Chapter 13
Shipper Process
INTRODUCTION
• The focus of this chapter is on implementation
and execution of this transportation
management strategy
• the day-to-day shipper activities required to
manage the domestic and global
transportation process
DOMESTIC TRANSPORTATION
MANAGEMENT PROCESS
• Figure13.1 provides an overview of the
domestic transportation management process
that shippers utilize.
Shipment Source
• The starting point in the transportation
management process is either the customer
order or purchase order – inbound or
outbound.
• The customer service, sales, or marketing
departments are charged with the
responsibility of receiving and processing the
customer’s order.
• via mail, phone, fax, EDT, or the Internet.
Shipment Source
• Associated with the customer order and purchase
order are the underlying terms of sale agreed to
between the buyer and seller.
• The terms of sale indicate who has control over
the selection of the carrier, who pays the
transportation freight bill, and where title to the
goods pass from the seller to the buyer.
• Essentially, the terms of sale define the buyer and
seller transportation role in the sales transaction.
Shipment Source
Figure 13.2 shows some typical domestic terms
of sale. The free on board (FOB) domestic
terms of sale have a:
• named point that determines where title
passes to the buyer,
• where responsibility for selecting and routing
the shipment passes to the buyer, and
• where the buyer begins paying for the
transportation charges.
Shipment Source
• For example, the FOB-delivered term of sale
states the seller pays the freight charges to the
buyer’s door, the seller selects the carrier and
routes the shipment, and title passes to the
buyer upon delivery to the buyer.
• The latter point means the seller has title to
the goods during transit and bears the
responsibility for filing claims for
transportation loss and damage.
Shipment Source
• The FOB-origin term of sale means the buyer incurs all
transportation responsibility, cost, and claim
responsibility.
• The seller is responsible for making the shipment
available at the seller’s door for the carrier that the
buyer selects.
• The buyer selects the carrier, routes the shipment,
pays the carrier, and assumes the responsibility for
claims.
• The FOB-origin term of sale is used in purchasing of
materials to enable the buyer to gain control over the
cost and service of inbound transportation.
Shipment Source
• The FOB-Port of Entry term means the seller
incurs all transportation responsibility up to
the port of entry and the buyer assumes the
responsibility from the Port of Entry to
destination.
Shipment Source
• the terms of sale used to sell and buy
products determines the level of
transportation control exercised by the buyer
and the seller.
• If a firm buys all raw materials on an FOBdelivered basis and sells on an FOB-origin
basis, the firm would have minimal
transportation management responsibility.
Shipment Source
• Today, many firms attempt to increase the
amount of transportation management
control by buying FOB-Origin and selling FOBdelivered.
• By using these two terms of sale, the firm can
maximize its control over the cost of its
products.
Shipment Analysis
• The shipment analysis function examines the
specifics of the shipment, service levels
required, packaging, rates, and consolidation.
• The shipment specifics come directly from the
customer and purchase order, and define the
product to be shipped, the quantity, the
origin, the destination, the consignee, pickup
and delivery dates, routing instructions, and
delivery requirements.
Shipment Analysis
• Figure 13.3 provides an example of the
shipment specifics needed to effect the
transportation of a customer or purchase
order
• The information in Figure 13.3 provides all the
information needed for the scheduling of a
carrier.
Shipment Analysis
• The service level requirement is often the
company’s stated delivery policy.
• EG: 5 business days; 3 business days;
expedited delivery – next day; 99 percent of
the shipments will be delivered within 3 days
Rate Analysis
• The transportation manager examines the
cost of alternative shipment methods to
accomplish the move with the desired service
level.
• In this section the freight cost is analyzed for
alternative transportation methods and the
accompanying rates.
Rate Analysis
• It is often cheaper to use an express carrier
rather than an LTL carrier for shipments
weighing less than 400 pounds (200 kg).
• The carrier selection decision will be based on
the level of service required and the
consistency of the carrier’s service.
Rate Analysis
• Another rate analysis that considers the size of
the shipment examines the cost of shipping
the product via LTL or using a TL carrier. Figure
13.5
Shipment Specifics
Origin: Polakwane
Destination: Richards Bay
Weight: 7000 kg
Charges as LTL Shipment
Distance: 1400km
Charges with Truckload
Carrier
LTL Rate = R490 per 100kg
Rate = R9 per km
Discount = 45%
Distance = 1400km
Effective LTL Rate = R220.50
Charge = 1400km @ R9 per km
Charge = 100kg @ R225.50
=R15435
=R1260
Rate Analysis
• With zone skipping, the shipper, using a
consolidator, bundles numerous shipments
destined for a city, moves the bundled
quantity to the postal system near the
destination city, and the postal service delivers
the packages to the respective consignees.
Carrier Scheduling
• The objective of carrier scheduling is to
arrange for a carrier to meet the shipper’s
transportation cost and service goals
contained in the carrier selection decision.
• As indicated in Figure 13.1, the carrier
scheduling techniques include core carriers,
routing guides, approved carrier list, and
intermediaries.
Carrier Scheduling
• The core carrier concept is based on the principle
of leveraging business volume to obtain desired
cost and service.
• Shippers develop a number of core carriers,
anywhere from 3 to 20 carriers, that are the
prime providers of transportation service.
• These core carriers typically realize over 90
percent of the shipper’s annual freight
expenditure and are the first carriers the shipper
contacts when there is a load to be moved.
Carrier Scheduling
• Both the core carrier and the shipper are dependent on
the other: the shipper relies on the core carrier to
move the loads and the core carrier relies on the
shipper for a major source of its revenue.
• Depending on the number of core carriers a shipper is
using, the loss of one core carrier may result in a
significant disruption of service to customers, plants,
and warehouses.
• The greater the portion of revenue coming from one
shipper, the more dependent the carrier is on the
shipper.
Carrier Scheduling
• To attain this carrier leverage across a large
vendor base, companies utilize a routing
guide that tells the vendor to use a carrier
from a list of specified carriers.
• The routing guide is a matrix that tells the
shipper which carrier to use for a given
transportation link and focuses the inbound
freight on a limited number of carriers.
Carrier Scheduling
• Figure 13.7 is an example of an LTL routing
guide.
• The routing guide is a quick reference to which
carrier should be used for inbound and
outbound moves between particular states.
• The carriers identified in the cell are the leastcost, best-service core carriers to use over the
transportation link.
Carrier Scheduling
• Figure 13.7 shows that for a movement from
Ohio to New York the carrier of choice is
Yellow Freight (YL).
• If Yellow Freight cannot make the move, the
next favourable carriers are Roadway Express
ERD), Con-Way (CW) and Arkansas Best
Freight (AB).
Carrier Scheduling
• Another carrier scheduling activity is the use
of intermediaries.
• Intermediaries are non-carriers that are used
by shippers to locate carriers to physically
move the shipper’s products.
• The classic intermediaries are the motor
carrier freight broker and the railroad
intermodal marketing company (IMC).
Carrier Scheduling
• Shippers experiencing wide swings in demand for
transportation find it difficult to establish longterm arrangements with carriers because there
are periods throughout the year where there may
be no demand for the carrier’s service.
• The intermediary maintains contact with
hundreds of carriers who have varying amounts
of excess capacity and will bring together the
shipper and a carrier that is available to haul the
loads.
• The final carrier scheduling activity is securing the
type of equipment needed for the move.
• The type of equipment needed depends on the
product’s weight, length, width, height,
temperature-control requirements, and customer
service requirements.
• Heavy products requiring overhead cranes to load
and unload, products such as the cement
highway barriers, may dictate the use of flatbed
or open top trailers or rail cars.
• For low-density products, shippers request
high cube equipment to maximize the amount
of product the vehicle can transport.
• Finally, the customer may request a particular
type of equipment because of physical or
operational needs and the seller must comply.
• END
Load Tendering
• Load tendering is the transportation
management process that involves the offer
and acceptance of the load, loading of the
vehicle, and the attendant documentation.
• Figure 13.8 presents the different steps
included in the load-tendering process.
Load Tendering
• The carrier accepting the offer will provide a
formal acceptance via the transmission
methods noted above.
• Declining a load offer is no positive response;
that is, if the carrier does not accept the load
within a preset time limit the assumption is
the carrier declines the load.
Load Tendering
• Once the carrier accepts the load, the shipper
arranges a pickup appointment
• Today, consignees are requiring the carrier to
make a delivery appointment.
Load Tendering
• The next step in the process is picking,
packing, and staging the order.
• The order is picked from existing inventory or
the items are produced for the order. In the
Dell model, a product is produced after the
customer places the order. When the order is
picked, it is packed for shipment.
Load Tendering
• In most operations, the items in an order are
placed in a box or on a pallet along with
packaging material to protect the shipment while
in transit.
• The final step is to stage the load near the loading
dock for quick loading when the truck arrives.
• After the vehicle is loaded and the
documentation is prepared, the vehicle moves to
the consignee’s location for delivery.
Documentation
• The most common domestic shipping
document is the bill of lading.
• The bill of lading is the beginning of a
transportation shipment
• It is the document that provides the carrier
with the information necessary for the carrier
to complete the move, and it governs the
move.
Documentation
The bill of lading serves the following purposes:
• Receipt for the goods tendered to the carrier
• Provides shipment information
• Contract of carriage
• In the case of an order, bill of lading acts as
certificate of title to the goods.
Documentation
• When the carrier’s agent (driver) signs the bill of
lading, the carrier has agreed that it has received
the items itemized on the document.
• The signed bill of lading is the shipper’s receipt
that the carrier has taken possession of the goods
named on it.
• If damage occurs to the shipment, the bill of
lading provides proof of what was given to the
carrier and the condition of the goods (assumed
to be in good condition unless specified
otherwise).
• STRAIGHT BILL OF LADING vs ORDER BILL OF
LADING
• The straight bill of lading is a nonnegotiable
instrument, which means title cannot be
transferred by endorsement.
• The order bill of lading is a negotiable
instrument and acts as a certificate of title to
the goods named on it.
Shipment Monitoring
• As noted in Figure 13.1 the shipmentmonitoring function involves
tracing/expediting, customer communication,
and vendor communication.
• In essence, shipment monitoring is watching
the progress of the shipment through the
transportation system and communicating the
status or problems to the customer or vendor.
Shipment Monitoring
• The widespread adoption of the Internet and
GPS (Global Positioning System) has greatly
enhanced the performance capabilities of
carriers with regard to shipment monitoring.
Shipment Monitoring
• Tracing involves determining where the
shipment is at a given moment in time.
• With GPS, a carrier can determine within a
few yards the exact location of a vehicle and
the corresponding shipment.
Shipment Monitoring
• Once the shipment is traced and its location is
noted, the expediting function attempts to
hurry the shipment along to delivery.
Shipment Monitoring
• Customer and vendor communications are the
next logical step in the shipment- monitoring
process.
• If the shipment is going to be delayed, it is
incumbent on the shipper to inform the
consignee of the delay so the consignee can
take appropriate actions.
Post-delivery Maintenance
• The post-delivery maintenance functions
begin once the shipment is delivered, and are
designed to make certain the shipment was
delivered, cargo damage or loss is recovered,
the correct freight charge is paid, and the
carrier’s performance is within acceptable
limits.
• The specific functions include proof of
delivery, claims, freight bill auditing, and
performance measurement.
PROOF OF DELIVERY
• The proof of delivery is verification provided
by the carrier that the shipment was
delivered.
CLAIMS
• When a shipment is delivered with items
damaged or missing, the shipper or consignee
files a claim with the carrier to recover the
loss.
• Figure 13.10 provides an overview of the
freight claims process.
CLAIMS
• The FOB term of sale determines who is
legally obligated to file the claim that is
determined by the terms of sale.
• As noted above, the terms of sale indicates
where the title passes to the buyer.
• Prior to the point where the title passes to the
buyer, the seller is the owner and is required
to file the claim.
CLAIMS
• For example, under an FOB-Origin term of
sale, the title passes to the buyer at the
shipment origin and the buyer would have
responsibility to file the claim.
• The seller is responsible for claim filing with
the FOB-Delivered term of sale.
•
CLAIMS
• There are many different levels of liability
coverage possible for a motor carrier.
• The range is from full-value liability with the
bill of lading terms to zero liability with a
shipper—carrier transportation contract.
CLAIMS
• The freight claim is a written request the
shipper files with the carrier requesting
reimbursement for monetary losses resulting
from loss, damage, or delay to the shipment
or for payment overcharge.
CLAIMS
• Damage may be either visible or concealed.
Visible damage is discovered by the consignee
usually at delivery and before opening the
package.
• Concealed damage is detected after the
package is opened.
• Concealed damage poses a unique problem in
determining when the damage occurred—in
the carrier’s or consignee’s possession.
CLAIMS
• Once the claim is filed, the carrier can agree to
pay the claim or deny the claim as indicated in
Figure 13.10.
• If the carrier agrees to pay, the carrier will
forward the appropriate amount to the
claimant.
• It is not uncommon to find a carrier accepting
liability for the damage but negotiating a
payment value that is lower than the amount
requested in the claim.
CLAIMS
• If the carrier denies the claim, the claimant must
examine the rationale for the denial.
• All contested claims are ultimately resolved in
court.
• To gain legal resolution to the denied claim, the
claimant must file a lawsuit within a specified
period of time from the date the claim is denied
by the carrier.
• This is a costly endeavour, and the value of the
claim must warrant the legal fees and time
involved.
FREIGHT BILL AUDITING
• Freight bill auditing is used to assess the
correct amount to be paid to the carrier.
• This is typically done after payment; that is,
the audit is performed after the original
freight bill is paid.
FREIGHT BILL AUDITING
The post payment audit process focuses on
verification of the freight bill paid by confirming
the following:
• The shipment was actually made.
• The freight bill was not paid previously.
• The shipment weight, freight rate, and calculation
was noted.
• The ancillary services were requested and
provided.
• The lowest tariff or contract rate was used.
FREIGHT BILL AUDITING
• The prepayment audit process audits the
carrier’s freight bill before payment.
• This involves comparing the calculated freight
charge with the freight bill submitted by the
carrier, and resolving any discrepancies before
payment.
PERFORMANCE MEASUREMENT
• The final post-delivery maintenance function
is measuring the carrier’s performance.
• As shown in Table 13.1, carrier performance
measurement considers both cost and service.
PERFORMANCE MEASUREMENT
• The most widely used cost measurements are
freight cost as a percentage of sales, cost per
unit sold, cost per weight unit, and cost per
order.
• These cost measurements match the base
units used by top management, sales, and
purchasing for control.
PERFORMANCE MEASUREMENT
• The service performance measurements are
based on the carrier selection criteria
discussed in the previous chapter.
• On-time pickup and delivery and average
transit time are the three most widely utilized
service performance measures.
GLOBAL TRANSPORTATION PROCESS
• Managing the international transportation
process is more complex than that of
domestic transportation because of the many
differences between the trading nations’
transportation and customs regulations,
infrastructure, exchange rates, culture, and
language.
GLOBAL TRANSPORTATION PROCESS
• Figure 13.12 depicts the international
transportation process.
• It begins with the buyer— seller agreement
and the management areas of order
preparation, transportation, and
documentation.
Buyer—Seller Agreement
• The agreement between the buyer and seller
determines the specific transportation criteria
the seller must meet.
• These criteria include the product to be shipped,
financial terms, delivery requirements (date and
location), packing, the transportation method(s)
to be used, and cargo insurance.
• INCOTERMS agreed upon outline/explain the
transportation responsibility between the buyer
and seller.
INCOTERMS
• The international terms of sale are known as
INCOTERMS.
• Unlike domestic terms of sale, in which the
buyers and sellers primarily use FOB-origin and
FOB-destination terms, there are 13 different
INCOTERMS.
• Developed by the International Chamber of
Commerce, these INCOTERMS are internationally
accepted rules defining trade terms.
INCOTERMS
• The INCOTERMS define responsibilities of
both the buyer and seller in any international
contract of sale.
• For exporting, the terms delineate buyer or
seller responsibility for the following:
Export packing cost
Inland transportation (to the port of export)
Export clearance
INCOTERMS
Vessel or plane loading
Main transportation cost
Cargo insurance
Customs duties
Risk of loss or damage in transit
E TERMS
• The E terms consist of one INCOTERM, Ex Works
(EXW).
• This is a departure contract that gives the buyer
total responsibility for the shipment.
• The seller’s responsibility is to make the shipment
available at its facility.
• The buyer agrees to take possession of the
shipment at the point of origin and to bear all of
the cost and risk of transporting the goods to the
destination (see Figure 13.13 for additional
responsibilities of the E Terms).
F TERMS
• The three F terms obligate the seller to incur the
cost of delivering the shipment cleared for export
to the carrier designated by the buyer.
• The buyer selects and incurs the cost of main
transportation, insurance, and customs
clearance.
• Free Carrier (FCA) can be used with any mode of
transportation.
• Risk of damage is transferred to the buyer when
the seller delivers the goods to the carrier named
by the buyer.
F TERMS
• Free Alongside Ship (FAS) is used for water
transportation shipments only.
• The risk of damage is transferred to the buyer
when the goods are delivered alongside the
ship.
• The buyer must pay the cost of “lifting” the
cargo or container on board the vessel.
• Free On Board (FOB) is used for only water
transportation shipments.
F TERMS
• The risk of damage is transferred to the buyer
when the shipment crosses the ship’s rail
(when the goods are actually loaded on the
vessel).
• The seller pays the lifting charge (see Figure
13.13 for additional responsibilities on the F
Terms).
C TERMS
• The four C terms are shipment contracts that
obligate the seller to obtain and pay for the
main carriage and/or cargo insurance.
• Cost and Freight (CFR) and Carriage Paid To
(CPT) are similar in that both obligate the
seller to select and pay for the main carriage
(ocean or air to the foreign country).
C TERMS
• CFR is only used for shipments by water
transportation, whereas CPT is used for any
mode.
• In both terms, the seller incurs all costs to the
port of destination.
• Risk of damage passes to the buyer when the
goods pass the ship’s rail, CFR, or when
delivered to the main carrier, CPT.
C TERMS
• Cost, Insurance, Freight (CIF) and Carriage
and Insurance Paid To (CIP) require the seller
to pay for both main carriage and cargo
insurance.
• The risk of damage is the same as that for CFR
and CPT (see Figure 13.13 for additional
responsibilities of the C Terms).
D TERMS
• The D terms obligate the seller to incur all
costs related to delivery of the shipment to
the foreign destination.
• There are five D terms; two apply to water
transportation only and three to any mode
used.
• All five D terms require the seller to incur all
costs and the risk of damage up to the
destination port.
D TERMS
• Delivered At Frontier (DAF) means the seller
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.
D TERMS
• Delivered Ex Ship (DES) and Delivered Ex Quay
(or wharf) (DEQ) are used with shipments by
water transportation.
• Both terms require the seller to pay for the main
carriage.
• Under DES, risk of damage is transferred when
the goods are made available to the buyer on
board the ship uncleared for import at the port of
destination.
• The buyer is responsible for customs clearance.
D TERMS
• Delivered Duty Unpaid (DDU) and Delivered
Duty Paid (DDP) are available for all modes.
Order Preparation
• Order preparation involves either picking
items ordered from inventory or
manufacturing them.
• In either case, the seller must make sure the
item prepared for shipping matches exactly
what is ordered.
• Failure to comply with the product
specifications contained in the buyer’s
purchase order indicates the buyer’s refusal to
accept the shipment or to pay the invoice.
Order Preparation
• Packing for international water shipments is
usually more stringent than for domestic
shipments because of the increased potential
for damage.
• Shippers typically use an export packing
company to pack the shipment for the rigors
of frequent handling, lifting, and storage, as
well as the rough ride of international water
carriage.
Documentation
• Global shipment movement is controlled by
paper; without proper documentation the
shipment does not move.
• A missing or incorrect document can delay a
shipment and/or prevent the shipment from
entering a country.
• These documents are governed by the
customs regulations of the shipping and
receiving nations.
• EXPORT LICENSE
• SALES DOCUMENTS
• Three sales documents are generally used in
international trade: a pro-forma invoice, a
commercial invoice, and a consular invoice. All
three contain essentially the same information:
buyer, seller, product descriptions, payment
terms, selling price, and other information
requested by the buyer, bank, or importing
country.
• The pro-forma invoice is issued by the seller
to acquaint the importer and import
government authorities with details of the
shipment.
• It may be required to obtain necessary
foreign exchange information and/or an
import license or permit.
• The commercial invoice, issued by the seller,
is a bill of sale for the goods sold to the buyer,
a basis for determining shipment value and
importing duty assessment, and a
requirement for clearing goods through
customs.
• The consular invoice is the same as the
commercial invoice, except it is a special form
prescribed by the importing country and it
must be completed in the language of the
importing country.
FINANCIAL DOCUMENTS
• In the buyer—seller agreement, the credit
extended by the seller to the buyer is
explained and takes the form of either a letter
of credit or draft.
• The letter of credit, issued by the buyer’s
bank, is a guarantee by the buyer’s bank to
the seller that payment will be made if certain
terms and conditions are met.
FINANCIAL DOCUMENTS
• These conditions include, for example,
documentation, shipping date, time limits,
and so on.
• If these conditions are not met, payment will
be withheld.
FINANCIAL DOCUMENTS
• The draft is credit extended by the seller directly
to the buyer.
• It is a written order for a sum of money to be paid
by the buyer on a certain date.
• Upon presentation of the draft to the buyer’s
bank, the buyer’s bank collects the money from
the buyer, releases the shipment documentation
to permit the buyer to receive the shipment, and
remits the money to the seller.
CUSTOMS DOCUMENTS
• As noted earlier, each nation has a unique set
of customs regulations governing the global
trade.
• In the United States, two common customs
documents are the shipper’s export
declaration and the certificate of origin.
CUSTOMS DOCUMENTS
• The shipper’s export declaration is issued by
the seller and acts to control the export of
restricted goods (implements of war, highlevel technology, etc.) and to provide statistics
regarding exporting activity.
CUSTOMS DOCUMENTS
• The certificate of origin is used to certify the
country of origin of the commodities and is
particularly important for trade between
countries that have special import duty
treaties.
• For example, NAFTA provides lower import
duties for commodities originating in the
United States, Canada, or Mexico and
destined for one of the respective countries.
TRANSPORTATON DOCUMENTS
• As with domestic shipments, international
shipments require a bill of lading.
• The bill of lading acts as a contract of carriage
and a receipt for the goods, and provides
carrier delivery instructions.
• For water shipments, an ocean bill of lading is
used; an airway bill is used for air carrier
shipments.
TRANSPORTATON DOCUMENTS
• In addition to the bill of lading, most
international shipments require a packing list
that provides detailed information of the
package contents, dimension, and weight.
• A dock receipt is issued by a water carrier
when the goods arrive at the dock, but are not
loaded onto the ship immediately; this
transfers accountability, or liability, from the
domestic carrier to the international carrier.
Transportation
• The transportation elements include the
selection of carriers, ports/gateways,
intermediaries, and the acquisition of
insurance.
• At least three carriers are involved in an
international shipment: a domestic, an
international, and a foreign carrier.
Transportation
• The international transportation manager
must select a domestic carrier to move the
goods from the seller’s door to the port or
gateway, an international carrier to move it
between countries, and a foreign carrier to
move it to its final destination in the importing
country.