Chapter 6:

Global Transportation Planning and Execution

Introduction
• Transportation planning is a cooperative process designed
to foster involvement by all users of the system, such as
 The business community,
 Community groups,
 Environmental organizations,
 The traveling public,
 Freight operators, and
 The general public, through a proactive public
participation.
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Cont’d…
• Furthermore, it includes;
 A comprehensive consideration of possible
strategies;
 An evaluation process that encompasses
diverse viewpoints;
 The collaborative participation of relevant
transportation-related agencies and
organizations; and
 Open, timely, and meaningful public
involvement
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 CONT’D….
Figure 5.1

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 5.1 Overview of Global Transportation
• The United States is a large trading partner in the
world.
• The United States trades with nearly all nations of the
world, producing nearly $1.3 trillion in goods exports
and more than $2.1 trillion in goods imports in 2008.
• This level of foreign trade creates a tremendous level
of transportation activity between the United States and
its trading partners around the world.

Global transportation service is provided by all modes

of transportation, including pipelines with 80 and 90
percent of the global trade in goods moving via water
transportation.
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 5.1.1 Global Transportation Challenges:
• Compared to domestic freight movement, global
transportation of goods over long distances
creates a variety of significant challenges.
• Transportation managers must be cognizant or
mindful of broader issues that impact the
availability and cost of global transportation
services.
• The following challenges are worthy of further
attention by global transportation managers:

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CONT’D…
a. Trade Level Fluctuation: we can see it at two levels.
1. Significant increases in global trade activity can create
major transportation challenges such as:
 Ocean carrier capacity was at a premium
 Containers were hard to find,
 Transportation rates rose
 Major ports also suffered from severe congestion
problems
 So Transportation managers must prepare through
strong alliances with major transportation service
providers, contracts that secure long term capacity, and
creative use of alternate ports and routes.
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 CONT’D…
2. Declines in global trade activity can also cause
havoc/distraction on the transportation industry.
 While port congestion issues drive away and
containers become readily available, carrier
capacity is not guaranteed.
 Many ocean and air carriers reduce frequency of
service and retire older equipment during
economic downturns to reduce costs and
protect their pricing structure.

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 CONT’D…
b. Carrier Consolidation:
 Under the weight of mounting debt, fuel costs,
and diminished traffic, financially
strapped/short of money, carriers are either
going out of business, developing strategic
alliances, or merging operations.
 Transportation managers can negotiate lower
rates during the lean times for the carriers but
will have less choice and face higher prices as
freight volume increases.

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 CONT’D…

c. Security Risks:
 Protection against terrorism has become a necessity in the
post-9/11 world.
 Paperwork containing, inspection of freight increase,
and efforts to secure supply chains will become more
extensive.
 Theft remains a major challenge in global transportation.
 Ship hijackings are on the rise and pirates are more
shameless with the prospects of huge ransom /money
payoffs.
 All of these requirements will generate greater
transportation cost and higher potential for freight delays.
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 CONT’D…
d. Shifts in Regional Sourcing: Over time, production
activity migrates from one region of the world to another.
• Generally, the four issues discussed above have a direct impact on
the flow and cost of global freight.
• However, there are numerous other challenges around the world
that transportation managers must pay attention to. For instance
 Government regulation and intervention,
 Volatile fuel prices,
 Sustainability and global warming issues, and
 The financial industry meltdown each present potentially negative
implications for the transportation industry and its customers.
 Therefore, transportation managers must remain vigilant / watchful
of these external issues and their potential for disrupting the global
supply chain.
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 5.2 Export Preparation Activities:
• Before global freight is loaded and transported to its
destination, key decisions must be made and requirements
completed.
• The four primary export preparation activities are:
1. Terms of Trade
2. Securing cargo/freight insurance
3. Agreeing upon the terms of payment
4. Completing the required freight documentation
• These fundamental steps help;
 to clarify responsibilities of the exporter and importer,
 protect each party’s financial interests,
 improve freight control and visibility, and
 facilitate problem-free transport.
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 5.2.1 Terms of Trade:
Terms of trade are extremely important because;
 They show precisely where the exporter’s
responsibilities end and where the importer’s
responsibilities begin.
 They govern decision making authority for
movement of the product.
 They establish when the ownership and title of
the goods pass from the exporter to the importer.
 They clarify which organization incurs delivery
related costs.
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 CONT’D…
• The trade terms are widely known as INCOTERMS.

• There are 13 specific INCOTERMS available to exporters and

importers. All apply to ocean transport, while only seven of them
are appropriate for air, rail, truck, and intermodal transportation.

The terms are broken down into four primary groups.

 The E term is used when the importer takes full responsibility
from point of departure;
 F terms are used when the main carriage is not paid by the
exporter;
 C terms are used when the main carrier is paid by the exporter;
and
 D terms are employed when the exporter takes full responsibility
to the point of arrival.
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 1. E Terms:
• Ex Works (EXW). This is a departure contract that gives the
importer total responsibility for the shipment.
2. F Terms: The three F terms obligate the exporter to incur the cost
of delivering the shipment cleared for export to the carrier
designated by the importer.
a. Free Carrier (FCA): Risk of damage is transferred to the
importer when the exporter delivers the goods to the carrier
named by the importer.
b. Free Alongside Ship (FAS): The risk of damage is transferred to
the importer when the goods are delivered alongside the ship. The
importer must pay the cost of “lifting” the cargo or container on
board the vessel.
c. Free On Board (FOB): The risk of damage is transferred to the
importer when the shipment crosses the ship’s rail (when the
goods are actually loaded on the vessel). The exporter pays for
loading.
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 3. C Terms

The four C terms are shipment contracts that

obligate the exporter to obtain and pay for the
main carriage and/or cargo insurance. These are:
a. Cost and Freight (CFR)
b. Carriage Paid To (CPT)
c. Cost, Insurance, Freight (CIF)
d. Carriage and Insurance Paid To (CIP)

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 CONT’D…
• Cost and Freight (CFR) and Carriage Paid To
(CPT) are similar in that both obligate the
exporter to select and pay for the main carriage
(ocean or air to the foreign country). In both
terms, the exporter incurs all costs to the port
of destination.
• Cost, Insurance, Freight (CIF) and Carriage and
Insurance Paid To (CIP) require the exporter to
pay for both main carriage and cargo insurance

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 4. D Terms:
All five D terms require the exporter to incur all costs and the risk of
damage up to the destination port. These are:
 Delivered At Frontier (DAF) means the exporter is responsible for
transportation and incurs the risk of damage to the named point at
the place of delivery at the frontier of the destination country. DAF
can be used with all modes.
 Delivered Ex Ship (DES) and Delivered Ex Quay (DEQ) are used
by water transportation. Both terms require the exporter to pay for
the main carriage.
 Under DES, risk of damage is transferred to the importer when the
goods are made available to the importer on board the ship un-
cleared for import at the port of destination. The importer is
responsible for customs clearance.
 With DEQ, risk of damage is transferred to the importer when the
goods cleared for import are unloaded onto the quay at the named
port of destination.
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 CONT’D….
 Delivered Duty Unpaid (DDU) and Delivered Duty
Paid (DDP) are available for all modes.
 DDU requires the exporter to incur all cost, except
import duties, to the named place in the country of
importation. Risk of damage passes to the importer when
the goods are made available.
 DDP imposes the same obligations on the exporter as
DDU, plus the additional responsibility of clearing the
goods for import and paying the customs duties. (DDP
is similar to DEQ.)
Proper choice of INCOTERMS will go a long way toward the effective
balancing of responsibilities for international transportation
between
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the exporter and the importer. 18
 5.2.2 Cargo Insurance:

• One of the issues addressed by INCOTERMs

is responsibility for insuring the freight.
• Importers and exporters are exposed to
countless perils and financial risks when their
freight moves through the global supply chain.
Therefore, they must determine their insurable
interests and how to most effectively manage
risk.

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 CONT’D….
• Different insurance related issues are introduced
below.
a. Financial Risks: Trying to recover financial losses
from international carriers for freight damage or loss
is difficult and time consuming.

b. Transportation Perils: International cargo is subject

to a wider array of loss and damage risks than
domestic freight. This is due to the extended origin-
to-destination distance, number of transfers
between carriers, and varying climatic conditions.

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 CONT’D….
For instance some of the main ocean freight transportation
perils are:
• Water damage: water from storms and waves can
infiltrate/penetrate cargo.
• Overboard losses: cargo containers can be lost overboard
during storms.
• Jettison: cargo may be purposely dumped overboard to save the
ship or prevent further cargo losses.
• Fire: most dangerous cargo (chemicals, ammunition, and so
forth) moves via ocean transport, creating fire and explosion
risk
• Sinking: catastrophic storms and waves can engulf ships and
cause them to sink along with the cargo.

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 CONT’D….
• Theft: cargo theft, particularly during dwell/stay time at ports
and overland transport, adds up to billions of dollars yearly.
• Hijacking: pirate attacks on ocean ships are common, with
freight being delayed for ransom or stolen.
• Other risks: freight contamination, vessel collision,
government delays, and port strikes can cause freight loss.

 International freight moving via air or rail face perils, though

they are minimal compared to ocean freight.

c. Managing Risks: Exporters and importers must actively

manage these risks. They have three options at their disposal:
risk retention, risk transfer, or take a mixed approach.
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 5.2.3 Terms of Payment:
• The financial transaction creates a risk for the exporter
and the importer. Exporters are concerned about
nonpayment for goods that are sold internationally
where as Importers have concerns regarding payment
timing and methods. So balancing the risks of the two
parties can be challenging. Because:
• Exporters would reduce their risk of nonpayment by
demanding cash in advance. However, it may create a
risk of losing business to a more aggressive competitor
• Importers would reduce their risk of product problems
by purchasing goods on open account. However, it may
cause potentially excellent suppliers to walk away from
the business.
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 CONT’D….
• Fortunately, there are middle ground alternatives to facilitate
trade without placing all financial risk on one party. These are:
 A letter of credit (LC): It is a financial instrument that ensures
the exporter gets paid and the importer receives the goods as
expected.
 Drafts: It is sometimes called bills of exchange, are similar to
an importer’s check. Like checks used in domestic commerce,
drafts carry the risk that they will be dishonored. Drafts may be
a sight draft and a time draft.
 A sight draft is used when the exporter wishes to retain title to
the shipment until it reaches its destination and payment is
made.
 A time draft is used when the exporter extends credit to the
buyer.
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 5.2.4 Freight Documentation:
Freight documents control the cargo on its journey from origin to its
final destination.
Missing or incorrect paperwork can cause delays and additional
costs. Paperwork errors can also lead to Customs clearance delays,
additional inspection, and improper application of duty rates.
In general, international cargo travels with four types of
documents:
1. invoices, mostly commercial invoice
2. export documents,
3. import documents, and
4. transportation documents.

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 CONT’D….
1. Invoices: A critical document in both international and domestic
transaction is the invoice (or bill) for the goods.
 The most common billing document is the commercial
invoice. It must contain a precise description of the
product, quantities, and value, as well as the country
of origin.
2. Export Documents: Many countries require companies
selling product abroad to keep track of the type of
goods being exported. Much of this requirement is
focused on maintaining accurate trade statistics but
there are exceptions in the case of strategic materials.

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 CONT’D….

3. Import Documents: The documents are intended to

protect its citizens from inferior quality products,
properly classify products for collection of duties, and
limit the importation of products that the government
finds inappropriate. The Certificate of Origin and a
Certificate of Inspection are widely required import
documents.
4. Transportation Documents: The disruption-free flow of
goods also depends upon the availability of key
transportation documents. The primary transportation
document is the bill of lading.

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 5.3 Transportation planning

• The global transportation planning focuses on

the selection of the modes, carriers, and
routes by which goods will be delivered. These
decisions must align with corporate strategies,
control risk, and provide the required level of
customer service.
1. Mode Selection: The fundamental decision in
global transportation is mode selection. each
mode selection factor are:
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 CONT’D….
• Accessibility: Freight buyers must considers a mode’s ability to
reach origin and destination facilities and provide service over the
specified route.
• Capacity: The amount of product being moved can render a mode
infeasible or impractical.
• Transit Time: Time is a key consideration in mode selection as
transportation impacts inventory availability, stock-out costs,
and customer satisfaction.
• Reliability: It refers to the consistency of the transit time
provided by a transportation mode.
• Cost: Transportation costs include the rate for moving freight
from origin to destination plus any accessorial and terminal fees
for additional services provided.

The general strategy focuses on determining which mode or combination of modes best suits
the requirements
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 2. Carrier Selection፡.
• Transportation rates tend not to be the most important criterion
in carrier selection rather service performance.
• Carrier selection research suggests that:
 Reliability of on-time delivery and on-time pickup
 Technical capabilities
 Carrier response to emergencies
 Information sharing
 Freight damage experience
 Carrier financial stability
 Geographic coverage
 Equipment availability and capacity, etc are the
most important criteria to transportation service buyers.

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 3. Route Planning:
• Routing planning and delivery scheduling activities are not
unimportant, they involve big dollars, impact customers, and
can cause major headaches if not properly managed.
• The three main concerns of route planning are:
1. Effective routing: helps to avoid unfriendly countries, poorly
equipped ports, and congested border crossing points that may
drastically delay cargo flows.
2. Efficiency: Carriers and their customers must develop more
efficient routes that maximize equipment capacity utilization.
They also need to use routes that control expenses related to
tolls, port costs, and other service surcharge.
3. Product safety: Major trouble spots for hijacking, product
theft, and piracy, Land routes with poor quality roads and
freight handling capabilities may also pose problems.
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 5.4 Global freight flows
• The global journey often involves multiple carriers from
different modes, numerous border crossings, and long
distances. In general, global freight primarily moves via:

direct indirect
• service or service.

• Indirect service: is used in situations where freight is

moving long distances between continents or facilities that
are not directly accessible by the mode of choice.
• Direct service: is commonly used in situations when
international freight is moving relatively short distances
between directly accessible origin and destination points.
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 CONT’D….
Figure 5.2

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 5.4.1. Preparing Freight for Movement:

• During preparation for release of the freight to

the transportation company, key:
 preventing freight damage through protective
packaging and proper packing,
insuring the goods against key risks, and
 completing all necessary documentation.

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 CONT’D….
a. Packing the Freight: Four potential in-transit
problems should be kept in mind when choosing
packaging materials: breakage, moisture, pilferage,
and excess weight.
b. Insuring the Goods: Before tendering freight to the
transportation company, the exporter and importer
must determine their insurable interests and
understand how to most effectively manage risk.
C. Completing the Paperwork: These documents must
be completed fully and accurately prior to tendering
freight to the transportation company.

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 5.4.2 Policy and Regulatory Issues Impacting Global
Flows
• Given the strategic nature of transportation, governments around the world
take an active interest in freight movement. Key roles include:
• regulation of the transportation industry, investment in transportation
infrastructure and promotion of international trade. Government agencies
may also control the import and export of strategic materials.

Key policy priorities include the following:

• Protection of the traveling public which leads to safety regulation.

• Congestion, air pollution, greenhouse gas emissions, noise, and dependence

on a volatile world oil market are examples of environment-related concerns.

• Terrorism threats have led to security-focused legislation and programs

that impact global transportation.

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 5.5 Global transportation providers

• The global transportation market is served by carriers in

all modes of transportation, including pipelines in North
America and Eastern Europe. Intercontinental freight
moves primarily via ocean and air freight.
1. Ocean Shipping: As mentioned previously, ocean
shipping is an essential resource in global supply chains.
 Service Options: Ocean transportation service providers
can be segmented into three different categories liner
services, charter services, and private services.

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 CONT’D….

a. Liner service: is provided by ships that travel on

regularly scheduled voyages, following fixed routes
with predetermined ports of call. Typically, a liner ship
will serve a particular trade area.
b. Charter/contract service: is provided by ships that are
hired for a specific voyage or amount of time. Types
Charter include:
 A voyage charter, A time charter, A bareboat charter
and A demise charter
c. Private Service: is similar to operating a private truck fleet.
Private ships are owned or leased on a long-term basis by the
company moving the goods.

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 2. International Air:

 Air carriers transport small quantities of high-value,

low-weight, semi-finished and finished goods.
 Service Options. Two primary carrier types dominate
this mode are:
a. Air cargo carriers focus exclusively on the movement
of freight, packages, letters, and envelopes.
b. Combination carriers move freight and passengers,
often on the same trip, with cargo loaded in the
belly/stomach of the aircraft.

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 3. Surface Transport:

• Despite the high volume of intra-continental truck

traffic, the industry is hampered by a patchwork of
domestic rules and regulations that impede
international freight flows. Each country has its own
regulations regarding equipment length, width, and
carrying capacity.
• Safety regulations regarding driver hours of service,
speed limits, and inspections are also inconsistent.
Motor carriers and their customers must understand
the unique requirements of each country to ensure
efficient and timely freight movement.
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 Reading Assignment

Transportation Risk Management

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