Chapter 8 - Transportation

Transportation

The function of planning, scheduling, and controlling activities related to the mode, carrier, and movement of inventories into and out of an organization.

What are the objectives of Transportation?

1. To maximize the value to the company through price negotiations
2. To make sure service is provided effectively
3. To satisfy customers' needs

How much of the total cost of logistics does transportation account for?

More than 60%

What is transportation one of the largest consumers for?

Oil and gas --> negatively impacts traffic and congestion, and contributes to noise and air pollution

Product Movement

The transfer of inventory to specified destinations

Two important elements to consider during the transfer of inventory are

Restrictive and Flexible

Restrictive Element of Product Movement

In-transit inventory is "captive", usually inaccessible during transportation

Flexible Element of Product Movement

Inventory can be diverted during shipment to a new destination

Diversion

The term used to describe when a shipment destination is changed after a product is already in route is

The transfer of inventory consumes

Time, money and environmental resources

Product Storage

Occurs while product is held in a transport conveyance or vehicle but is not moving

Product can be stored in transport equipment at

The origin, in-route, or at the destination

Fundamental Transport Principles

1. Economy of Scale
2. Economy of Distance

Economy of Scale

The cost per unit decreases as the size of the shipment increases

Economy of Distance

The cost per unit decreases as distance increases. Also known as the "tapering principle."

Contract Carriers

Person or company who transports freight under contract to one or a limited number of shippers.

Private Carriers

person or company that transports its own cargo as a part of a business that produces, uses, sells or buys the cargo that is being hauled.

Common Carriers

Person or company who transports freight for a fee that can be hired by anyone to transport goods.

Exempt Carriers

Person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act.

Economic Regulation

Seeks to make transportation equally accessible and economical to all without discrimination

Social Regulation

Takes measures to protect public safety and the environment

Interstate Commerce Act of 1887

Created the Interstate Commerce Commission (ICC)

ICC Termination Act of 1995

The Interstate Commerce Commission (ICC) was eliminated

Regulation Pro's

- Tends to assure adequate transportation service throughout the country
-Protects consumers from monopoly pricing, safety, and liability

Regulation Con's

- Discourages competition
- Does not allow prices to adjust tased on demand or by negotiation

Deregulation

Encourages competition and allows prices to adjust as demand and negotiations dictate

Mode

Refers to the way in which goods are transported

Carrier

Refers to the company that transports the goods

Truck

-MOST flexible mode of transportation
-Carries more than 80% of U.S. Freight

Short Haul

0 - 200 miles from the driver's home terminal

Long Haul

Over 200 miles from the driver's home terminal

Key benefits of trucks...

Speed of transit and ability to operate door-to-door

General Freight Carriers

A trucking company which handles a wide variety of commodities in standard trailers. Freight is generally palletized.

Specialized Carriers

A trucking company which handles the movement of cargo that requires specialized equipment for transportation because of the shipment's size, weight and shape. Transports good like liquid, petroleum, household goods, building materials.

Asset-Based carrier

Transportation carrier having their own tractors and trailers and responsible for maintenance of all their equipment.

Owner operator

Person who owns his/her own tractor and is responsible for the maintenance and upkeep of his/her tractor.
Types : Sole Source, Free Agents

Non-asset based

Person or company who does not own their own equipment. They contract with an asset-based carrier (or an owner operator) for the carriage of goods.

Full-Truckload (FTL)

The transport of goods that fill up a full truck, or a partial load shipment occupying an entire truck. A "one-touch" door-to-door service, collecting freight at an origin and delivering it directly to the destination without any intermediate stops.

Less-Than-Truckload (LTL)

The transportation of relatively small freight, i.e., the freight does not require the entire space of a truck. Carriers operate under the premise of sharing the trailers capacity among multiple shippers.

LTL Freight Characteristics

Density, Stowing, Handling, and Liability

Density (LTL Characteristic)

Space in relation to its weight

Stowing (LTL Characteristic)

Ability to load other freight in the same trailer

Handling (LTL Characteristic)

How difficult it is to actually handle the freight

Liability (LTL Characteristic)

Potential claims from damage or loss

Electronic Logging Devices (ELD)

A technology that automatically records a driver's driving time and other aspects of the hours-of-service (HOS) records. This allows easier, more accurate HOS recordkeeping.

ELD allows....

Law enforcement to review a drivers hours of service by by viewing the ELD's display screen, by a printout from the ELD, and in the near future by retrieving data electronically from the ELD

Rail

- Rail is slow and inflexible, but has the MOST CAPABILITY
- Accounts for 8% of total US freight spend
- Long distance, heavy and bulky shipment
- High fixed costs, low variable costs

Articulated Cars

Rail vehicles which consist of a number of cars which are semi-permanently attached to each other and share common Jacobs bogies or axles

Unit Trains

A train transporting a single commodity

Double-stack Cars

A form of transport whee intermodal containers are stacked two high on railroad cars

Air

- FASTEST mode of transportation, most EXPENSIVE
- 2nd lowest fixed costs, EXTREMELY high variable costs
- High cost-weight ratio
- Palletized or in rigid container
- Shipment is more than 150 lbs
- 7% of US freight spend, less than 1% of ton-miles

Water

- Inexpensive
- 5% of total US freight spend
- Very slow and inflexible

"Slow-Streaming"

Reducing their speeds to improve fuel efficiency and reduce carbon emissions, but speed is not usually the highest priority as customers are seeking the lowest price, and predictable, reliable delivery

Stowage Planning

The act of allocating space to containers on board a container ship in the order of the discharge ports

Elements of Ocean Transport Rates

1. Full Container Load
2. Less than Container Load
3. Demurrage
4. Per Diem
5. Fuel

Full Container Load (FCL)

Is a cost per container

Less than Container Load (LCL)

A cost based on whichever is greater, the space in cubic meters or the weight in metric tons

Demurrage

Holding a container at port beyond a certain time limit and incurring a penalty charge such as a daily rent after the free time ends. This is commonly referred to as storage when container is held at a rail yard.

Per Diem

Holding a container off port beyond a certain time limit and incurring a penalty charge such as daily rent after the free time ends.

Fuel (BAF)

Bunker is the type of fuel burned by vessels. BAF, or Bunker Adjustment Factor is a per container fee charged by the carriers for this fuel

Non-Vessel-Operating Common Carriers (NVOCC)

A company (often a forwarding agent) who does not own or operate the carrying ship, but who contracts with a shipping line for the carriage of the goods.

Streamship Line

Asset based company operating the ships with whom both cargo owners (sometimes called BCO - Beneficial Cargo Owner) and NVOCCs contract with for the carriage of goods.

Drayage

Commonly used to mean the short distance transportation of containerized cargo by specialized trucking companies from an ocean port to a rail ramp, warehouse, or other destination. It also refers to the fee for this type of transport.

Intermodal

Sixth mode of transportation, but it is really the use of multiple modes of transportation to execute a single transport shipment.

Trailer-on-Flatcar (TOFC)

Offer point-to-point pickup and delivery service

Container-on-Flatcar

Offer point-to-point pickup and delivery service

Roll-On/Roll-Off Ship

Specifically designed to allow trucks to be driven directly on and off the ship without the use of cranes.

Provides flexibility and speed.

Freight Forwarders

Businesses that consolidate small shipments from various customers into bulk shipment for a common carrier to transport.

Shipper Associations

Groups of shippers who employ an agent to consolidate purchases and shipments for them

Brokers

Intermediaries that coordinate transportation arrangements for shipper, consignees and carriers, operating on a commission basis

Cost-of-Service Strategy

The carrier estimates the cost of providing the service and then adds on a percent profit margin

Value-of-service Strategy

Based on value as perceived by the shipper rather than the carrier

Combination Strategy

Set at a value between cost-of-service minimum and value-of-service minimum

Net-Rate Pricing Strategy

A simplified pricing format made possible by deregulation. Established discounts and accessorial charges are rolled into one all-inclusive price. Pricing is tailored to the individual customer's needs

Three factors that determine the Base Rate

1. How much are you shipping?
2. What are you shipping?
3. How far are you shipping from origin to destination?

Classification

Grouping of similar products into uniform classes that are are assigned a rating

Rate Determination

Is based on the classification rating, shipment origin, and destination

Cute Rates

Replace the 18 traditional freight classifications of the National Motor Freight Classification (NMFC) with five cube groupings

Class Rates

Are the price in dollars and cents per hundredweight to move a specific product (i.e., class) between two locations

Commodity Rates

A large quantity of product which moves between two locations on a regular basis

Exception rates

Special rates to provide prices lower than the prevailing class rates

Special Rates and Services

Joint rates, transit services freight-all-kinds

Join rates

Can be negotiated if a shipper needs to use a combination of carriers

Transit services

Permit shipments to be stopped at an intermediate point between origin and destination for special processing

Freight-All-Kinds (FAK)

Rates allow a mixture of different products to be transported under a negotiated rating

Split delivery

Delivering portions of a shipment to multiple destination

Consolidation

Combining LTL or parcel shipments moving to a general location. Two groups of techniques : reactive and proactive.

Reactive

Does not attempt to influence composition and timing of transportation movements, but reacts to shipments as they come.

Proactive

Includes preorder planning of quantity and timing with the shipper to facilitate consolidated freight movement

Negotiation

Seeking win-win agreements where both shippers and carriers share transportation consolidation and productivity gains

Collaborative Negotiation

Both parties seek the lowest total logistical cost consistent with the shipper's needed service level (i.e. delivery time)

Control responsibilities include...

Tracing, Expediting, and Tracking

Tracing

Procedure to locate lost or late shipments

Expediting

Involves the shipper notifying carrier that it needs a specific shipment to move quickly and with no delays

Tracking

Driver Hours of Service (HOS) to comply with federal regulations

Bill of Lading (BOL)

Basic document utilized in purchasing transport services
- Serves as a receipt and documents products and quantities shipped
- Specifies terms and conditions of carrier liability

Freight Bill

Represents a carrier's method of charging for transportation services

Shipment Manifest

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

Pricing Practices

Traditionally, logistics pricing was bundled into price for a product or service. Trend now is to de-bundle.

F.O.B. Origin

Seller states price at point of origin, and agrees to load a carrier, but assumes no further responsibility. Buyer selects carrier and mode, pays transportation and assumes the risk for in-transit loss or damage