompson et al. (2001), there are four ke y stakeholders involved in urban freight transport:
(1) shippers; (2) freight carriers; (3) resident s; (4) administrators/ governments. Each group
has its own specific objectives and tends to beha ve in a different manner and needs to be
considered. The interlaced relationships among those groups and different conflicts within the
system are shown as Figure 10. Basically, the orig ination of the journey is from shippers and
to the consumers. Freight carriers and administra tors are the media of the delivery tasks. The
characteristic of their relationships is that a slight move in one part may affect the whole
situation. For instance, a freight carrier with lower efficiency would impact on the service
quality of the system and hence increase the difficulties of management for administrators. Besides, it would also reduce the satisfaction le vel of consumers and the reliability of firms
and increase the operation cost. Taniguchi et al. (2003) consider that ther e are three necessary targets that c ould be achieved
by applying City Logistics: (1) mobility; (2) sustai nability; (3) liveability. Mobility is ease of
movement, which is the basic requirement for tr ansport of commodities in urban areas. Goods
are supposed to be delivered Just-In-Time. Th erefore, the balance between sufficient road Transport cost
Storage cost Total cost
Transport Modes Cost
Train Truck Air
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network capacity and reduced tra ffic congestion is a main issu e. Concerning sustainability,
which is more and more important, environmen tal issues and energy conservation would need
to be taken into account. Liveab ility should be thought of for th e residents. It involves an
assessment of the conditions that are experience d and interpreted within an individual’s life
area, such as safety, peaceful ness, attractiveness and charm.

Figure 10. Key stakeholders in City L ogistics (modified: Taniguchi et al. , 2001a)

5.2 The Applied Techniques in City Logistics
Common techniques integrated in the procedures of City Logist ics include coope rative freight
systems, freight villages (terminals), controlli ng transport load factors, new freight transport
systems, and intelligent transport systems (ITS).

5.2.1 Cooperative freight systems
The traditional delivery pattern of freight is fewer trips and more loads. The delivery
companies usually maintained their business i ndependently. It means two carriers might serve
in the same area. Nowadays, the trends of urba n freight transport toward s to deliver “Just-in-
time” and “door-to-door”. The operation of freight transport changes to have more trips but
fewer loads in order to increase the efficiency differently. Without im provement, the transport
costs will increase hugely to satisfy the current requirements. Cooperative freight systems are
the ways which could be exp ected to solve this problem.

Cooperative freight systems integrate the resour ces of the cooperating companies to optimise
the economic benefits. The main benefits of the techniques are (1 ) properly increasing
delivery trip loads; (2) reducing unnecessary trips, as well as pollution and costs; (3) reducing
service area overlaps; (4) increasing service quality and company profits.

5.2.2 Freight villages (terminals)
The concept of freight villages (terminals) has be en applied in several cities, such as Monaco.
The goods are reorganised in the freight village before being de livered to the urban areas.
This system can reduce the required number of trucks used for delivery and handling.

Figure 11. The structure of freight vill ages (source: Potrol, 2003) SHIPPERS
(manufacturers,
wholesalers, retailers )
ADMINISTRATORS
(national, state,
and cit y level )FREIGHT CARRIERS
(Transporters, warehouse,
companies ) RESIDENTS
(consumers)
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Figure 11 shows the model of freight villages. The freight from outside of a city is sent to the
freight village in order to classify and prepare for delivering to city ar ea. This could increase
the carrying load of vehicles and reduce unnecessa ry trips in the urban area. In addition, this
integration benefits the privat e sector by reducing co sts, and also the p ublic environment by
decreasing trips and air pollution.
5.2.3 Controlling transport load factors
In Europe, some cities implement the limitation of load factors in urban freight transport.
Companies allowed to deliver freight in urban area must have high loading rates, and the
vehicles have to conform to the environmental standards. The method of regulation is through
publishing special certificates and giving the right for the companies to use particular
transport infrastructure in the urban area, so reducing the complexity of urban transport.
5.2.4 New freight transport systems
New freight transport systems range from th e design of new vehicl es to the underground
freight transport systems. The former can be used to adjust the current resource to satisfy the
short-term requirements. The latter is for th e long term, bringing a ne w era to city freight
transport.

5.2.5 Intelligent Transport Systems (ITS)
Applications of ITS in transport systems ar e widespread. The most common techniques for
logistics include Global Positi oning System (GPS), Geographi c Information Systems (GIS)
and advanced information systems. GPS provides the service of vehicles positioning. It could
help the control centres to monitor and disp atch trucks. GIS provide s the basic geographic
database for the deliverers to enable to orga nise their routes easie r and faster. Advanced
information systems provide the real-time inform ation for both managers and deliverymen to
adjust their paths as new demands occur. The integration of GP S, GIS and advanced
information systems provides a high manoeuvrability of transport systems. The benefits of the
integrations are better service qu ality, reduced unnecessary trips, and increased loading rate.

6. FUTURE PROSPECTS OF LOGISTICS
Facing the worldwide competition, the improvement of logistics system should be advanced
by both private companies and government. Weeld and Roszemeijer (Ho, 1997) discerned
three revolutions in business that have substantial impacts on the purchasing and supply
strategies of the manufacturing sectors. These three revolutions are: (1) the globalisation of
trade; (2) the coming of the information era; (3) more de manding consumers and continuously
changing consumer preferences. The main characte ristics of future logi stics development are:
• Government role: To keep competitiveness of industrie s, the government has to lead the
way to assist the logistics i ndustries. For instance, the idea of freight village of city
logistics provides the environment to promote logistics efficiency and to reduce operation
costs. However it involves large of inve stments and some problems relating laws and
national policies. Without the lead and s upport of government, achieving the plan is
difficult.
• Growth of international goods transport: The up-growth of intern ational freight transport
is contributed by several fact ors. Firstly, the blossoming of E-commerce pushes ahead the
international business activities. Secondly, the change of production strategy needs
international cooperation, e.g. importing the se mi-finished products from countries with
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cheaper human resources to those with higher technology to assemble the final goods.
Thirdly, the pressure of globa lised market, such as Worl d Trade Organization (WTO),
pushes local industries to promote themselves to reach an international standard and face
the worldwide competition.
• Improvement of services: Providing a good customer service becomes a necessary
requirement of business operation with the intense competition of global market. The
quality of services is the main factor to a ffect consuming behaviour among the enterprises
with high similarity. The service systems i nvolve several developed techniques now, such
as Efficient Consumer Response (ECR) and Quick Response (QR). In the near future,
more new techniques would be applied in providing better services for customers.
• Revolution of logistics operation: IT techniques and its produc ts bring efficiency and
fluency to the logistics system s. Radio Frequency ID (RFID) is one of these techniques.
The main difference between the bar-code syst em and RFID is that RFID does not need
the action of scanning the barcode on goods. RFID could save manual operation time
dramatically. RFID systems could sense the amount of goods i nput in the tags
automatically and immediately when the co stumers push their trolley through the exit
(Carroll, 2004).
• Shorter product life cycle: With the current trend, the merc handise design is changing day
by day, and therefore, th e product life cycle is shorter and shorter, especia lly in computer
science. To confront the im pacts, logistics system must improve its efficiency and
reliability of goods delivery. Otherwise an ina ppropriate logistics system would hinder the
competitiveness of new products and the business profits.
• Improvement of logistics facilities: The advancement and development of logistics are
based on several techniques and complete theories. High-tech facilities and systems, e.g.
ITS, could bring more possibilities and ad vantages to logistics. For example, the
improvement of related facilities , e.g. Forklift Trucks, is nece ssary for transport efficiency.
In the future, factory automation is the main target for the whole supply-chain procedures.
It could help to improve efficiency and also reduce the operation costs.
• Channel cooperation between companies: In order to save the logistics costs, a key
concept is to maximize the usage of availabl e transport capacity. Integrating the logistics
demands between numerous departments help s achieve this purpose. In practice, a
conglomerate could develop its own logistics service for the branches. For some medium
size companies, they could cooperate transport channels with others.
• Specialized logistics delivery: One of the notable trends of logistics industries is
specialized delivery service. Fo r instance, delivering fresh f ood from the place of origin
needs low-temperature containers. Compute ch ips, gases and petroleum need particular
conveyances to carry. These demands are risi ng since the products became more and more
delicate.
• Logistics centres: The development of logistics cen tres is good for industry promotion
and the development of national economic syst em. Logistics centres could successfully
shorten the distance between production and marketing vert ically and also integrate
various industries horizontally, and thus d ecrease the costs. Governments can propose
special areas for storehouses and logistics to reduce land acquisition. The future logistics
will cooperate e-commerce, the Internet and the newly door-to-door service to create new
business prospects.
• Freight transport: The alliance between middle-small size delivery companies is an
important trend in the future. The strategy co uld help to expand service areas and increase
service quality, and meanwhile raise the loads of single trips to reduce delivery costs.

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7. DISCUSSIONS AND CONCLUSIONS
7.1 Discussions
How to speedily deliver products to consumer s’ hands is a common consensus of operators.
Integration of logistics and e-bus iness is the future trend. In order to get more advantageous
position and build a complementary and dependen t relationship, networking industries, such
as Yahoo and e-Bay, usually cooperate with logi stics industries. The in tegration could reduce
the middle-level procedures. The producers could immediately give the products over to the
terminal customers. This could reduce expenses and also administer sources more efficiently.
Besides, the companies do not have to take the costs of inventory and warehouse, and
therefore they become modernized industries of low cost, more efficiency and division of
specialty. For example, customers could get ordered goods from convenience stores. Through
e-logistics, the competition condition of in dustries could be promoted in knowledge
economics.
Based on the discussions of previous paragrap hs, the integration and promotion of business
activities have to involve transportation systems at various stages. The integration of various
applications brings the convenience through prom oting the system of information flow and
business operations. Customers and firms coul d make business more efficient and easier
through the help of e-commerce a nd the Internet. However physical delivery still relies on the
transportation system to finish the operations . The cost of transpor tation operation may be
one-third of logistics costs. Meanwhile, transp ortation systems and techniques are needed in
almost every logistics activity. Thus the refo rm of business patterns has to consider
transportation systems.
7.2 Conclusions
This paper covers broadly from logistics activities to transportation systems and attempts to
determine the role of transpor tation in logistics systems thro ugh extensive review. The main
contents of the research include a review of logistic s development, the ch aracters of various
transport operations in logistics activities, the applications of l ogistics in various fields, city
logistics, future direction in logistics development, and its co operation with transport systems.
To sum up, logistics and transportation have some relevance. (1) Logistics system has a more
and more important position in our society activities. (2) Transportation and logistics systems
have interdependent relationships that logis tics management needs transportation to perform
its activities and meanwhile, a successful logistics system could help to improve traffic environment and transportation development. (3 ) Since transportation co ntributes the highest
cost among the related elements in logistics systems, the improve ment of transport efficiency
could change the overall perfor mance of a logistics system. (4) Transportation plays an
important role in logistics system and its activ ities appear in various sections of logistics
processes. Without the linking of transportation, a powerful logistics strategy cannot bring its
capacity into full play. The review of logistics system in a broad sens e might help to integrate the advantages from
different application cases to overcome their current disadvantage. On the other hand, the
review of transport systems provides a clearer notion on transport appli cations in logistics
activities. The development of logistics will be still vigorous in the following decades and the
logistics concepts might be applied in more fields.

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