Ch. 10:Transportation Management
Management Strategy: Six Factors
1.
2.
3.
4.
5.
6.
Proactive Management Approach
Reducing the Number of Carriers
Negotiating with Carriers
Contracting with Carriers
Consolidating Shipments
Monitoring Service Quality
Chapter 10
Management of Business Logistics, 7th Ed.
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Management Strategy: Proactive
Management Approach
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Absence of the regulatory safety net
encourages logistics mangers to take a
proactive management approach to identify
and solve transportation problems.
Creativity in problem solving no longer
restricted by fixed regulations.
Positive attitudes result in using
transportation to solve company problems in
many functional areas.
Chapter 10
Management of Business Logistics, 7th Ed.
2
Management Strategy: Reducing
the Number of Carriers
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Consolidation of freight increases the shippers
leverage with the remaining carriers.
Being one of a carrier’s largest customers
gives the shipper increased negotiating
power.
Shippers become more important to the
carriers as they funnel larger volumes to
fewer carriers.
Chapter 10
Management of Business Logistics, 7th Ed.
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Management Strategy: Reducing
the Number of Carriers
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One shipper went from 131 to 14 carriers.
Improved service from the remaining carriers
decreased its inventory by $30 million.
Supply chain strategic alliances are also
created through consolidation.
However, risk of increased dependency on
fewer carriers must be balanced against the
benefits.
Chapter 10
Management of Business Logistics, 7th Ed.
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Management Strategy:
Negotiating with Carriers
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With rate negotiation a common outcome of
deregulation, consolidation provides the
leverage to successfully negotiate more
favorable terms of carriage.
Elevating the carrier to partnership status in
the supply chain philosophy assists in
assuring a win-win arrangement between the
partners.
Chapter 10
Management of Business Logistics, 7th Ed.
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Management Strategy:
Contracting with Carriers
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Both the Motor Carrier Act of 1980, the
Staggers Act of 1980, and the ICC
Termination Act of 1995 increased the ability
of motor carriers to contract with shippers.
As in any contract, special and/or custom
services such as JIT can be negotiated.
Contracting widely adopted by rail; rates,
types of equipment, service levels and
minimum quantities are subject to contract
terms.
Chapter 10
Management of Business Logistics, 7th Ed.
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Management Strategy:
Consolidating Shipments
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Another benefit of carrier consolidation is that
shippers are often rewarded with lower rates
as the amount shipped increases.
Contracts may be written with minimum
shipment size per shipment or for annual
cumulative shipment size.
Quantity discounts are real savings that the
carriers pass on to shippers.
Chapter 10
Management of Business Logistics, 7th Ed.
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Management Strategy:
Monitoring Service Quality
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Product movements that are consistent,
timely, and undamaged can be a competitive
advantage for a customer.
Trade-offs between speed and cost of service
must be analyzed to provide the service
customers need without paying for speed that
might not be required.
Examine the Carrier Evaluation Report in
Figure 10-1.
Chapter 10
Management of Business Logistics, 7th Ed.
8
Federal Regulation:
An Overview
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Federal regulation has been with the
transportation industry since the Act to
Regulate Commerce in 1887.
The genesis of regulation lies in the
concept that a transportation system
functions in the public interest, similar to a
public utility.
Individual states were not and still are not
permitted to control interstate commerce.
Chapter 10
Management of Business Logistics, 7th Ed.
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Federal Regulation:
An Overview
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In the United States, private industry rather
than government provides the
transportation services, thus a perceived
need for regulation of rates, routes and
safety issues empowered federal officials to
act in the name of the public good.
Reasonable rates, absence of discrimination,
and the need to serve all formed the core of
the federal regulations.
Chapter 10
Management of Business Logistics, 7th Ed.
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Federal Regulation:
An Overview
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The ICC was formed as a
result of the 1887 law and
grew in stature until it controlled economic
and safety issues for rail, domestic water,
freight forwarders, and motor carriers.
Air cargo was controlled by the CAB;
pipelines by the Federal Energy Regulatory
Commission and ocean carriage by the
Federal Maritime Commission.
Chapter 10
Management of Business Logistics, 7th Ed.
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Federal Regulation: Deregulation
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Beginning in 1977, the political and economic climate
encouraged economic deregulation, and began with
air transportation.
The Staggers Act of 1980 reduced regulation for rail
and motor transportation.
Virtual deregulation occurred with the ICC
Termination Act of 1995.
Transportation carriers became able to negotiate
rates and services with shippers rather than adhere
to published rates and services.
Chapter 10
Management of Business Logistics, 7th Ed.
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Federal Regulation: Deregulation
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Motor and Water Carriers
 Rate and tariff-filing regulations eliminated
except for household and noncontiguous
trade.
 Common carriage concept is eliminated.
 All carriers may contract with shippers.
 Antitrust immunity for collective
ratemaking.
Chapter 10
Management of Business Logistics, 7th Ed.
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Federal Regulation: Deregulation
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Air Carriers
 In 1977, economic regulation of air carriers
eliminated.
 Safety regulation remains in force.
Rail Carriers
 Remains the most regulated of the transportation
modes.
 Complete deregulation over certain types of traffic,
piggyback and fresh fruits, for example.
Chapter 10
Management of Business Logistics, 7th Ed.
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Federal Regulation: Deregulation
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Freight Forwarders and Brokers
 Both are required to register with the
Surface Transportation Board (STB).
 Brokers must also post a $10,000 bond to
ensure payment to the carriers.
 No economic rate or service controls.
 Freight Forwarder is considered a carrier
and is thus liable for freight damages.
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation: Domestic
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Bill of Lading
Freight Bill
Claims
F.O.B. Terms of Sale
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Management of Business Logistics, 7th Ed.
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Documentation:
Domestic Bills of Lading
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Shows title to the goods,
name and address of the
consignor and consignee.
Summarizes the goods in
transit and their class rates.
Electronic bills now
appearing where the carrier and shipper
have an established strategic alliance.
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation:
Domestic Bills of Lading
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Straight Bill
 Non-negotiable
 Contains terms of the sale including the
time/place of title transfer.
Order Bill
 Negotiable
 Consignor retains original until bill is
paid.
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation:
Domestic Freight Bills
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Carrier’s invoice for charges for a given
shipment.
Credit terms are stipulated by the carrier and
can vary extensively.
Credit may be denied if the charges are worth
more than the freight.
Bills may also be either prepaid or collect.
Freight bills are typically audited internally or
externally.
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation: Domestic Claims
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A document filed with the carrier to recover
monetary losses due to losses, damage,
delay or overcharges by the carrier.
Typically, claims are filed within 9 months,
claimant is notified by receipt within 30 days,
and settlement or refusal within 120 days.
Claims terms can be stipulated in the contract
of carriage agreement and may be atypical.
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation:
Domestic F.O.B. Terms of Sale
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Determines which party is to pay the freight
bill, which party has title to the goods, and
which party controls the movement of the
goods.
F.O.B. origin - buyer pays freight, owns goods
once loaded, controls movement of the goods
F.O.B. destination - seller pays freight, owns
goods until delivered, controls movement of the
goods
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Management of Business Logistics, 7th Ed.
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Documentation: International
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Documentation for international
transportation is far more complex than
required for domestic transportation.
Types of documents vary widely by country.
 Sales Documents
 Terms of Sale
 Transportation Documents
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation:
International Sales Documents
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Sales contract is the initial document.
Letter of Credit may also accompany
shipment (guarantees payment).
May also use cash and other means of
demonstrating an ability to pay for the goods.
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Management of Business Logistics, 7th Ed.
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Documentation:
International Terms of Sale
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AKA “Incoterms”--international credit
terms
Chapter 10
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Terms may include:
 Export packing costs
 Inland transportation
 Export clearance
 Vehicle loading
 Transportation costs
 Insurance
 Duties
 Insurances
Management of Business Logistics, 7th Ed.
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Documentation: International
Transportation Documents
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Export Declaration - describes the goods
Export License - allows export of goods
 General license allows export of most
goods w/out any special requirements
 Validation export license for export of
controlled items
Commercial invoice - determines value
Carnet - seals shipment at origin
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation: International
Transportation Documents
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Bill of Lading - initiating document for all
shipments
 Export B.O.L. - can govern foreign
domestic, intercountry, and domestic
movements of the goods.
 Ocean B.O.L. - sets terms, lists origin and
destination ports, quantities and weight,
rates, special handling needs for the ocean
movement.
Chapter 10
Management of Business Logistics, 7th Ed.
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Documentation: International
Transportation Documents
Order B.O.L - negotiable
 Clean B.O.L. - issued by carrier when
goods arrive in port; damages and other
exceptions should be noted
Ocean carrier held liable for losses due to
negligence only.
Other losses responsibility of the shipper.
Certificate of insurance may be required.
Dock receipt provided to domestic carrier.
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Management of Business Logistics, 7th Ed.
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Bases for Rates
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Cost of Service
Value of Service
Distance
Weight of Shipment
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Management of Business Logistics, 7th Ed.
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Bases for Rates: Cost of Service
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In economic terms, basing rates on cost of
service is defined as supply side pricing.
The cost of supplying the service establishes
the minimum rate.
Historically, deciding what carrier costs to
include in setting the minimum rate is
problematic.
Examine Figure 10-4.
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Management of Business Logistics, 7th Ed.
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Figure 10-4
Limits on Rates
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Management of Business Logistics, 7th Ed.
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Bases for Rates: Value of Service
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In economic terms, basing rates on value of service is
defined as demand side pricing.
The value of supplying the service establishes the
maximum rate.
Cost at A ($2), Cost at B ($2.50), max rate= $0.50
Historically, deciding what ‘the traffic will bear’ in
setting the maximum rate is also problematic.
Generally, higher-valued goods can more easily absorb
higher rates and vice-versa.
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Management of Business Logistics, 7th Ed.
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Bases for Rates:
Distance
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Rates also vary directly with distance; the longer
the haul, the higher the rate.
This relates to the carrier’s higher costs of
moving the product longer distances.
Two exceptions to the the distance principle are:
 Blanket Rates - fixed rates within blanket area
 Tapering Rates - rates rise with increased
distances, but at a decreasing rate.
Chapter 10
Management of Business Logistics, 7th Ed.
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Figure 10-6 Example of the
Tapering Rate Principle
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Management of Business Logistics, 7th Ed.
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Bases for Rates:
Weight of Shipment
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Rates also vary inversely with weight; the
heavier the shipment, the lower the rate.
This relates to the carrier’s lower costs of
moving more quantity at one time.
Carriers refer to these rates as CL or TL.
One exception to the the weight principle is
the Any Quantity or AQ rate where the carrier
charges a fixed rate for carriage; in this case
there is no quantity discount.
Chapter 10
Management of Business Logistics, 7th Ed.
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Transportation Services
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Terminal Services
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Consolidation
Dispersion
Shipment services
Vehicle services
Interchange
Loading & Unloading
Weighing
Tracing/Expediting
Chapter 10
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Line-Haul Services
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Reconsignment
Diversion
Pooling
Stopping in Transit
Transit Privilege
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Transportation Services:
Terminal Functions
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Consolidation - carrier will consolidate many small
shipments into a one shipment going to a
customer, qualifying the shipper for a lower rate.
Dispersion - the opposite of ‘Consolidation’; one
large shipment being distributed to multiple
customers at the destination terminal.
Shipment Services - carrier provides freight
handling for consolidation and/or dispersion as well
as clerical services for bills of lading, freight bills
and routing of the shipment.
Chapter 10
Management of Business Logistics, 7th Ed.
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Transportation Services:
Terminal Functions
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Vehicle Service - carriers need to maintain a
diverse and adequate fleet of transit vehicles for
shipper’s use.
Interchange - carriers provide capability to
interconnect with other carriers of the same or
different modes so that through rates may be used
by the shipper.
Chapter 10
Management of Business Logistics, 7th Ed.
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Transportation Services:
Other Terminal Services
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Loading and Unloading - carrier responsible for
loading and unloading LTL or LCL shipments; shipper
responsible for TL and CL loading and unloading.
 Carrier specifies the amount of time the shipper
and receiver have for loading and unloading.
 Rail free time is 24 to 48 hours (M-F).
 Motor varies widely, but can be as little as one-half
hour.
 After free time, rail charges a demurrage fee;
motor charges a detention fee.
Chapter 10
Management of Business Logistics, 7th Ed.
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Transportation Services:
Other Terminal Services
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Weighing - Carrier or shipper provides weight of
shipment; some items are provided at a
predetermined weight, precluding necessity of
weighing of each shipment.
Tracing - carriers can tell shipper where the
shipment is and when it might be delivered. This is
important for JIT or QR systems.
Expediting - moving the shipment faster than
normal. This may involve a premium over regular
handling.
Chapter 10
Management of Business Logistics, 7th Ed.
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Transportation Services:
Line-Haul Services
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Reconsignment - changing the consignee while the
shipment is in transit. Popular in certain industries
where goods are shipped before they are sold.
Diversion - changing the destination of a shipment
in transit. Often used in conjunction with
reconsignment.
Pooling - provides the ability for a shipper to use a
CL or TL rate by consolidating many smaller
shipments going to one destination and one
consignee into a pool car or truck.
Chapter 10
Management of Business Logistics, 7th Ed.
40
Transportation Services:
Line-Haul Services
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Stopping in Transit - permits the shipper to use a CL
or TL rate and drop off portions of the load at various
intermediate destinations; the carrier charges a stopoff charge for each stop, but this is usually much less
than shipping the load at LCL or LTL rates.
Transit Privilege - permits the shipper to unload a car
or trailer, process the shipment, and reload and ship
the processed product to its final destination using a
through rate.
Chapter 10
Management of Business Logistics, 7th Ed.
41
Figure 10-7 Example of
Stopping-In-Transit Service
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Management of Business Logistics, 7th Ed.
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