Chapter 6 Transportation

Transport Fundamentals
When the Chinese write the word “crisis,” they do

so in two characters—one meaning danger, the
other opportunity.
Chapter 6
CR (2004) Prentice Hall, Inc.
6-1
Transport Fundamentals in
Planning Triangle
Inventory Strategy
• Forecasting Transport Strategy
• Inventory decisions • Transport fundamentals
CONTROLLING
• Purchasing and supply
ORGANIZING
• Transport decisions
Customer
PLANNING
scheduling decisions
• Storage fundamentals service goals
• Storage decisions • The product
• Logistics service
• Ord. proc. & info. sys.
Location Strategy
• Location decisions
• The network planning process

6-2
Importance of an effective
transportation system
• Greater competition
• Economies of scale
• Reduced price

6-3
Service choices an their
characteristics
 Performance
- Average transit time
- Transit time variability
- Loss and damage
- Other factors including availability, capability,
frequency of movement, and various less
tangible services
 Cost
- Line haul
- Terminal/local
- Accessorial or special charges

6-4
Transportation Choices- Single
Service
6-5
Transportation Choices- Single
Service
Rail: Exists in two forms,
a. Common Carrier (Carload, Less than carload, multiple
carload)
b. Privately owned
Air: Exists in three forms,

a. Common Carrier
b. Contract Carrier
c. Private legal form
Direct air service is offered in seven types:

1. Regular domestic truck-line carriers
2. All-cargo carriers
3. Local service airlines
4. Supplemented carriers
5. Air taxis
6. Commuter airlines
7. International carriers
6-6
Transportation Choices
Intermodal Service
a. Piggyback /Trailer on flatcar
b. Fishyback (Containerized freight)
Agencies and small shipment

Agents:
a. Freight forwarder
b. Shipper’s association
c. Transport brokers and agents
Small-shipment services
a. UPS
b. Federal express
c. Postal Services
6-7
Company Controlled Transportation
6-8
6-9
Foreign (Free) Trade Zone
Duty free zone
Products from
Customs
abroad
To domestic Manufacturing
markets and/or storage
Duties paid
Products to
foreign
markets
No duties paid

6-10
6-11
Transportation cost characteristics
Variable and fixed costs
Common or joint costs
Cost Characteristics by mode
Rail: High fixed cost and relatively low variable cost

FC: Terminal cost (Loading, unloading, billing and
collecting, yard switching of multiple products)
VC: Wages, fuel and maintenance.
The net effect of high fixed costs and relatively low

variable costs is to create significant economies of
scale in railroad costs. Distributing the fixed costs over
greater volume reduces the per unit costs.
6-12
6-13
6-14
Rate profiles
Volume related rates
Distance related rates

a. Uniform rates
b. Proportionate rates
c. Tapering rates
d. Blanket rates
Demand related rates
6-15
6-16
6-17
Line-Haul rates
By Product
a. Class rate
b. Contract rates
c. Freight all kinds
By shipment Size
By Route
Miscellaneous rates
a. Cube rates
b. Import or export rates
c. Differed rates
d. Released value rates
e. Ocean freight rates
6-18
Class Rate Example
Suppose we wish to ship 15,000 lb. (150 cwt.) of wheat
flour from New York to Los Angeles by truck. The
trucker offers a 40% discount from the published tariff.
What is the transportation charge?
Table 6-4
From the freight classification table, this is item number
1090--00. It shows a minimum weight of 36,000 lb.,
which is less than this shipment size. Therefore, the
class rating is 55, or less-than-truckload. From the
class 100 tariff, the rate is 6065, or $60.65 per cwt.
With a 40% discount, the effective rate is (1- .40) x
Table 6-5 60.65 = $36.39. The shipment charges are 0.55 x
36.39 x 150 = $3,002.18.
Should always check to see if shipment can be declared at the
next higher weight break for a lower rate and lower total charges
6-11
Break Weight
Question Suppose 9,000 lb. of Class 100 merchandise is to
be shipped from New York to Dallas. From Table 6-4, the
rate would be $52.21/cwt. However, should the shipment be
priced at the next higher weight break rate of $40.11/cwt. for
a lower cost?
RateNext xWeightNext
Break Weight 
RateCurrent
where:
Break Weight = Weight above which the next higher weight break rate
should be used for lower transport costs
RateNext = Rate for next higher weight break
WeightNext = Minimum weight of next higher weight break
RateCurrent = Rate for true weight of shipment.
CR (2004) Prentice Hall, Inc. 6-12
Break Weight (Cont’d)
Answer
Calculate break weight
40.11x100
Break Weight   76.82, or 7,682 lb.
52.21
Since the 9,000 lb. shipment size exceeds the

break weight of 7,682 lb., size as if a 10,000 lb.,
shipment for a total cost of $40.11x 100 = $4,011.
Otherwise, the shipment would have cost
$52.21x90 = $4,699.
CR (2004) Prentice Hall, Inc. 6-13

Special Service charges
Special Line-haul charges

a. Diversion and consignment
b. Transit privileges
c. Protection
d. Interlining
Terminal Services
a. Pick up and delivery
b. Switching
c. Demurrage and detention
6-22
Stop-Off Privilege Example
Suppose 3 shipments of J=8,000 lb., K=12,000 lb.,
and L=10,000 lb. originating at I are to be delivered
in the following way.

6-23
Stop-Off Privilege Example (Cont’d)
First, we compare the costs without the stop-off privilege. This would be to
price as if each shipment is a separate shipment from I. Suppose we know
the rates. Hence,
Load, lb. Points Rate, $/cwt. Charges
8,000 I to J 3.05 $244.00
12,000 I to K 3.35 402.00
10,000 I to L 3.60 360.00
Total $1006.00
Now, we price with the stop-off privilege. We assume that all the volume
(30,000 lb.) is to be delivered to the farthest stop and we use the rate to
that point ($3.00/cwt.). A small stop off charge of $15.00 is made for each
stop including the last stop. Hence,
Rate,
Load, lb. Points $/cwt. Charges
30,000 I to L 3.00 $900.00 The better
3 stops at choice
All volume to $15 each 45.00
the farthest stop
Total $945.00 6-24
6-25

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Transport Fundamentals

When the Chinese write the word “crisis,” they do

CR (2004) Prentice Hall, Inc.

CR (2004) Prentice Hall, Inc.

CR (2004) Prentice Hall, Inc.

Air: Exists in three forms,

Direct air service is offered in seven types:

Agencies and small shipment

Duty free zone

CR (2004) Prentice Hall, Inc.

Rail: High fixed cost and relatively low variable cost

The net effect of high fixed costs and relatively low

Distance related rates

Demand related rates

Since the 9,000 lb. shipment size exceeds the

CR (2004) Prentice Hall, Inc. 6-13

Special Line-haul charges

CR (2004) Prentice Hall, Inc.

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