Military and Commercial Cargo Mission needs Presentation to Massachusetts Institute of Technology Subject 16.886 Air Transportation System Architecting 2/26/04 Blaine K Rawdon boeing phantom Works
Military and Commercial Cargo Mission Needs Presentation to Massachusetts Institute of Technology Subject 16.886 Air Transportation System Architecting 2/26/04 Blaine K. Rawdon, Boeing Phantom Works
ntroduction The cargo world attempts to solve a very complex mission(problem) This presentation outlines the elements of the problem but does not define a specific mission I have been trying to understand this subject for a few years now I may only be a few weeks ahead of you (if that) This presentation is non-linear Requires integration by the student after the fact Military and commercial needs are similar in structure Widely different values Military values very dependent on situation
Introduction • The cargo world attempts to solve a very complex mission (problem) • This presentation outlines the elements of the problem but does not define a specific mission • I have been trying to understand this subject for a few years now – I may only be a few weeks ahead of you (if that)! • This presentation is non-linear – Requires integration by the student after the fact… • Military and commercial needs are similar in structure – Widely different values – Military values very dependent on situation
General Problem Object of the game: Devise a goods creation and distribution system that creates greater value than it costs Measure of merit varies Elements of the system include Creation of the goods(manufacturing, mining, farming Distribution Customers
General Problem • Object of the game: Devise a goods creation and distribution system that creates greater value than it costs – Measure of merit varies • Elements of the system include: – Creation of the goods (manufacturing, mining, farming) – Distribution – C u s t o m e r s
General solution Provides overall production/transport architecture to maximize an economic measure This optimization results in the need for global distribution of goods System seeks a balance between production and transport costs OW-coSt or expert labor Mass production Product type consolidation(cars in Detroit, movies in LA Farmland Proximity to market Good transport system access ·Etc Production and distribution are a linked system
General Solution • Provides overall production/transport architecture to maximize an economic measure • This optimization results in the need for global distribution of goods – System seeks a balance between production and transport costs: • Low-cost or expert labor • Mass production • Product type consolidation (cars in Detroit, movies in LA) • Farmland • Proximity to market • Good transport system access • E t c • Production and distribution are a linked system
Transport Problem The problem pertains to the distribution of non-human objects(not electronic information) Humans are self-loading cargo and are a special case not addressed here Chief difference between people and cargo is that people's time is generally much more valuable than cargo's Transoceanic transport Cargo: 99% ship, 1% air(by weight) )People: 1% ship, 99% air(approximately) As a result, cargo systems are much different than passenger systems Addressing the transport problem in isolation from production the object is to obtain the lowest total cost of transport
Transport Problem • The problem pertains to the distribution of non-human objects (not electronic information) – Humans are “self-loading cargo” and are a special case not addressed here • Chief difference between people and cargo is that people’s time is generally much more valuable than cargo’s – Transoceanic transport: » Cargo: 99% ship, 1% air ( by weight) » People: 1% ship, 99% air (approximately) – As a result, cargo systems are much different than passenger systems • Addressing the transport problem in isolation from production, the object is to obtain the lowest total cost of transport
Total Distribution Cost Object of logistics systems is to minimize Total Distribution Cost (TDc) TDC is the total cost of transporting goods Sum of cost of transport and cost of holding inventory Cost of transport is fees paid to carriers(ship, truck, etc) Annual cost of inventory is typically a fraction of the value of the inventory This fraction is called "Inventory Carrying Cost Typical fraction is 25%, but depends heavily on actual goods, timing Diamonds have low IcC, food has high icc Consists of interest, depreciation, taxes, insurance, losses, warehouses
Total Distribution Cost • Object of logistics systems is to minimize Total Distribution Cost (TDC) • TDC is the total cost of transporting goods – Sum of cost of transport and cost of holding inventory • Cost of transport is fees paid to carriers (ship, truck, etc) • Annual cost of inventory is typically a fraction of the value of the inventory – This fraction is called “Inventory Carrying Cost” • Typical fraction is 25%, but depends heavily on actual goods, timing – Diamonds have low ICC, food has high ICC • Consists of interest, depreciation, taxes, insurance, losses, warehouses
Depreciation Depreciation is the most powerful and variable factor in ICC Depreciation refers to loss of potential value over time Depreciation may not be linear at all Seasonal variation If you get the air conditioners in one month late they may be on the shelves for 10 months- very expensive Lots of stuff is seasonal! Spoilage Food is worth less than nothing after it spoils Depreciation may pertain to loss of value in the larger system, not just the cargo proper Airplane on ground factory halted troops die etc Obsolescence and Hits Rapid technical change can cause high depreciation Michael Dell says his computers depreciate 1%/week! Inability to deliver a hit product will result in a loss of sales Military version of obsolescence and hits pertains to war Value of time can be very, very great in wartime
Depreciation • Depreciation is the most powerful and variable factor in ICC • Depreciation refers to loss of potential value over time • Depreciation may not be linear at all – Seasonal variation • If you get the air conditioners in one month late they may be on the shelves for 10 months – very expensive • Lots of stuff is seasonal! – Spoilage • Food is worth less than nothing after it spoils • Depreciation may pertain to loss of value in the larger system, not just the cargo proper – Airplane on ground, factory halted, troops die, etc • Obsolescence and Hits – Rapid technical change can cause high depreciation • Michael Dell says his computers depreciate 1%/week! – Inability to deliver a hit product will result in a loss of sales – Military version of obsolescence and hits pertains to war • Value of time can be very, very great in wartime
Cost of Transport Cost of transport is split into two parts Direct operating cost Indirect operating cost Direct operating cost pertains to vehicle operation Fuel, crew, vehicle depreciation maintenance etc Indirect operating cost pertains to other costs Sales, cargo handling, administration, profit, etc Sum of direct and indirect operating costs is "cargo rate
Cost of Transport • Cost of transport is split into two parts: – Direct operating cost – Indirect operating cost • Direct operating cost pertains to vehicle operation – Fuel, crew, vehicle depreciation, maintenance, etc • Indirect operating cost pertains to other costs – Sales, cargo handling, administration, profit, etc • Sum of direct and indirect operating costs is “cargo rate
2002 Cargo Rates 0.80 0.70 △ (=$0.18+$015 per ton-mile@3000nm 060 (=$0025+50.008 per ton-mile@300m Aircraft 0.40 0.30 △--△ △4 △△△ △ △ 0.10 Container ships 0.00 10002000300040005000600070008000900010000 Great circle Distance(nm)
2002 Cargo Rates 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Great Circle Distance ( n m) Air and Ocean Cargo Rate ($/ton-nm) on Great Circle Basis $0.025/to n-n m + $25/to n (= $0.025 + $ 0.008 p er t o n-mile @ 3000 n m) $0.18/to n-n m + $450/to n (=$0.18 + $0.15 p er to n-mile @ 3000 n m) Aircraft C ontainer S hip s
Comments on Cargo Rates Rates decline with range Much of indirect operating cost is independent of range Cargo handling sales costs dont depend on range So indirect cost per mile is less at greater ranges Ships are much less expensive than airplanes Ships are very efficient: L/D-400 Ships indirect costs are much less than airplane's arge containers, mechanized loading Trend curves can be approximated by a simple formula Rate= cost/ton -nm cost/ton Cost/nm can be thought of as DOC Fixed cost can be thought of as IOC Scatter in rates due to two factors Asymmetrical demand (east versus west for instance) Airplane main deck pays full rate, belly cargo rides for -lOC
Comments on Cargo Rates • Rates decline with range – Much of indirect operating cost is independent of range • Cargo handling, sales costs don’t depend on range – So indirect cost per mile is less at greater ranges • Ships are much less expensive than airplanes – Ships are very efficient: L/D ~400 – Ships indirect costs are much less than airplane’s • Large containers, mechanized loading • Trend curves can be approximated by a simple formula – Rate = cost/ton-nm + cost/ton • Cost/nm can be thought of as DOC • Fixed cost can be thought of as IOC • Scatter in rates due to two factors – Asymmetrical demand (east versus west for instance) – Airplane main deck pays full rate, belly cargo rides for ~IOC