CHAPTER 8:
Transportation
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Overview of transportation
•
•
•
•
•
•
•
•
Transport functionality and participants
From regulation to a free market system
Transportation modal structure
Specialized transportation service
Transportation economics and pricing
Transportation pricing
Documentation
Product pricing and transportation
8-2
Transport functionality primarily consists
of product movement services
• Product movement is the movement of inventory to
specified destinations
– Restrictive element—in-transit inventory is “captive”, usually
inaccessible during transportation
– Flexible element—inventory can be diverted during shipment to a
new destination
• Transportation consumes time, financial, and
environmental resources
– Transportation is more than 60% of the cost of logistics
– One of largest consumers of oil and gas in US
– Impacts traffic congestion, noise and air pollution
8-3
Transport also functions as storage
services for products while in a vehicle
• In-transit inventory is captive in the transport system
– Managers strive to reduce in-transit inventory to a minimum
• Product can also be stored in vehicles at origin or
destination (trailers, trucks, railcars, etc)
– Usually more expensive than traditional warehousing
• Must pay rental or demurrage charges on vehicles used for
storage
• Diversion occurs when a shipment destination is changed
after a product is in transit
8-4
Two fundamental transport principles
• Economy of scale is the cost per unit weight decreases as the size
of the shipment increases
– At least until you totally fill the carrying vehicle!
– Cost decreases because the fixed cost of the carrier is allocated over a larger
weight of shipment
• Economy of distance is the cost per unit weight decreases as
distance increases
– Often called the tapering principle
– Longer distances allow fixed cost of the carrier to be spread over more miles,
lowering the per mile charge
• Goal is to maximize the size of the load and distance shipped while
still meeting service expectations
8-5
Transport participants
•
•
•
•
•
•
Shipper
Consignee (Receiver)
Carrier and Agents
Government
Internet
Public
8-6
Major relationships among
transportation participants
Figure 8.1 Relationship Among Transportation Participants
8-7
Transportation infrastructure supports
the flow of our nations economy
Table 8.1 The Nations’ Freight Bill ($ billions)
8-8
Role and perspective of participants
• Shipper and consignee have a common interest in moving goods
from origin to destination within a given time at the lowest cost
• Carriers desire to maximize their revenue for movement while
minimizing associated costs
• Agents (brokers and freight forwarders) facilitate carrier and
customer matching
• Government desires a stable and efficient transportation
environment to support economic growth
• Public is concerned with transportation accessibility, expense, and
standards for security, safety and the environment
8-9
Role of the Internet in transportation
• The Internet now provides the vital communications links
between the transactional participants (shipper-carrierconsignee)
– Replacing phone and fax technologies
• Web-based enterprises provide information marketplaces
– Freight matching
– Fuel, equipment, parts and supplies purchases
8-10
Transportation regulation by the
government focuses on
• Economic regulation seeking to make transportation equally
accessible and economical to all without discrimination
– Government created infrastructure (roads, canals, ports)
– Intended to prevent carriers from taking advantage of suppliers while ensuring
long-term financial stability for carriers
• Social regulation which takes measures to protect public safety and
environment
– Department of Transportation (DOT) (1966) has active role in hazardous
material safety and driver safety
– Hazardous Materials Transportation Uniform Safety Act (1990) took
precedence over state and local regulations
8-11
History of transportation regulation
• In 1800’s, rise of steamships and railroads created immense wealth
and monopolies
– (e.g. Commodore Vanderbilt and the railroad “barons” )
• Interstate Commerce Commission (ICC) created in 1887 to oversee
regulation of interstate transportation
– To stop the railroad monopolies
• Other regulatory acts passed from 1906 to 1973 placed motor
carriers, shipping, air transport and pipeline transport under ICC
oversight
• By 1970, ICC had oversight on 100% of rail and air, 80% of pipeline,
43% of trucking and 6% of water carrier operations
8-12
Transportation deregulation (1980)
• Motor Carrier Act of 1980 deregulated the motor carrier industries
–
–
–
–
Entry restrictions for new businesses were relaxed
Restrictions for types of freight and range of services were abolished
Individual carriers were given the right to price their services
Trucking industry’s collective rate-making practices were abolished
• Staggers Rail Act of 1980 deregulated the rail industry
– Provide railroad management with freedom necessary to revitalize the industry
– Rail carriers were authorized to use selective pricing to meet competition and
cover operating costs
– Carriers given increased flexibility with respect to surcharges
– Contract rate agreements between individual shippers and carriers were
legalized
– Rail management given liberal authority to proceed with abandonment of
poorly performing rail service
8-13
Transportation regulation in the new millennium
is stimulated by technology and global issues
• Electronic Signatures in Global & National Commerce Act
of 2000
– Gave digital signatures legal status
• Patriot Act of 2001
– Increased inspections at ports, airport security, and increased
security at border crossings
• Continued Dumping and Subsidy Act
– Fines for artificial underpricing and “dumping” of foreign goods in
U.S. markets
• Jones Act
– Only U.S.-built ships operating under a U.S. flag with U.S. crews
can ship goods directly from a U.S. port to another U.S. port
8-14
Transportation structure
• Consists of rights-of-way,
vehicles, and carriers operating
within five basic modes
• A mode identifies basic
transportation method or form
–
–
–
–
–
Rail
Highway
Water
Pipeline
Air
8-15
Table 8.1
Nation’s freight bill
1960
1970
1980
1990
2000
2009
32.3
62.5
155.3
270.1
481.0
542.0
Railroad
9.0
11.9
27.9
30.0
36.0
50.0
Water
3.4
5.3
15.3
20.1
26.0
29.0
Pipeline
0.9
1.4
7.6
8.3
9.0
10.0
Air
0.4
1.2
4.0
13.7
27.0
29.0
Other Carriers
0.4
0.4
1.1
4.0
10.0
28.0
Other shipper costs
1.3
1.4
2.4
3.7
5.0
9.0
47.8
83.9
213.7
350.8
594.0
697.0
0.5
1,046
2,831
5,832
9,960
14,256
9.00%
8.03%
7.55%
6.02%
5.92%
4.89%
Truck
Grand Total
GNP (Trillions)
Grand Total of GNP
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc., 2010, p. 25.
8-16
Table 8.2
Domestic shipments by mode and volume
Mode
and Volume
Freight Volumes
(Millions of Tons)
2009
2015
Mode Share %
2021
2009
2015
2021
Percent
Change
2009 - 2015
Truck
8,849 10,515 11,498
68.0% 69.8% 70.7%
29.9%
Rail
1,773
1,957
2,033
13.6% 13.0% 12.5%
14.6%
139
193
253
1.1%
1.3%
1.6%
82.6%
12
15
18
0.1%
0.1%
0.1%
57.3%
829
929
964
6.4%
6.2%
5.9%
16.4%
1,417
1,453
1,502
10.9%
9.6%
9.2%
6.0%
Rail Intermodal
Air
Water
Pipeline
Total
13,018 15,061 16,269
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc., 2010, p. 25.
8-17
Table 8.3
Domestic shipments by mode and revenue
Mode
and Revenue
Freight Volumes
(Billions of Dollars)
Mode Share %
2009
2015
2021
544
748
933
40
51
61
6.0%
5.7%
5.4%
51.6%
9
16
24
1.4%
1.7%
2.1%
151.1%
Air
20
29
40
3.0%
3.2%
3.6%
99.5%
Water
10
13
15
1.5%
1.5%
1.3%
51.5%
Pipeline
41
46
51
6.2%
5.1%
4.5%
24.6%
665
903
1,123
Truck
Rail
Rail Intermodal
Total
2009
2015
2021
Percent
Change
81.9% 82.8% 83.0%
2009 - 2015
71.4%
Source: U.S. Freight Transportation Forecasts to 2021, American Trucking Association, Inc., 2010, p. 25.
8-18
Rail mode has historically handled the largest
number of ton-miles within continental US
• Track mileage has declined by
over half since 1970
• Traffic shifted from broad range
of commodities to hauling
specific freight in traffic
segments
– Carload
– Intermodal
– Container
• New technologies include
articulated cars, unit trains and
double-stack cars
8-19
Truck mode has expanded rapidly since the
end of World War II
• Nearly 1 million miles of
highways in U.S.
• Key benefits include
– Speed of transit
– Ability to operate door-to-door
• More efficient than rail for small
shipments over short distances
• Dominate freight moves under
500 miles and from
manufacturing to wholesalers to
retailers
• Many companies run their own
truck fleets as well (e.g.
WalMart)
8-20
Water mode is the oldest form of US transport
dating back to the birth of our nation
• Percentage of ton-miles
has stayed between 19
and 30% since 1960’s
• Ranks between rail and
truck in fixed cost
• Right of way (canals and
rivers) maintained by
Federal government
8-21
Pipeline mode accounts for about 68 percent of all
crude and petroleum ton-mile movements in US
• Have the highest fixed cost
and lowest variable cost of
all modes
• Unique transportation
mode
– Can operate 24 hours a
day, 7 days a week
– No emissions
– No empty container or
vehicle to return
• Not flexible, and limited to
liquids and gases
8-22
Air mode is the newest and least utilized
transport mode for freight
• Accounts for only 1% of
intercity ton-miles
• Fastest of all the modes
• Fixed cost is 2nd lowest but
variable costs are
extremely high
• Most products air-shipped
have high value, high
priority or extreme
perishability
8-23
Comparison of fixed and variable cost
structure of each transport mode
Table 8.4 Cost Structure For Each Model
8-24
Operating characteristics used to classify
transport modes
• Speed is the elapsed movement time from origin to
destination
• Availability is ability of a mode to service any given pair of
locations
• Dependability is the potential variance from expected
delivery schedule
• Capability is the ability to handle any load size or
configuration
• Frequency is the quantity of scheduled movements a
mode can handle
8-25
Highway transport is appealing partly due to its
relative ranking across characteristics
Table 8.5 Relative Operating Characteristics by Mode
Lowest rank is best
Note: Lower is better
8-26
Infrastructure in crisis – US needs a National
Transportation Plan
• United States aggressively invested in highway construction after
World War II
– However, this highway system is in need of widespread repair to sustain the
safe movement of over 26 million trucks
• August 1, 2007 a major bridge span of interstate I-35 over the
Mississippi River collapses
– Watch video of aftermath by selecting this link (slideshow mode)
http://www.metacafe.com/watch/1659007/i_35_bridge_collapse/
• Roughly 12 percent (or 79,000) of public road bridges on the National
Bridge Inventory are classified as structurally deficient
8-27
Transportation service is achieved by
combining modes
• Traditional carriers are firms that provide service using only one of
the five basic transport modes
– E.g. trucking firm or an airline
• Package service uses intermodal transportation (ground and air) to
handle small shipments or parcel deliveries
– E.g. USPS, FedEx, or UPS
• Intermodal transportation combines two or more modes to take
advantage of the inherent economies of each and provide an
integrated service at a lower total cost
– E.g. piggyback service integrating rail and motor service
• Nonoperating intermediaries include several business types that
do not own or operate equipment
– Act to broker services by other firms
8-28
Package service provides both regular and
premium service
• Package service is growing rapidly with the rise in eCommerce and Internet consumer sales
• Ground package service offers regular delivery within
metropolitan areas and between cities
– United Parcel Service (UPS), Federal Express Ground and
United States Postal Service (USPS)
• Air package service is a premium service to deliver
certain packages door-to-door by next-day or second-day
– Integrates truck and air modes seamlessly
8-29
Examples of expanded parcel carrier
services (Freight services)
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•
•
•
•
•
•
•
Same day air
Next day delivery
Second day delivery
3 day select
Ground
Worldwide express
Standard to/from Canada
World ease
8-30
Examples of expanded parcel carrier
services (Optional value-added services)
•
•
•
•
•
•
•
•
•
Collect on delivery (COD)
Delivery confirmation
Hazardous materials
Hold for pickup
Saturday pickup/delivery
10KG and 20KG boxes
Hundredweight service
Returns
Excess value insurance
8-31
Piggyback is an intermodal transport that
integrates rail and motor service
• Most widely used systems are
– Trailer on a flatcar (TOFC)
– Container on a flatcar (COFC)
• Trailer or container is hauled by
truck at origin and destination
– Railcar hauls for portion of
intercity travel
• A variety of coordinated service
plans have been developed
8-32
Containerships are oldest form of intermodal
transport
•
•
Loads a truck trailer, railcar or
container onto barge or ship for the
line-haul movement on inland
waterways
Land bridge concept moves
containers in a combination of sea
and rail transport
– Common for containers moving from
Europe to Pacific Rim
•
Transfer of freight between modes
often requires handling containers
and imposition of duties
– Function of ports is to make this
seamless and fast
•
Port throughput is big concern for
supply chain managers
8-33
Coordinated air-truck is commonly used to
provide premium package services
• Many smaller cities lack
airfreight services
• Costs can leveraged with
delivery time by linking
the modes
8-34
Non-operating intermediaries do not
own their own equipment
•
•
Freight forwarders—businesses that
consolidate small shipments from
various customers into bulk shipment
for a common carrier for transport
Shipper associations and agents—
groups of shippers who employ an
agent to consolidate purchases and
shipments for them
– E.g. garment industry in New York
•
Brokers—intermediaries that
coordinate transportation
arrangements for shipper, consignees
and carriers, operating on a
commission basis
Sampling of Non-operating Intermediaries
8-35
Transportation operations involves the
following major topics
Video on Ethics and future of Transportation (9:00 min.)
http://www.youtube.com/watch?v=T_SXW7v97tQ
Video on future of shipping (2:54 min.)
http://www.youtube.com/watch?v=sigYFTP6YFg
8-36
Transportation operations seeks an optimal
balance between low cost and high service
• Transportation is single
largest element of logistics
cost
– Rising fuel costs
– Environmental cost of
carbon footprint
• Transportation managers
are responsible for
inventory to be positioned
in a timely and economical
manner
8-37
Transportation economics and pricing are
concerned with factors that drive cost
• An effective logistics strategy must understand four
interrelated topics
–
–
–
–
Economic drivers that influence rates
Costing methods to allocate costs
Carrier pricing strategy used to set rates
Rates and rating mechanics used by carriers
8-38
Economic drivers influence rates
•
•
•
•
•
•
•
Distance
Weight
Density
Stowability
Handling
Liability
Market
8-39
Distance is a major influence on cost
• Directly contributes to variable
expenses
– Labor, fuel, and maintenance
• Cost curve starts above zero
because of fixed costs
associated with pickup and
delivery regardless of distance
• However, rate of cost
decreases as distance
increases
– This is called the tapering
principle
Figure 8.2 Generalized Relationship between Distance and
Transportation Cost
8-40
Weight is the second major factor for
most transportation costs
• Cost per pound decreases
as weight increases until
the carrier vehicle is full
– Relationship starts again for
the next vehicle load
• Small loads should be
consolidated into larger
loads to maximize scale
economies
Figure 8.3 Generalized Relationship between Weight
and Transportation Cost/Pound
8-41
Density is the combination of weight and
volume
• Volume is important
because vehicles are
typically constrained more
by cubic capacity than by
weight loaded
• Cost per unit of weight
declines as product
density increases
– Higher density products
allowed fixed transport
costs to be spread over
more weight
Figure 8.4 Generalized Relationship between Density
and Transportation Cost/Pound
8-42
Stowability is how product dimensions fit
into transportation equipment
• Odd package shapes and
sizes can waste cubic
capacity
• Items with rectangular
shapes are easier to stow
• Nesting refers to ability of
product to be placed in
itself or collapsed for
better stowability
8-43
Handling some products may require
special equipment
• Special equipment may
be needed to load and
unload trucks, railcars, or
ships
• How products are
grouped together in
boxes or pallets will also
impact handling cost
8-44
Liability includes product characteristics
that can result in damage
• Carriers must pay for
liability insurance or accept
financial responsibility
• Shippers can reduce their
risk by
– Improved packaging and
loading
• For example - pneumatic
dunnage
– Reducing susceptibility to
loss or damage
8-45
Market factors such as lane volume and
balance influence transportation cost
• Transport lane refers to
movements between origin
and destination points
– Carriers must find a
backhaul load or vehicle is
returned empty
• Imbalances in volume
between shipping points
can result in higher
transport costs
8-46
Variable costs change in a predictable, direct
manner in relation to some level of activity
• Variable costs in
transportation are only
incurred if you operate the
vehicle
• Transport rates must cover
these at the very least!
• Generally measured per
mile or unit weight or both
– E.g. per ton-miles
8-47
Fixed costs must be paid even when the
company is not operating
• Fixed costs are not
influenced by shipment
volume
– Includes vehicles,
terminals, rights-of-way,
information systems, and
support equipment
• Must be covered by
contribution above variable
costs on a per shipment
basis
8-48
Joint costs are created by the decision
to provide a particular service
• Typical example is the
implicit decision to incur a
joint cost for a backhaul
from a destination
– E.g. Big and Little Enos in
Smokey and the Bandit
• Significant impact on
charges
– Carrier quotations must
include implied joint costs
based on assessment of
back-haul recovery
8-49
Common costs are incurred on behalf of
all or a select group of shippers
• Terminal or management
expenses are typical
examples
• Usually allocated to
shippers based on level of
activity for that customer
– E.g. number of shipments
8-50
Carrier pricing strategies for setting rates follows
one or two of the following approaches
•
•
•
•
Cost-of-service strategy
Value-of-service strategy
Combination pricing strategy
Net-rate pricing strategy
8-51
Carrier pricing cost-of-service strategy
• Cost-of-service is similar to
cost-plus pricing strategy for
manufacturing
• Carrier estimates cost of
providing service then adds
on a percent profit margin
• Commonly used for pricing
transport of low value goods
or in highly competitive
situations
8-52
Carrier pricing value-of-service strategy
• Value-of-service price is based on
value as perceived by the shipper
rather than the carrier
• Higher margins than cost-of-service
pricing
• Depends on the value of the goods
being shipped
• Used for high value goods or when
no competition exists
– E.g. 1980’s FedEx overnight delivery
8-53
Carrier pricing combination strategy
• Combination price is set at
a value between cost-ofservice minimum and valueof-service maximum
• Most carriers use some form
of combination pricing
– Common in highly volatile
markets and changing
competitive situations
8-54
Carrier pricing net-rate strategy
• Net-rate is a simplified
pricing format made
possible by deregulation
• Established discounts
and accessorial charges
are rolled into one allinclusive price
• Pricing is tailored to the
individual customer’s
needs
UPS commercial:
“What can Brown do
for you?”
8-55
Rates and rating mechanics used by
common carriers
•
•
•
•
Class rates are the price in dollars
and cents per hundredweight to move
a specific product between two
locations
Classification is the grouping of
similar products into uniform classes
that are assigned a rating
Rate determination is based on the
classification rating, shipment origin,
and destination
Cube rates replace the 18 traditional
freight classifications of the NMFC
with five cube groupings
– Still in development
•
Commodity rates are for a large
quantity of product which moves
between two locations on a regular
basis
– Typical for most rail freight today
•
•
Exception rates are special rates to
provide prices lower than the
prevailing class rates
Special rates and services include
– FAK rates, Joint rates, Transit
services, Split delivery, etc.
8-56
Three factors determine the base rate
• How much are you shipping?
– Truckload (TL) or
– Less than truckload (LTL)
• What are you shipping?
– Determines freight class
• How far are you shipping from origin to destination?
– Determines rate table
8-57
Special rates and services
•
•
•
Freight-all-kind (FAK) rates allow a
mixture of different products to be
transported under a negotiated rating
Joint rates can be negotiated if
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
•
•
•
Diversion and reconsignment
allows changing the destination
and/or consignee prior to arrival at the
original destination
Split delivery is delivering portions of
a shipment to multiple destinations
Product storage services
– Demurrage (rail) charge for holding
a railcar for more than 48 hours
before unloading
– Detention (motor) charge for holding
a truck for more than a few hours
before unloading
8-58
Transportation administration activities
include
•
•
•
•
•
•
Operational Management
Consolidation
Negotiation
Control
Auditing and claims administration
Logistical integration
8-59
Key elements of operational management
• Equipment scheduling and yard
management
• Load planning
• Routing and advance shipment
notification (ASN)
• Movement administration
• Transportation Management System
(TMS)
– An integral information technology
solution to help oversee day-to-day
activities
8-60
Consolidation
• Consolidation is combining LTL or parcel shipments
moving to a general location
• Shift to “response-based” logistics has made the industry
rethink consolidation
• Two groups of techniques
– Reactive approach does not attempt to influence composition and
timing of transportation movements, but reacts to shipments as
they come
• Example is UPS nightly sorting of package freight for intercity movement
– Proactive approach includes preorder planning of quantity and
timing with the shipper to facilitate consolidated freight movement
8-61
Negotiation
• Seeking win-win agreements
where both shippers and
carriers share transportation
consolidation and productivity
gains
• Both parties seek the lowest
total logistical cost consistent
with the shipper’s needed
service level (i.e. delivery time)
8-62
Control responsibilities include tracing, expediting
and driver hours administration
• Tracing is procedure to locate
lost or late shipments
– i.e. tracking with RFID and GPS
systems
• 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
8-63
Auditing and claims administration is needed
when services are not performed as promised
• Auditing is checking freight bills
to ensure accuracy
– Preaudit determines proper charges
prior to payment
– Postaudit does the same after
payment
• Claims can be
– Loss and damage resulting from
poor performance
– Overcharge/undercharge when
amount billed is different from
expected
8-64
Logistical integration is the primary role
of the traffic manager
• Integration is finding the
best combination of
packaging, selection of
carrier, mode and
consolidation for lowest
total logistical cost
consistent with the
shipper’s service needs
8-65
Transportation management
• Operational management
–
–
–
–
Equipment scheduling and yard management
Load planning
Routing and advanced shipment notification (ASN)
Movement administration
• Consolidation
– Reactive consolidation
– Proactive consolidation
• Negotiation
• Control
• Audit and claim administration
8-66
Primary purpose of documentation is to protect all
parties involved in the transaction
• Bill of lading is the 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 rendered
– Can be prepaid or collect
• Shipment manifest lists the individual stops or consignees
when multiple shipments are placed on a single vehicle
8-67
Pricing practices have a direct impact
on logistical operations
• Traditionally, logistics pricing
was “bundled” into the price
for a product or service
• Trend has been to debundle
these charges so they
become separate and visible
to the customer
• Focus is still on delivering
value to the customer
8-68
Pricing fundamentals of F.O.B. pricing
• F.O.B (freight on board) pricing
– 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
– F.O.B. destination—seller arranges for transportation
and adds charges to the sales invoice. Title does not
pass to the buyer until delivery is completed
8-69
Three different payment options for
each F.O.B. price
Figure 9.5 Terms of Sales and Responsibilities
8-70
Pricing fundamentals of delivered
pricing
• Delivered pricing—the seller includes transportation in the
product price
– Single zone delivered pricing
• Buyer pays a single price regardless of where they are located
– Example, USPS First class letters
– Multiple zone pricing
• Seller charges different prices for different geographic areas
– Parcel carriers use this.
– Base point pricing
• Final delivered price is determined by the product’s list price plus
transportation cost from a designated base point
8-71
Illustration of different net returns using
a base-point pricing system
Figure 8.6 Base-Point Pricing
8-72
Pricing issues
• Potential discrimination—Zone pricing may be discriminatory
because some buyers pay more than the actual transportation cost
while others pay less
– Sellers have to be careful about Federal price discrimination laws
• Quantity discounts—may be discriminatory against smaller buyers
• Pickup allowances—discounts given if buyer picks up the shipment
themselves
• Promotional prices—special prices given for large sales promotions
– EveryDay Low Pricing (EDLP) is a collaborative pricing framework developed
by Wal-Mart
8-73
Menu pricing system consists of three
components
• Platform service price is expected to be paid by all
customers, whether or not they require or desire the
specified services
– Must establish the basic service platform to be offered all
customers
• Value-added service costs are specific upcharges for
performing customer requested value-added services
– E.g. for customized unit loading such as configuring retail-ready
unit loads
• Efficiency incentives encourage customers to comply with
specified practices that reduce logistics costs
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