Chapter 13:

Transportation Management

Ref: Contemporary Logistics – 11e

Pearson Education, Inc. 2015
Learning Objectives

 To explain contemporary transportation management

 To discuss how rates are determined
 To learn about modal and carrier selection
 To distinguish among various transportation documents
 To illustrate select activities associated with making and
receiving shipments
 To learn about transportation service quality

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Contemporary Transportation Management

• Transportation management
─ refers to the buying and controlling of transportation
service by either a shipper or consignee1
• Transportation is the most costly logistics activity

1Source:
John J. Coyle, Edward J. Bardi, and Robert A. Novack, Transportation, 6th ed. (Mason, OH:
South-Western, 2006).

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Transport economics - transport costs

 Transport Costs are made up fixed, variable and semi fixed

 Fixed Costs are independent of mileage:
 Car purchase / replacement
 Interest on loans
 Depreciation of vehicle due to age

 Variable Costs depend on miles/usage:

 Fuel
 Depreciation from mileage
 Time Cost (opportunity cost)

 Semi fixed costs part fixed and part variable e.g. a firm may employ a
pool of drivers who may be idle at some point in the day.
Which of the transportation mode is high/low fixed/variables costs?

 Fixed costs form a high percentage of rail sea and air

operations.
 A large lorry or airplane allows fixed costs to be spread
over higher number of passengers or freight carried.
Rate (Pricing) Considerations

 Rate Determination
 Weight x rate = transportation charge
 Transportation rates based on three factors
- Product
- Weight
- Distance

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Rate Determination

– Commodity rate
• One specific rate for every possible combination of product,
weight, and distance. Example of Souq fixed delivery charge

– Class rate system

• System to simplify rate determination
• Freight classification used to simplify the number of commodities

– http://www.iss-shipping.com/cargo/cargo_localtariff_abuairexport.asp

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Rate Determination

Copyright © 2015 Pearson Education, Inc.

Rate Determination

 Factors used for determine product’s freight

classification
- Density
• refers to how heavy a product is in relation to its size
• Viewed as primary factor for setting a product’s classification

- Stowability
• refers to how easy the commodity is to pack into a load
• possible considerations involve the commodity’s ability to be loaded with
hazardous materials and ability to load freight on top of the commodity

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Rate Determination

 Factors used for determine product’s freight

classification
- Ease of difficulty of handling
• refers to challenges to handling that might be presented by a
commodity’s size, weight, and so on

- Liability for loss and damage

• considers, among others, a commodity’s propensity to damage other
freight, its perishability, and its value

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Rate Determination

• Rate Determination
– Weight groups are used to simplify shipment weight
– Weight group examples:
• <500 lbs (highest rate)
• 500-999 lbs
• 1000-1,999 lbs
– Distances are simplified through rate basis numbers
• Zip codes are replacing rate basis numbers

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Rate Determination

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Rate and Service Negotiations
 Both rates and service levels may be negotiated to take
advantage of trade-offs between price and service

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Transportation Planning:
Mode and Carrier Selection
Transport Management Planning Activities

Source: Brian J. Gibson, Ph.D.

Transportation Planning and Strategy

 Terms of Sale
 Free-on-board (FOB) Origin – INCOTERMS
- Incoterms were first established in 1936 by the International
Chamber of Commerce (ICC) in Paris, France
 FOB destination
 Domestic terms of sale
- When freight charges are paid for a particular domestic shipment
INCOTERMS
 Incoterms deal with the identification of the physical
location in the supply chain where risk of loss or damage
to the goods and obligations for transportation, customs
and related costs shift from the seller to the buyer.
 Incoterms are rules, not laws
INCOTERMS
 Rules for any mode(s) of transport:
 EXW Ex Works (named place of delivery)
 FCA Free Carrier (named place of delivery)
 CPT Carriage Paid To (named place of destination)
 CIP Carriage & Insurance Paid To (named place of destination)
 DAT Delivered At Terminal (named terminal at port or place of destination)
 DAP Delivered At Place (named place of destination)
 DDP Delivered Duty Paid (named place of destination)

 Rules for sea & inland waterway transport

 FAS Free Alongside Ship (named port of shipment)
 FOB Free On Board (named port of shipment)
 CFR Cost & Freight (named port of destination)
 CIF Cost Insurance & Freight (named port of destination)
Responsibilities Under FOB and Payment Terms

Source: Adapted from Bruce J. Riggs, “The Traffic Manager in Physical Distribution Management”,
Transportation and Distribution Management, 1968 p. 45
Discuss the Case Study 2
Transportation Planning and Strategy, continued
 Decision to Outsource Transportation
 Firms choose between “make” or “buy”
- Commercial carriers “buy”
- Private fleets “make”
- External experts move the freight and/or manage the
transportation process “buy”
- Third-party logistics (3PL) “buy”

 Modal Selection
 Accessibility
- Accessibility advantage: Motor carriage
- Accessibility disadvantage: Air, rail, and water
 Transit Time
- Transit time advantage: Air and motor carriage
- Transit time disadvantage: Rail, water, and pipeline
Transportation Planning and Strategy, continued

 Modal Selection, continued

 Reliability
- Reliability advantage: Motor carriers and air carriers
- Reliability disadvantage: Water carriers and rail carriers
 Product Safety
- Safety advantage: Air transportation and motor carriage
- Safety disadvantage: Rail and water
 Cost
- Cost advantage: The cost of transportation service varies
greatly between and within the modes
- Cost disadvantage: Motor carriage and air transportation
Comparison of Modal Capabilities

Source: Brian J. Gibson, Ph.D.

Performance Ratings of Modes

Source: Edward J. Bardi, Ph.D.

Transportation Planning and Strategy, continued

 Carrier Selection
 Selecting the individual transportation service providers
within the mode.
 Major difference between modal and carrier selection is
the number of options and decision frequency.
 Type of service provided within a mode impacts carrier
selection.
 Most carriers have the capabilities to provide a similar
level of service.
 Core carrier
- limited number of carriers
- leverage its purchasing dollars
Transportation Planning and Strategy, continued

 Rate Negotiations
 Centralized freight rate negotiations.
 Developing contracts with carriers for a tailored set of
transportation services at a specific price.
 Leveraging volume with a small set of carriers.
Transportation Execution and Control

 Shipment Preparation
 Corporate transportation routing guide
 Last-minute, cost-saving decisions
- consolidate freight
- coordinate shipment deliveries
- take full advantage of container capacity
- an accurate freight count should be taken
Transportation Execution and Control, continued

 Freight Documentation
 Bill of lading
- originates the shipment
- provides all the information the carrier needs
- stipulates the contract terms, including carrier’s liability for loss
and damage
- acts as a receipt for the goods the shipper tenders to the
carrier
- in some cases, shows certificate of title to the goods
 Freight bill
- carrier’s invoice for carrier charges listing:
• shipment
• origin and destination
• consignee
• items
• total weight
• total charges
 Bill of Lading
Transportation Execution and Control, continued

 Maintain In-Transit Visibility

 Manage key events as product moves across the supply chain.
 Technology facilitates the ability to monitor product.
 Visibility tools must be linked to other capabilities and
processes to have an impact on supply chain event
management.
 Monitor Service Quality
 Analyze the outcome of all their transportation strategy,
planning, and decision-making.
 Key requirement for service quality monitoring is information.
Transportation Execution and Control, continued

 Transportation Metrics
 Key performance indicators (KPIs)
- can be used to evaluate
• current performance versus historical results
• internal goals
• carrier commitments
- challenge lies in narrowing down metrics available
to monitor performance to a manageable number of
KPIs
- primary categories of transportation KPIs include
service quality and efficiency
Transportation Execution and Control, continued

 Transportation Management Systems (TMS)

 Critical applications include the following:
- Routing and scheduling
• proper planning of delivery routes has a major impact on
customer satisfaction, supply chain performance, and
organizational success
- Load planning
• effective preparation of safe, efficient deliveries
- Load tendering
- Status tracking
- Appointment scheduling
Transportation Performance Scorecard

Source: Brian J. Gibson, Ph.D.

Transportation Management Key Terms

 Amodal shipper  Demurrage

 Bill of lading  Density
 Class rate system  Detention
 Commodity rate  Documentation
 Concealed loss or  Expediting
damage  FOB destination

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Transportation Management Key Terms

 FOB origin  Routing guide

 Freight bill  Stowability
 Freight claims  Tracing
 Rate  Transportation
 Routing Management

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