Freight Transport Systems

Transportation
Transportation is the movement of people and goods from one place to another.

Transportation Management aid in determining the most efficient and most cost-
effective way to execute the movement of product(s) through carrier selection
and freight management.

• Infrastructure consists of the fixed installations necessary for transport, and may
be roads, railways, airways, waterways, canals and pipelines or terminals such as
airports, railway stations, bus stations and seaports.

• 5 basic modes of transport are rail (36%), road(25%), water(16%), air (1%) &
pipeline (20%).
Economic factors of transportation.
• Transportation economics is influenced by seven factors- distance, volume, density,
stowability, handling, liability and markets.
• Distance: it directly contributes to variable cost, such as labor, fuel and
maintenance. (cost curve does not start at origin & it tapers – tapering principle).
Intercity vs intracity/urban miles characterized by frequent stops & additional
loading/unloading.

P
ri
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Distance
Economic factors of transportation.
Volume: logistical scale of economies exists for most movements. (Fixed costs spread
over additional volume)

Price

Per KG

Weight of load
Economic factors of transportation.
Density: it considers the weight and space considerations. (cost is quoted in terms of
Rs/weight). In general logistics managers attempt to increase product density to
load more for better utilization of capacity.

Price

Per KG

Product Density
Economic factors of transportation.
Stowability: it refers to product dimensions and how it affects vehicles space
utilization. Odd shapes and sizes, excessive weight or length do not stow well and
typically waste space. (stowability & density similarity). Nesting in case large
numbers of cans.
Handling: special handling equipment is required for loading/unloading from vehicle.
(taped, boxed or palletized).
Liability: includes six product characteristics that primarily affect risk of damage and
the resulting incidence in claims. They are susceptibility to damage, property
damage to freight, perishability, susceptibility to theft, susceptibility to
spontaneous combustion or explosion & value per pound.
Market factors: Such as lane volume and balance, influence transportation cost.
Transport lane refers to movements between origin and destination points.
(backhaul-deadhead). Ideal balanced haul.
 Cost Structures
Variable Costs: VC are those costs that change in a predictable direct manner
in relation to some level of activity during a time period.
Fixed Costs: FC are those costs that do not change in the short term and must
be covered even if there is a holiday.
Joint Costs: JC are expenses unavoidably created by a decision to provide a
particular service.
Common Costs: This includes carrier costs that are incurred on behalf of all
the shippers. Common costs such as terminal or management expenses
are charecterised as overhead.
 Pricing strategy
Cost of service strategy- a buildup approach where carrier establishes rate based upon
cost of providing the service plus a profit margin.

Value of service strategy- charging a rate based upon perceived shipper value rather
than actual cost of providing the service. Example of electronic chip vs coal.

Combination Strategy – some intermediate level between the above two.

Net pricing strategy – a simplified pricing format followed by a number of common

carriers.
 Pricing strategy
Rating
Class rates: The price in dollars per unit weight to move a specific product between
specific locations. – tariffs. Classification and rate administration.
Classification: products with similar characteristics or being transported together are
grouped together. Product with similar density, stowability, handling, liability, and
value characteristics are grouped into same class. Motor and rail carriers have
independent classification system. National Motor Freight Classification (23) &
Uniform Freight classification (31) . As a general rule – higher the class rating,
higher is the transportation cost for the product.
 Pricing strategy
Item No Item Description LTL TL
86700 Precious metals 500 380

55000 Glass/Electonic items 400 350

  Steel / Aluminium 300 220
  Food Grains/cement 200 160
  Coal 100 40

Rate Administration: Specific rate must be determined for each class. The rate per
hundredweight is normally based upon the shipment origin and destination,
although the actual rate charged for a particular shipment is usually subject to a
minimum charge and may also be subject to surcharges or ancillary assessments.
   ATLANTA, GEORGIA, to LANSING, MICHIGAN

Rate Class L5C M5C M1M M2M M5M M10 …. M40M

500 233 193 147 119       28
400 188             22
300 144             17
250                
200                
175                
150                
125                
110                
100                
92                
85                
77                
70               6
65 38              
60 36              
55 35             5.5
50 32 27 20 16       5.4
Weight Under 500- 1000- 2000- 5000- 10000- Over
Limits 500 1000 2000 5000 10000 20000 …. 40000
Instead of weight per mile/km basis.
 Pricing strategy
Commodity rates: When a large quantity of goods are moved between two locations
on a regular basis, it is common to publish commodity rates. They are rates arrived
at without regard to the classification. (most of the rail freight moves under
commodity rates).

Exception rates : exceptions to the classification – special rates published to provide

shipper lower rates than prevailing class rates. (instead of publishing the whole
thing just publish the exceptions). Discount based on aggregation principle. Limited
service to reduce cost where carrier is capable & trustworthy.

Freight-all-kinds rates. It is important to logistical operations. A mixture of different

products is transported under a generic rating. FAK rates are line haul rates since
they replace class, exception or commodity rates.

Transit services, Diversion & Reconsignment, split delivery, Demmurage and detention.
 Transport Documentation
Three types
Bill of lading: Basic document utilized in purchasing of transport services. It
specifies accurate description, count etc, it specifies terms and conditions of
liability, loss, damage etc.
Uniform bill of lading, Order-notified or negotiable bill of lading, export bill of
lading, govt BOL.

Freight Bill: a carrier’s method of charging of transportation services performed.

BOL info is used. Prepaid – prior to performance, and collect – payment
responsibility shifts to consignee.

Shipping Manifest: it lists the stops or consignees when multiple shipment are
placed on single vehicle. The manifest lists the stop, bill of lading, weight and
case count for each shipment.
Traffic Department Responsibilities
Traffic Department Responsibilities.
It has the responsibility for managing all freight related transportation
activities.
1) Auditing and claim administration, 2) Equipment scheduling, 3) rate
negotiation, 4) research and 5) tracing and expediting.
2) Auditing and claim administration: when services or charges do not
meet predetermined standards, shippers make claim for restitution.
2 types – loss & damage and overcharge-undercharge. Resolved
through freight bill audit. Peraudit/postaudit, external/internal
3) Equipment scheduling: operational bottleneck can occur from
carrier equipment waiting to be unloaded/loaded at shippers dock.
Careful load planning, equipment utilization, and driver scheduling
(maintenance).
Traffic Department Responsibilities
Rate Negotiation: they are responsible for obtaining the lowest possible rate
consistent with the service requirements. (rail, air, motor, pipeline, parcel etc).
lowest transportation cost may not be lowest cost of logistics.

Research: lookout for information that improves carrier service or obtain lower freight.
1) Carrier integration, 2) carrier evaluation, and 3) transportation integration
services.

Carrier integration: it refers to the practice of combining new carrier products and
services into logistics operation. Long term trends and service capabilities.

Carrier evaluation: carrier selection – choice of cost, transit time, reliability, capability,
accessibility and security.
Traffic Department Responsibilities
Carrier Evaluation Process: 2 step process- first - grading a relative importance from
the shippers perspective. Second – rating carrier performance for each measure.
Evaluation Relative Carrier Carrier
Sno Factor Importance Performance Rating
1 Cost 1 1 1
2 Transit time 3 2 6
3 Reliability 1 2 2
4 Capability 2 2 4
5 Accessebility 2 2 4
6 Security 2 3 6
23

Transporting services integration: search of alternative ways in which transportation

can be effectively utilized to reduce the overall logistical systems cost.
 Transport functionality
Transport functionality: provides two major functions

Product movement: A product in any form (components, assemblies, wip or FG) is

required to be moved to next stage of production or physically close to the
customer. Primary function product movement up and down the value chain.
Transportation utilizes temporal, financial and environmental resources.

Product storage: functions as a temporary storage (expensive option). If limited

storage capacity or loading/ unloading costs are significantly higher, storage in
vehicle becomes a viable option. Take a circuitous route or use diversion strategies.
(expensive but justifiable)
Participants in transportation decisions
Participants in transportation decisions:

Public Information Flow

Goods Flow

Government

Shipper Carrier Consignee

(Receiver)
 Participants in transportation decisions

Shippers and Consignees: They have common objective of moving goods from origin to
destination within prescribed time at the lowest cost. Services include specified pickup
& delivery time, predictable transit times, zero loss and damage, and timely exchange
of information and invoicing.

Carriers: they desire to maximize revenue and minimize costs. They desire flexibility in
pickup and delivery times to consolidate into economic moves.

Govt: stable and efficient commercial economy requires the carriers offer competitive
services. Involvement may be regulation, promotion or ownership.

Public: They are concerned with accessibility, expense, and effectiveness as well as
environmental and safety standards. Public generates ultimate demand. Pollution and
accidents reduction.
 Transportation Infrastructure
Modes of Transport
Road transportation. Road infrastructures are large consumers of space with
the lowest level of physical constraints among transportation modes.
However, physiographical constraints are significant in road construction
with substantial additional costs to overcome features such as rivers or
rugged terrain. Road transportation has an average operational flexibility
as vehicles can serve several purposes but are rarely able to move outside
roads. Road transport systems have high maintenance costs, both for the
vehicles and infrastructures. They are mainly linked to light industries
where rapid movements of freight in small batches are the norm. Yet, with
containerization, road transportation has become a crucial link in freight
distribution.
 Transportation Infrastructure
Road transport, however, possesses significant advantages over other modes:
• The capital cost of vehicles is relatively small. This produces several key
characteristics of road transport. Low vehicle costs make it comparatively
easy for new users to gain entry, which helps ensure that the trucking
industry, for example, is highly competitive. Low capital costs also ensure
that innovations and new technologies can diffuse quickly through the
industry.
• Another advantage of road transport is the high relative speed of vehicles,
the major constraint being government-imposed speed limits.
• One of its most important attributes is the flexibility of route choice, once
a network of roads is provided. Road transport has the unique opportunity
of providing door to door service for both passengers and freight.
 Transportation Infrastructure
Rail transportation. Railways are composed of a traced path on which are
bound vehicles. They have an average level of physical constrains linked to
the types of locomotives and a low gradient is required, particularly for
freight. Heavy industries are traditionally linked with rail transport
systems, although containerization has improved the flexibility of rail
transportation by linking it with road and maritime modes. Rail is by far
the land transportation mode offering the highest capacity with a 23,000
tons fully loaded coal unit train being the heaviest load ever carried.
 Transportation Infrastructure
The characteristics of rail transport:
• Multi-product nature of rail
• The cost structure of rail.
• The role played by the rail infrastructure and the network.
• The organization of rail transport as a public service.
 Transportation Infrastructure
Water(Maritime) transportation. Because of the physical properties of water
conferring buoyancy and limited friction, maritime transportation is the most
effective mode to move large quantities of cargo over long distances. Main
maritime routes are composed of oceans, coasts, seas, lakes, rivers and channels.
However, due to the location of economic activities maritime circulation takes
place on specific parts of the maritime space, particularly over the North Atlantic
and the North Pacific. The construction of channels, locks and dredging are
attempts to facilitate maritime circulation by reducing discontinuity.
Comprehensive inland waterway systems include Western Europe, the Volga /
Great Lakes system, the Mississippi and its tributaries, the Amazon, the Panama
and the interior of China. Maritime transportation has high terminal costs, since
port infrastructures are among the most expensive to build, maintain and improve.
High inventory costs also characterize maritime transportation. More than any
other mode, maritime transportation is linked to heavy industries, such as steel
and petrochemical facilities adjacent to port sites.
 Transportation Infrastructure
Air transportation. Traditionally, air freight has been always been used for high value
commodities, fragile goods and emergency items whether in the case of accidents
or disasters or simply commercial necessity such as legal documents, medical
records, financial papers, computer disks and tapes and spare parts for production
line breakdowns etc. However with increases in capacity and declining freight rates
the range of goods carried by air has widened. Now, perishable commodities such
as luxury foods, exotic fruits, chilled meat, fish and flowers, newspapers and
fashion garments are growth areas for air transport.
 Transportation Infrastructure
Routine non-perishable freight is shipped by air because the savings in other costs
such as lower inventory costs can offset the higher transportation costs. The cost
of working capital has encouraged companies to explore ways of reducing their
stockholding to a minimum. Such pressures on logistics chains led to the concept
of JIT (just in time). This is where materials and other inventory are required to
move through the manufacturing supply chain in the correct quantity to arrive at
their point of consumption at precisely the time they are needed. Air freighting is
particularly suitable for these shipments because of its speed and reliability. The
difference is most marked on long haul routes when compared with a land or sea
option.
 Transportation Infrastructure
There are a series of factors influencing the overall growth in air freight:
• Growth in world trade generally as well as opening up of new markets
• Reduction in air freight rates due to competition between airlines
• Globalisation with attendant needs to move component parts around the world
ever faster and more reliably
• Changes in manufacturing process with time compression of the supply chain and
widespread adoption of JIT working practices
• Centralistion of warehousing and distribution facilities
 Transportation Infrastructure
Pipelines. Pipeline routes are practically unlimited as they can be laid on land or under
water. The longest gas pipeline links Alberta to Sarnia (Canada), which is 2,911 km
in length. The longest oil pipeline is the Transiberian, extending over 9,344 km
from the Russian arctic oilfields in eastern Siberia to Western Europe. Physical
constraints are low. Pipeline construction costs vary according to the diameter and
increase proportionally with the distance and with the viscosity of fluids (from gas,
low viscosity, to oil, high viscosity). Pipeline terminals are very important since they
correspond to refineries and harbors.
 Transportation Infrastructure
Characteristics of pipeline transportation:
Pipelines form an unique mode of transportation. They can move large quantities of
certain types of commodities, mainly fluids, over long distances at relatively low
cost. The operations are environmentally friendly, dependable and continuous. The
pipelines can be laid on a wide variety of terrains without much difficulty.
Compared to normal surface mode like railways and road vehicles, the following
advantages are particularly attractive:
i) They do not require the return of ‘empties’ to the starting point and as such are ideal
for uni-directional traffic.
ii) They are insensitive to surface conditions such as storms, inclement weather, etc.
iii) Operating costs are low.
iv) Capital cost being the major cost of transportation, inflationary influences have a
small effect on transport cost.
v) They are environmentally friendly.
 Transportation formats
Transportation formats: - Common, Contract, Private & Exempt.
Common carriers – The basic foundation of public transportation system is the common
carrier, and they offer service to public at non-discriminatory prices. Operating
authority specifies the geographical area the carrier may operate in and also the
commodities it is permitted to transport.
Contract carrier – It provides transport services to select customers. They also must
receive authorisation and requirements are less restrictive than that of common
carriers. The basis for contract is an agreement between carrier and shipper for a
specified transportation service for a previously agreed cost.
Private Carrier- A private carrier consists of a firm providing its own transportation
service. These are not for hire & are not subject to economic regulation, although
they must comply with regulations concerning hazardous goods, safety, and any other
obligation as prescribed by the government.
Exempt carrier- are not constrained by economic regulation. Traditional exemption was
for specific commodities or market served. However it must comply with safety and
licensing laws of the state in which it operates.
Suppliers of transportation services
Suppliers of transportation services:
Single Mode Operators: The basic carrier type that offers service utilizing only one
transport mode. This focus allows a carrier to become highly speciliased,
competent and efficient. Eg Airline; Series of single mode –costly
Specialised carriers – opportunities exists for companies offering small shipment or
package services.
(regular or premium)
Basic Package Service-package delivery services within commercial zones of
metropolitan area, others offer on an interstate or intrastate services. United
Parcel Services(UPS), Overnite Express
Suppliers of transportation services
Example of Integrated parcel carrier services.
Freight services: Next-day air; Second-day air; Ground Saver; World wide document
service.
Value-added service: Electronic tracking; Advanced label imaging system ( barcode);
Delivery confirmation service; on call air pickup etc.

Premium Package services – Fed Ex, DHL, Emery Worldwide, Bluedart use of dedicated
cargo aircraft/vehicles. This appealed to commercial business because they fill a
need for rapid delivery in emergency situations.
 Intermodal Operators
Intermodal Operators: They use multiple modes of transportation to take advantage of
the inherent economies of each and thus provide integrated service at the lowest
total cost. Common intermodal combination is motor-rail, motor-rail-ocean etc.

Piggyback/TOFC/COFC/Roadrailer: Container is boxes 8 feet wide & high and 20 feet or

40 feet long & do not have highway wheel. Trailer are similar except that length
can be 53 feet.

Containership: Fishyback, trainship and containership is oldest form of intermodal

transport. A variant of this intermodal option is the “land bridge” concept which
moves containers by combination of sea and rail.
 Non-operating Intermediaries:
Nonoperating Intermediaries:

Freight Forwarders: they are for-profit businesses that consolidate small shipments
from various customers into bulk load and then utilize a common carrier for
transport. At destination the bulk load is split into original smaller shipments and
distributed. Freight forwarder accept full responsibility for shipment performance.

Shippers Associations: These are operationally similar to freight forwarders for gaining
cost economies but they are voluntary non-profit entities. Each member is billed
for its portion of the shipment plus a prorated share of associations fixed costs.