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McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of transportation
• Transport functionality and participants
• From regulation to a free market system
• Transportation modal structure
• Specialized transportation service
• Transportation economics and pricing
• Transportation pricing
• Documentation
• Product pricing and transportation
Transport functionality primarily consists
of product movement services
• Product movement is the movement of
inventory to specified destinations
– Restrictive element—in-transit inventory is
“captive”, usually inaccessible during transportation
– Flexible element—inventory can be diverted during
shipment to a new destination
• Transportation consumes time, financial, and
environmental resources
– Transportation is more than 60% of the cost of
logistics
– One of largest consumers of oil and gas in US
– Impacts traffic congestion, noise and air pollution
Transport also functions as storage services
for products while in a vehicle
• In-transit inventory is captive in the transport
system
– Managers strive to reduce in-transit inventory to a
minimum
• Product can also be stored in vehicles at origin or
destination (trailers, trucks, railcars, etc)
– Usually more expensive than traditional
warehousing
• Must pay rental or demurrage charges on vehicles used
for storage
• Diversion occurs when a shipment destination is
changed after a product is in transit
Two fundamental transport principles
• Economy of scale is the cost per unit weight decreases
as the size of the shipment increases
– At least until you totally fill the carrying vehicle!
– Cost decreases because the fixed cost of the carrier is
allocated over a larger weight of shipment
• Economy of distance is the cost per unit weight
decreases as distance increases
– Often called the tapering principle
– Longer distances allow fixed cost of the carrier to be spread
over more miles, lowering the per mile charge
• Goal is to maximize the size of the load and distance
shipped while still meeting service expectations
Transport participants
• Shipper
• Consignee (Receiver)
• Carrier and Agents
• Government
• Internet
• Public
Major relationships among transportation
participants
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc.,
2010, p. 25.
Table 8.3
Domestic shipments by mode and revenue
• Brokers—intermediaries that
coordinate transportation
arrangements for shipper,
consignees and carriers,
operating on a commission basis
Sampling of Non-operating Intermediaries
8-34
Transportation operations seeks an optimal
balance between low cost and high service
• Transportation is single
largest element of
logistics cost
– Rising fuel costs
– Environmental cost of
carbon footprint
• Transportation
managers are
responsible for
inventory to be
positioned in a timely
and economical
manner
Transportation economics and pricing are
concerned with factors that drive cost
• An effective logistics strategy must understand
four interrelated topics
– Economic drivers that influence rates
– Costing methods to allocate costs
– Carrier pricing strategy used to set rates
– Rates and rating mechanics used by carriers
Economic drivers influence rates
• Distance
• Weight
• Density
• Storability
• Handling
• Liability
• Market
Distance is a major influence on cost
• Directly contributes to
variable expenses
– Labor, fuel, and
maintenance
• Cost curve starts above
zero because of fixed
costs associated with
pickup and delivery
regardless of distance
• However, rate of cost
decreases as distance
increases
– This is called the tapering
principle
– (Demurrage fees are charged when import containers are still full and under
the control of the shipping line. ... Detention occurs when the consignee holds
onto the carrier's container outside of the port, terminal, or depot beyond the
free time that is allotted)
– basically before the full container is picked up, Demurrage is charged (after
expiry of free days) and after the container has been picked up, till the time
the empty is returned to the lines nominated depot, Detention is charged..
– VOLUME is the space something takes up. WEIGHT is how heavy it is.
Measuring by weight is more accurate. Consider that some liquid oils may be
heavier than others.
Three Factors Determine the Base Rate
• How much are you shipping?
– Truckload (TL) or
– Less than truckload (LTL)
• What are you shipping?
– Determines freight class
• How far are you shipping from origin to
destination?
– Determines rate table
Special Rates and Services
• Freight-all-kind (FAK) rates • Diversion and consignment
allow a mixture of different allows changing the
products to be transported destination and/or consignee
under a negotiated rating prior to arrival at the original
• Joint rates can be negotiated destination
if shipper needs to use a • Split delivery is delivering
combination of carriers portions of a shipment to
• Transit services permit multiple destinations
shipments to be stopped at an • Product storage services
intermediate point between – Demurrage (rail) charge for
origin and destination for holding a railcar for more
special processing than 48 hours before
unloading
– Detention (motor) charge for
holding a truck for more than
a few hours before unloading
– (Demurrage fees are charged when import containers are still full and under the control
of the shipping line. ... Detention occurs when the consignee holds onto the carrier's
container outside of the port, terminal, or depot beyond the free time that is allotted)
– basically before the full container is picked up, Demurrage is charged (after expiry of
free days) and after the container has been picked up, till the time the empty is returned
to the lines nominated depot, Detention is charged..
– VOLUME is the space something takes up. WEIGHT is how heavy it is. Measuring
by weight is more accurate. Consider that some liquid oils may be heavier than others.
Transportation Administration Activities
Include
• Operational Management
• Consolidation
• Negotiation
• Control
• Auditing and claims
administration
• Logistical integration
Key elements of operational management