transport fundamentals. introduction transportation is one of the most important elements in...

TRANSPORT FUNDAMENTALS

INTRODUCTION

Transportation is one of the most important elements in logistics costs for most firms.

Freight movement has been observed to absorb between one-third and two-third of total logistics costs.

The logistician needs to have a good understanding of the transportation matters.

DEVELOPINGDEVELOPINGNATIONNATION

DEVELOPED DEVELOPED NATIONNATION

EFFECTIVE TRANSORTATION SYSTEMEFFECTIVE TRANSORTATION SYSTEM

Importance of effective transportation system

Greater competition – making goods available to a market. The goods from outside a region have a stabilizing effect on prices of all similar goods in the marketplace.

Availability of non-seasonable products throughout the year across the world.

Economies of scale – with the greater volume provided in markets, more intense utilization can be made of production facilities leading to specialization of labour.

Reduced product prices.

Service choices and their characteristics

Transportation provides a wide range of services that revolves around the five basic modes: water, rail, truck, air and pipeline.

A transport service is a set of performance characteristics purchased at a given price.

The modes may be used in combination. Transportation agencies, shippers’ association and

brokers may be used to facilitate these services. The aim is to select a service or a combination of

services that strikes best balance between the quality of service offered and the cost of that service.

SELECTING A TRANSPORT SERVICE - BASIS

1. Price It is the line haul rate for transporting goods and any

accessorial or terminal charges for additional service provided.

In case of for-hire service, it is the rate charged for the movement of goods between two points, plus any additional charges, such as for pickup at origin, delivery at destination, insurance etc.

When the shipper owns the service, it is the allocation of the relevant costs to a particular shipment. Relevant costs include items such as fuel, labour, maintenance, depreciation of equipment, and administrative costs.

2. Transit time and variability

Delivery (transit) time is usually referred to as the average time it takes for a shipment to move from its point of origin to its destination.

Transit time variability is a measure of the carrier performance.

If variability is viewed relative to the average transit time for the transport service, air can be the least dependable and truckload the most dependable.

3. Loss and damage

Product condition is a primary customer service consideration.

The shipment of goods may be for replenishing a customer’s inventory or for immediate use. Delayed shipments or goods arriving in unusable condition means inconvenience for the customer or high inventory costs due to stockouts.

The claims process takes time to gather pertinent facts about the claim, takes effort on the part of the shipper to prepare the claim form, ties up capital while claims are being processed and involve considerable expense if the claim can be resolved only through court action.

Single-mode Service Choices and Issues

Air • Rapidly growing segment of transportation industry• Lightweight, small items [Products: Perishable and time

sensitive goods: Flowers, produce, electronics, mail, emergency shipments, documents, etc.]

• Quick, reliable, expensive• Often combined with trucking operations


Rail • Low cost, high-volume [Products: Heavy industry,

minerals, chemicals, agricultural products, autos, etc.] • Improving flexibility

• intermodal service


Truck • Most used mode • Flexible, small loads [Products: Medium and light

manufacturing, food, clothing, all retail goods]• Trucks can go door-to-door as opposed to planes and

trains.


Water • One of oldest means of transport• Low-cost, high-volume, slow • Bulky, heavy and/or large items (Products: Nonperishable

bulk cargo - Liquids, minerals, grain, petroleum, lumber, etc )]

• Standardized shipping containers improve service• Combined with trucking & rail for complete systems• International trade


Pipeline • Primarily for oil & refined oil products• High capital investment• Low operating costs• Can cross difficult terrain • Highly reliable; Low product losses

INTER-MODAL SERVICES

It implies shipping products using more than one transportation mode in the process.

It allows exchange of equipment between modes. Increased international shipping is one of the major

driving force.

Intermodal service combinations

Rail-truck Rail-water Rail-air Rail-pipeline Truck-air Truck-water Truck-pipeline Water-pipeline Water-air Air-pipeline

Trailer on Flatcar (TOFC)

Also known as piggyback, it refers to transporting truck trailers on rail-road flatcars, usually over longer distances than trucks normally haul.

It is the most popular coordinated service. It provides a blend of the convenience and flexibility

of trucking and the long-haul economy of rail.

Plans for TOFC service:-

Plan I – Railroads transport the trailers of highway common carriers. Billing is through the highway carriers, and the railroads charge a portion of the carriers rate or flat fee for moving the trailer.

Plan II – Railroads use their own trailers and containers and transport these on their own flatcars. Railroads contract with local truckers to handle assembly at originating terminals and delivery from destination terminals.

Plan II1/4 – Similar to plan II, except railroads provide either pickup or delivery or both.

Plan II1/2 – Railroads provide the trailers or containers & the shippers move these to & from rail terminals.

Plans for TOFC service:-

Plan III – Shippers or freight forwarders can place their own trailers or containers, empty or loaded, on railroad flatcars for a flat rate. Pickup and delivery are the responsibility of shippers.

Plan IV – Along with furnishing trailers, shippers also provide the railroad equipment on which the trailers can move. The railroad charges a flat rate for moving the cars, empty or loaded.

Plan V – Two or more rail and truck carriers quote jointly on TOFC service. Each carrier may solicit freight for the other, which has the effect of extending the territory of each into that served by the other.

Containerized Freight

In this truck-rail intermodal service, only the container is hauled, thus saving the dead weight of the understructure and wheels.

It is known as container-on-flatcar (COFC). The container can also be used in combination

services with water as well as with air. The typical container sizes are 8 by 8 by 20 feet and

8 by 8 by 40 feet. Both are compatible with the standard 40-foot highway trailer and with most other modes.

Transport Cost Characteristics

Variable and fixed costs

Fixed costs are those for roadway acquisition and maintenance, terminal facilities, transport equipment, and carrier administration.

Variable costs include line-haul costs such as fuel and labour, equipment maintenance, handling, and pickup and delivery.

Transport Cost Characteristics – By Mode

Rail High fixed costs, low variable costs High volumes result in lower per unit (variable) costs

Highway Lower fixed costs (don’t need to own or maintain roads) Higher unit costs than rail due to lower capacity per

truck Terminal expenses and line-haul expenses

Water High terminal (port) costs and high equipment costs

(both fixed) Very low unit costs

Transport Cost Characteristics – By Mode

Air Substantial fixed costs Variable costs depend highly on distance traveled

Pipeline Highest proportion of fixed cost of any mode due

to pipeline ownership and maintenance and extremely low variable costs

Factors Influencing Transportation Costs

Market-related factors

»Degree of competition

»Location of markets

»Government regulation

»Freight traffic into and out of a market

»Domestic versus international movement

Factors Influencing Transportation Costs

Product-Related Factors

• Density: the weight-to-volume ratio

• Stowability: degree to which a product can fill the available space in a transportation vehicle

• Handling: ease or difficulty of handling the product

• Liability: threat of theft or pilferage

Transport prices - Rate Fixation

Line-haul rates – charges incurred between origin and destination terminals, or door-to-door in case of truckload motor carrier service.

Special service charges – prices for additional services, such as terminal services, stop-off services, and detention of carrier equipment.

Line Haul Rates

Product Basis

A product classification system is followed in which product items are assigned to different classes and rates are quoted for each class.

Freight-All-Kinds – when carriers quote single rates for shipments regardless of the classification of the commodities that make up the shipment, the rate is referred to as a freight-all-kinds (FAK) rate or an all-commodity rate (ACR).

Factors taken into account for product ratings:-

Weight per cubic foot as packed for shipment Liability to loss, damage, waste, or theft in transit Risks due to hazards of carriage Expense of, and care in, handling Competition between articles of different description

but largely used for similar purposes Trade conditions Commercial conditions and unit of sales

Shipment Size Basis

Rates are quoted on quantity basis and can be different depending upon whether the shipment size falls in relation to prescribed minimum quantities established in the rate tariff.

There may be single rate for all quantities, referred to as any-quantity (AQ) rate.

There are incentive rates such as In-excess rates which are lower than vehicle-load rates and apply to those quantities that exceed vehicle-load minimums

Route Basis

When shipments involve full-vehicle-load movements, carriers use a per-mile charge to compute total shipping expenses.

When vehicle is loaded with cargo destined for more than one stop, a stop-off charge is added to the bill.

The per-mile rate is determined by the location of the last point on the route.

Miscellaneous Rates

Cube Rates – rates based on space occupied. Import or Export Rates Deferred Rates – shipper is willing to accept the

possibility of increased delay in delivery compared with regular service in exchange for lower rates.

Released Value Rates – the carrier’s limited to some fixed figure for loss or damage of goods.

Ocean Freight Rates – Ocean carriers are quoted either on a space or weight basis, further fees and surcharges may be added to cover items such as tolls and handling.

Special Service Charges

Diversion and Reconsignment

Diversion of a shipment refers to changing the destination of a shipment while on route.

Reconsignment refers to changing the consignee of a shipment , usually after it has reached the original destination. Used for perishable commodities Carrier's equipment can be used a warehouse.

Transit Privileges

A special service that permits shipments to be stored before moving to the final destination.

A shipment is treated as if it moves directly from an origin point to a destination point, and the freight charge is composed of the through rate from the origin to destination plus a small additional charge for the stop-offpoint.

I - Origin

18000 units

J -Complete loading

36000 units

K - Destination

Direction of movement

$0.50/unit $1.00/unit

$1.10/unit

STOP-OFF PRIVILEGE TO COMPLETE LOADING

Protection

Articles requiring some additional protection. Perishable commodities may need refrigeration,

icing, ventilation, or heating. Fragile commodities may require extra packing .

Interlining

One carrier may pick up a shipment and then give it to another carrier that serves the destination region.

The first carrier pays the second, but the shipper is billed by the first.

The total shipment charge includes the profit made by both carriers, and the rate may be higher than if none carrier could handle the shipment form origin to destination.

Terminal Services

Pickup and delivery charges Switching – The movement of railroad cars from

private sidings and junctions to rail terminals or stations or vice versa. It may be paid by the shipper or consignee on a flat-charge-per-car-basis.

Demurrage and detention – Penalty charges imposed on shipper or consignee for holding the carrier’s equipment beyond an allowed free time that the carrier may hold a shipment

In-company Management v/s.

Out-sourcing

In-company Management

Providing transportation service through company ownership of equipment or contracting for transportation services.

It requires investment in transportation or commitment to a long term contractual agreement.

Benefits:

Better operating performance Greater availability and capacity of

transportation service Short order cycle times Emergency response capability If the shipping volume is high, it may be more

economical to own the transportation service than to rent it.

In case of special requirements:

Fast delivery with high dependability Special equipment not generally available. Special handling of the freight A service that is available on demand

PRIVATE CARRIER COSTING

Fixed costs:- Insurance on the vehicle Licensing fees Equipment amortization Expenses associated with housing the vehicles

Operator costs:-Driver compensation Wages contribution to health and pension plans On the road expenses such as meals, hotel, and

other living costs Contributions to social security

Vehicle operating costs:- Costs incurred in keeping the vehicle on road – fuel,

tires, maintenance.

TRANSPORT DOCUMENTS

These documents are evidence shipment of goods. They evidence the mode, manner and date of

shipment. These are of following types:

Bill of Lading Multimodal Transport Document Airway Bill Railway Receipt Lorry Receipt Post Parcel Receipt Courier Receipt

BILL OF LADING

A receipt issued by the shipping company (an exclusive evidence of goods having been given to the charge of the shipping company).

Functions: Receipt of goods Contract of Carriage Document of Title to Goods

TYPES OF BILL OF LADING

Received for ShipmentBill of lading

On BoardShipped

Bill of lading


ThroughBill of lading

Trans-shipmentBill of lading


CleanBill of lading

ClausedBill of lading


“Order”Bill of lading

Consignee-Named Or

Straight Bill of lading

MULTIMODAL TRANSPORT DOCUMENT

Issued when the movement of goods involve more than one mode of transport.

It is a document evidencing receipt of goods and is a negotiable instrument.

The carriers or Combined Transport Operators takes the liability for safe conduct of transport of goods by various modes of transport from the place of receipt of goods to the place of delivery.

AIRWAY BILL

An acknowledgement issued by the airline company or their authorized agents stating that they have received the goods detailed therein for dispatch by air to the named consignee at the address stated therein.

It is not a negotiable instrument.

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