Transportation Management

DISC 333: SUPPLY CHAIN MANAGEMENT

 Transportation Economics and Pricing

1. Factors that drive transport costs;

2. Cost structures or classifications;
3. Carrier pricing strategy;
4. Transportation rates and ratings.
 1. Economic Drivers

Distance

Cost

Volume

Density Distance

Stowability

Cost per pound

Product case dimensions w.r.t. transportation
equipment

Handling
Weight of Load

Physical grouping

Liability

Cost per pound

Market

‘Lane volume’ and ‘balance’
Product Density
 2. Cost Structure

Variable Costs

Change in a predictable direct manner in relation to some level of
activity e.g. labor, fuel and maintenance costs.

Fixed Costs

Expenses that do not change in short run and must be serviced even
when the company is not operating e.g. vehicles, terminals, rights-
of-way, information systems, and support equipment.

Joint Costs

Expenses unavoidable when providing a particular service e.g. back-
haul costs.

Common Costs

Expenses that are incurred on behalf of all or selected shippers e.g.
terminal or management expenses.
 3. Carrier Pricing Strategies

Cost-of-Service

Price based on cost + profit basis;

Suitable for low value goods or in highly competitive situations;

Value-of-Service

Price based on value perceived by the shipper;

Suitable for high-value goods or when limited competition exists;

Combination Pricing

A price in between cost-of-service minimum & value-of-service
maximum;

Net-Rate Pricing

Established discounts and accessorial charges are built into the net
rates that result into an all-inclusive price.
 4. Rates and Ratings

Class Rates

Rate ($/CWT) for a class of products;

A two-step process:
1. Product Classification for transportation purposes
2. Rate Administration

Product Classification

Products with similar density, stowability, handling,
liability, and value characteristics are grouped together into
a ‘class’.

A number of different classifications may apply to the same
product depending on where it is being shipped, shipment
size, transport mode, and packaging.
 4. Rates and Ratings (contd.)

Rate Administration

Is usually based on the shipment origin and destination,
although the actual price is normally subject to a minimum
charge and a surcharge assessment;

The origin and destination rates are obtained from the
published tables for a particular shipment in the form of
$/CWT or $/mile;

Then two additional charges are added namely: minimum
charges (fixed costs) and surcharges (anticipatory expenses);
 4. Rates and Ratings – Special Rates

Commodity Rates

Special rates for commodity products without regard of
classification.

Exceptional Rates

Under competitive and large volume conditions, discounted
rates are provided by lowering the class of a product.
 Aggregate Tender
 Limited Service

Special Rates and Services

Freight-All-Kind Rates
 To simplify paper work associated with the movement of mixed
commodities to lower the costs.
 4. Rates and Ratings – Special Rates

Special Rates and Services

Local Rate
 Commodity movement under tariff of one carrier.

Joint Rate
 Commodity movement under tariff of multiple carriers.

Proportional Rate
 Special price incentives to utilize a published tariff that applies to
only part of the desired route.

Combination Rate
 A rate that combines multiple rates when no single-line or joint
rate exist between origin and destination.
 Traffic Department Administration

Responsible for:
1. Operations Management
2. Freight Consolidation

3. Rate Negotiation
4. Freight Control
5. Auditing and Claims
6. Logistical Integration
 Operations Management

Equipment Scheduling

Load Planning

Routing

Carrier Administration

Carrier Selection – core carrier strategy

Carrier Integration – assessing the level of integration needed

with carriers

Carrier Evaluation – assessing relative capabilities
 Freight Consolidation

Reactive Consolidation

Does not attempt to influence the composition and timing of
transportation movements.

Seeks to combine freight into larger shipments for line-haul
movements.

Can be achieved by three ways: (1) market area, (2) scheduled
delivery, and (3) pooled delivery.

Market Area:
 Consolidation for a specific market area.
 Volume deficiency for an area can be addressed by:
 Intermediate break-bulk point for line-haul transportation
savings;
 Consolidated shipments on specific days;
 Small shipments by 3rd party logistic providers
 Freight Consolidation

Scheduled Delivery:
 Shipments to specific markets on selected days each week.
 The plan is communicated to customers in order to manage their
expectations.

Pooled Delivery:
 Freight forwarder, public warehouse, or transportation company
arranges consolidation for multiple shippers serving the same
geographical market area.

Proactive Consolidation

To achieve responsive logistics by active participation of
shippers, carriers, and consignees to realize consolidation
savings.

Requires Preorder Planning, and Multi-firm Consolidation.
 Documentation

Bill of Lading

Acts as a receipt and documents products ad quantities
shipped.

Specifies terms and conditions of carrier liability and
documents responsibilities for all possible causes of loss or
damage except those defined as acts of God.

Types of Bill of Lading may be: Uniform, Order-Notified,
Export, and Government

Uniform: or Bill of Lading

Order-Notified: a credit instrument used during international
shipments

Export: allows shipper to use export rates

Government: used when shipping Government products
 Documentation (contd.)

Freight Bill

A method to charge for transportation services performed.

Can be Prepaid or Collect

Shipment Manifest

Lists individual stops or consignees when multiple shipments
are placed on a single vehicle.