CHAPTER 12 Transportation Copyright © 2015 Pearson Education, Inc. Learning Objectives • To compare and contrast transportation infrastructures in several countries • To identify the five modes of transportation and learn about their respective characteristics • To discuss intermodal transportation Copyright © 2015 Pearson Education, Inc. 12-2 Learning Objectives • To describe several types of transportation specialists • To explain how different types of regulation impact transportation • To identify the legal classification of transportation carriers Copyright © 2015 Pearson Education, Inc. 12-3 Transportation Key Terms • • • • • • Accessorial service Barge Broker Common carrier Consignee Contract carrier • Department of Transportation (DOT) • Dimensional (dim) weight • Exempt carrier • Freight forwarder Copyright © 2015 Pearson Education, Inc. 12-4 Transportation Key Terms • Intermodal transportation • Land bridge services • Less-than-truckload (LTL) • Line-haul • Lock • Parcel carriers • Piggyback transportation • Private carrier • Rail gauge • Shippers’ associations Copyright © 2015 Pearson Education, Inc. 12-5 Transportation Key Terms • Slurry systems • Surface Transportation Board • TEU • Terminal • • • • Ton miles Transportation Truckload (TL) Unit load devices (ULD) Copyright © 2015 Pearson Education, Inc. 12-6 Transportation • Transportation – The actual, physical movement of goods and people between two points Copyright © 2015 Pearson Education, Inc. 12-7 Transportation • Transportation influences or is influenced by the following logistics activities: – Transportation costs are affected by node location – Inventory requirements are influenced by mode – Packaging requirements are dictated by mode – Carrier classification rules dictate package choice Copyright © 2015 Pearson Education, Inc. 12-8 Transportation • Transportation influences or is influenced by the following logistics activities: – Materials handling equipment and design of the docks are dictated by mode – Maximum consolidation of loads achieved with order-management technology reduces costs – Customer service goals influence the type and quality of carrier – Customer service goals influence carrier choice Copyright © 2015 Pearson Education, Inc. 12-9 Transportation • Five different types or modes of transportation include: – Air – Motor carrier (truck) – Pipeline – Rail – Water Copyright © 2015 Pearson Education, Inc. 12-10 Comparing and Contrasting Transportation Infrastructure • Table 12.1 indicates: • Wide disparities in the various infrastructures exist between highly populated countries • Lack of infrastructure makes it difficult to use that mode domestically Copyright © 2015 Pearson Education, Inc. 12-11 Comparing and Contrasting Transportation Infrastructure Copyright © 2015 Pearson Education, Inc. 12-12 Transportation Modes • The attractiveness of a particular mode depends on the following attributes: – Cost – Speed – Reliability – Capability – Capacity – Flexibility Source: Drawn from David J. Bloomberg, Stephen LeMay, and Joe B. Hanna, Logistics (Upper Saddle River, NJ: Prentice Hall, 2002), Chapter 7. Copyright © 2015 Pearson Education, Inc. 12-13 Transportation Modes • Airfreight – Generally the fastest mode for shipment exceeding 600 miles – Expensive – Accessorial service, if needed, adds transportation cost and time – Best suited for high-value, lower-volume urgent, perishable or time-specific deliveries – Dimensional weight used for rates Copyright © 2015 Pearson Education, Inc. 12-14 Transportation Modes • Airfreight ─ Examples of products that move by air: • • • • • • • • • Auto parts and accessories Cut flowers and nursery stock Electronic or electrical equipment, i.e. iPods Fruits and vegetables Machinery and parts Metal products Photographic equipment, parts, and film Printed matter Wearing apparel Copyright © 2015 Pearson Education, Inc. 12-15 Transportation Modes • Airfreight ─ Reliability is problematic due to delays caused by: • Weather (fog, snow, thunderstorms) • Congestion and resultant delays with air passenger transportation (belly freight) Copyright © 2015 Pearson Education, Inc. 12-16 Transportation Modes • Motor Carriers – Most important business user of the Interstate Highway System – Primary advantage is flexibility – Cost is generally lower when compared to airfreight – LTL vs. TL Copyright © 2015 Pearson Education, Inc. 12-17 Transportation Modes • Motor Carriers ─ Less-than-truckload (LTL) • • • • 150 to 10,000 pounds Too big to be handled manually, too small to fill a truck LTL trucks carry shipments from many shippers Prominent LTL carriers include: ─ ─ ─ ─ ABF Freight System FedEx Freight UPS Freight YRC (formerly Yellow Freight and Roadway) Copyright © 2015 Pearson Education, Inc. 12-18 Transportation Modes • Motor Carriers – Less-than-truckload (LTL) • Process – Local pick-up – Origin terminal used to load aboard line haul – Line haul to terminal near destination – Destination local delivery on smaller trucks – Consignee receives Copyright © 2015 Pearson Education, Inc. 12-19 Transportation Modes • Motor Carriers – Truckload (TL) • Focus on shipments > 10,000 lbs • Close to the amount that would physically fill a truck trailer • Possible that large shipments from several customers can be consolidated Copyright © 2015 Pearson Education, Inc. 12-20 Transportation Modes • Motor Carriers – Truckload (TL) • Prominent LTL carriers include: – Schneider – National – J.B. Hunt – Swift Transportation, – Werner Enterprises Copyright © 2015 Pearson Education, Inc. 12-21 Transportation Modes • Motor Carriers – Truckload (TL) • Process – Shipments tend to move directly from the shipper’s location to the consignee’s location Copyright © 2015 Pearson Education, Inc. 12-22 Transportation Modes • Pipelines – Only mode without vehicles – No need for vehicle operators – Transportation is one way – Most reliable mode Copyright © 2015 Pearson Education, Inc. 12-23 Transportation Modes • Pipelines – Tend to be the slowest mode – Accommodates only liquid, liquefiable or gaseous products – Capable of transporting large product volumes – High fixed costs, but relatively low cost per unit due to large product volume Copyright © 2015 Pearson Education, Inc. 12-24 Transportation Modes • Railroads – U.S. dominated by four carriers • • • • Burlington Northern (BN) (west of the Mississippi) CSX (east of the Mississippi) Norfolk Southern (NS) (east of the Mississippi) Union Pacific (west of the Mississippi) – Domination limits service and pricing options Copyright © 2015 Pearson Education, Inc. 12-25 Transportation Modes • Railroads – Neither “best” or “worst” on any of the six attributes – Superior to air, motor, and pipeline, but inferior to water when transporting different kinds of products – Less flexibility, but more when compared to air, water, and pipeline Copyright © 2015 Pearson Education, Inc. 12-26 Transportation Modes • Railroads – Superior to air and motor with regards to volume, but inferior to pipeline and water – Less expensive than air and motor, but more expensive than pipeline and water – Faster than pipeline and water, but slower than air and truck Copyright © 2015 Pearson Education, Inc. 12-27 Transportation Modes • Water – Relatively inexpensive – Focus on lower value bulk commodities handled by mechanical means – Many different kinds of products can be carried – Carry greater volumes than rail or truck – Slow average speeds – Somewhat unreliable Copyright © 2015 Pearson Education, Inc. 12-28 Intermodal Transportation • Intermodal transportation – refers to transportation when using a container or other equipment that can be transferred from the vehicle of one mode to the vehicle of another mode without the contents being reloaded or disturbed – Two or more modes are employed to utilize advantages of each while minimizing their disadvantages – Example - piggyback transportation Copyright © 2015 Pearson Education, Inc. 12-29 Intermodal Transportation • Containers – Large reusable steel boxes used for intermodal shipments1 – Provide significant reduction in freight handling costs – Are interchangeable among rail, truck, and water carriers 1http//en.wikipedia.org/wiki/Shipping_containers. Copyright © 2015 Pearson Education, Inc. 12-30 Intermodal Transportation • Containers – Airfreight containers (ULDs) are designed specifically for fuselage – Are measured by TEU’s (20-foot equivalent unit) – Allowed for land bridge services Copyright © 2015 Pearson Education, Inc. 12-31 Intermodal Transportation Copyright © 2015 Pearson Education, Inc. 12-32 Transportation Specialists • Freight forwarders – Two types of domestic freight forwarders • Surface • Air – Exists by offering a service to shippers that must use LTL rates because they do not generate enough volume to use TL rates – Typically offers pickup and delivery service but does not perform the line-haul service (done by motor carriers or railroads) Copyright © 2015 Pearson Education, Inc. 12-33 Transportation Specialists • Freight forwarders – Give volume discounts to customers shipping large quantities of freight at one time – TL rates < LTL rates because • Shipper loads the goods and the consignee unloads trailer • The load goes directly from shipper to consignee without passing through terminals • Paperwork, billing, and other administrative costs are little more for a 25,000 lb shipment than for 250 lb shipment Copyright © 2015 Pearson Education, Inc. 12-34 Transportation Specialists • Air forwarders – Consolidate shipments – Tender to airlines in containers ready for loading – Forwarders provide retailing function – Airline provides wholesaling function • Shipper’s associations – Similar to air and freight forwarders but are notfor-profit organizations – Primarily focused on achieving the lowest rates for members Copyright © 2015 Pearson Education, Inc. 12-35 Transportation Specialists • Brokers – Companies that look to match a shipper’s freight with a carrier to transport it – May consolidate LTL shipments and then give to motor carriers, freight forwarders, or shippers’ associations • Third party logistics companies (3PLs) – Find clients with complimentary transportation needs to maximize equipment utilization Copyright © 2015 Pearson Education, Inc. 12-36 Transportation Specialists • Parcel carriers – Parcels are packages weighing up to 150 pounds – Parcel carriers are companies that specialize in transporting parcels – Parcel carriers include: • • • • USPS UPS FedEx Express Greyhound Package Express Copyright © 2015 Pearson Education, Inc. 12-37 Transportation Regulation • The five modes are influenced by federal, state and local government regulations – Examples: • Mandatory retirement age for pilots in U.S. • Placement of lighting on truck trailers • Regulation – Costs money – Needs to be codified – Is enforced by government agencies Copyright © 2015 Pearson Education, Inc. 12-38 Transportation Regulation • Level and degree of regulation varies from country to country – i.e. industrialized countries tend to have more stringent transportation equipment emissions regulations when compared to those of less industrialized countries • Logisticians must understand – Relevant transportation regulations – Cost and service implications of regulations Copyright © 2015 Pearson Education, Inc. 12-39 Transportation Regulation • Environmental Regulation – Environment Protection Agency (EPA) is the federal regulatory agency established to protect human health and the environment – Current concerns include: • Noise and air pollution • Resource conservation Copyright © 2015 Pearson Education, Inc. 12-40 Transportation Regulation • Safety Regulation – Department of Transportation (DOT) is the federal agency responsible for transportation safety regulations for all five modes – Federal Aviation Administration (FAA) has primary responsibility for air transportation safety – Federal Motor Carrier Safety Administration (FMCSA) is focused on reducing crashes, injuries, and fatalities involving large trucks and buses. Copyright © 2015 Pearson Education, Inc. 12-41 Transportation Regulation • Safety – Office of Pipeline Safety (OPS) is responsible for safety considerations for natural gas and liquid pipelines – Federal Railroad Administration (FRA) has primary responsibility for safety in the U.S. railroad industry – U.S. Coast Guard (USCG) has safety regulation responsibilities for marine safety considerations Copyright © 2015 Pearson Education, Inc. 12-42 Transportation Regulation • Economic Regulation – Refers to control over business practices and activities such as entry and exit, pricing, service, accounting, and financial issues, and mergers and acquisitions – Regulation began in the 1870’s due to a belief that transportation companies would not act in the public’s best interest without government regulation Copyright © 2015 Pearson Education, Inc. 12-43 Transportation Regulation • Economic Regulation – Surface Transportation Board (STB) • Has primary responsibility for resolving railroad rate and service disputes and potential rail mergers • Some jurisdiction over motor carriers, domestic water transportation, and rates and services of pipelines not regulated by the Federal Energy Regulatory Commission1 1http://www.stb.dot.gov/stb/about/overview.html Copyright © 2015 Pearson Education, Inc. 12-44 Transportation Regulation • Economic (continued) – Due to deregulation • Civil Aeronautics Board (CAB) was eliminated • Interstate Commerce Commission (ICC) was eliminated with functions transferred to a new agency, the Surface Transportation Board (STB) – Economic deregulation has allowed greater freedom with respect to pricing and service options Copyright © 2015 Pearson Education, Inc. 12-45 Legal Classification of Carriers • Transportation carriers are classified as either – For-hire • Common • Contract • Exempt – Private • Classification is important because different levels of economic regulation are applicable to different carriers Copyright © 2015 Pearson Education, Inc. 12-46 Legal Classification of Carriers • Common carriers ─ Serve the general public • Contract carriers ─ Offer specialized service to customers on a contractual basis ─ No obligation to serve the general public or to treat customers on an equal basis Copyright © 2015 Pearson Education, Inc. 12-47 Legal Classification of Carriers Copyright © 2015 Pearson Education, Inc. 12-48 Legal Classification of Carriers • Exempt carriers ─ Exempted from economic regulation due to legislation • Private carriers ─ Companies whose primary business is other than transportation and provide their own transportation service – Also exempt from economic regulation Copyright © 2015 Pearson Education, Inc. 12-49 Copyright Notice All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc. 12-50 CHAPTER 13 Transportation Management Copyright © 2015 Pearson Education, Inc. Learning Objectives • To explain contemporary transportation management • To discuss how rates are determined • To learn about modal and carrier selection Copyright © 2015 Pearson Education, Inc. 13-2 Learning Objectives • To distinguish among various transportation documents • To illustrate select activities associated with making and receiving shipments • To learn about transportation service quality Copyright © 2015 Pearson Education, Inc. 13-3 Transportation Management Key Terms • • • • • Amodal shipper Bill of lading Class rate system Commodity rate Concealed loss or damage • • • • • • Demurrage Density Detention Documentation Expediting FOB destination Copyright © 2015 Pearson Education, Inc. 13-4 Transportation Management Key Terms • • • • • FOB origin Freight bill Freight claims Rate Routing • • • • Routing guide Stowability Tracing Transportation Management Copyright © 2015 Pearson Education, Inc. 13-5 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: SouthWestern, 2006). Copyright © 2015 Pearson Education, Inc. 13-6 Contemporary Transportation Management • Transportation managers also involved in other operations of the firm – – – – Marketing Manufacturing Outbound shipping Purchasing Copyright © 2015 Pearson Education, Inc. 13-7 Rate (Pricing) Considerations • Rate Determination – One key responsibility of transportation managers – Rate • Price charged for freight transportation – Fare • Prices charged for passenger transportation Copyright © 2015 Pearson Education, Inc. 13-8 Rate (Pricing) Considerations • Rate Determination – Weight x rate = transportation charge – Transportation rates based on three factors • Product • Weight • Distance Copyright © 2015 Pearson Education, Inc. 13-9 Rate (Pricing) Considerations • Rate Determination – Commodity rate • One specific rate for every possible combination of product, weight, and distance – Class rate system • System to simplify rate determination • Freight classification used to simplify the number of commodities • National Motor Freight Classification (NMFC) Copyright © 2015 Pearson Education, Inc. 13-10 Rate (Pricing) Considerations Copyright © 2015 Pearson Education, Inc. 13-11 Rate (Pricing) Considerations • 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 Copyright © 2015 Pearson Education, Inc. 13-12 Rate (Pricing) Considerations • 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 Copyright © 2015 Pearson Education, Inc. 13-13 Rate (Pricing) Considerations • Rate Determination – Weight groups are used to simplify shipment weight – Weight group examples: • 150 and < 500 pounds – To get a lower rate, shipment consolidation may occur: aggregating customer orders across time or place or both Copyright © 2015 Pearson Education, Inc. 13-31 Making and Receiving Shipments Copyright © 2015 Pearson Education, Inc. 13-32 Making and Receiving Shipments • Demurrage and Detention – Demurrage – Penalty payment made to the railroad for keeping a railcar beyond the time when it should be released back to railroad – Detention – Same concept as demurrage except it usually refers to the trucking industry Copyright © 2015 Pearson Education, Inc. 13-33 Making and Receiving Shipments • Routing – Process of determining how a shipment will be moved between origin and destination1 – Routing guide • Example of routing • Document that can provide a variety of shipmentrelated information 1http://www.cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary.pdf Copyright © 2015 Pearson Education, Inc. 13-34 Making and Receiving Shipments • Tracking and Expediting – Tracking • Refers to determining a shipment’s location during the course of its move – Expediting • Involves the need to rapidly move a shipment to its final destination Copyright © 2015 Pearson Education, Inc. 13-35 Transportation Service Quality • Macroenvironmental changes have caused organizations to demand higher levels of service quality • Economic deregulation allowed for both price and service competition resulting in a need to measure performance • Can measure performance through the use a performance scorecard Copyright © 2015 Pearson Education, Inc. 13-36 Transportation Service Quality Copyright © 2015 Pearson Education, Inc. 13-37 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2015 Pearson Education, Inc. 
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