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Chapter 9:

Transportation Management

Learning Objectives 

After reading this chapter, you should be able to do the following: Define proactive transportation management. Discuss the five transportation management strategies:
1. 2. 3. 4. 5.

reducing the number of carriers negotiating with carriers contracting with carriers consolidating shipments monitoring service quality

Learning Objectives

Explain the economic regulation (deregulation) of transportation. Distinguish among the transportation documents: bill of lading, freight bill, and freight claims.

Learning Objectives

Compare the domestic terms of sale with international Incoterms Explain cost of service and value of service ratemaking and the effect of shipment weight and distance on freight rates. Discuss terminal and line-haul services offered by carriers.

Logistics Profile: Mastering the Art of Advance Planning

Intense advance planning ensured the success of the Sydney 2000 Summer Olympics. Thousands of items had to be shipped to Sydney and removed from the country within a few months. Each item to be exported after the Games had to match an import document. Items had to have transport space booked months in advance to arrive at their next venue on time.

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

Management Strategy: Proactive Management Approach

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.

Management Strategy: Reducing the Number of Carriers

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.

Management Strategy: Reducing the Number of Carriers


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.

Management Strategy: Negotiating with Carriers

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.


Management Strategy: Contracting with Carriers

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.

Management Strategy: Consolidating Shipments

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.

Management Strategy: Monitoring Service Quality

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 9-1.

Figure 9-1 Carrier Evaluation Report


Federal Regulation: An Overview

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.

Federal Regulation: An Overview

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.

Federal Regulation: An Overview

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.

Federal Regulation: Deregulation

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.

Federal Regulation: Deregulation

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.

Federal Regulation: Deregulation

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.


Federal Regulation: Deregulation

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.

Documentation: Domestic

Bill of Lading Freight Bill Claims F.O.B. Terms of Sale


Figure 9-2 Bill of Lading


Documentation: Domestic Bills of Lading

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.

Documentation: Domestic Bills of Lading

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.

Documentation: Domestic Bills of Lading

Contract terms on the Bill of Lading:  Common carrier liable for all losses, damage, or delays in shipment.  Exceptions include Acts of God, public enemy, shipper, public authority and inherent nature of the goods.  Reasonable dispatch  Cooperage and baling  Freight not accepted stored at owner s cost.

Documentation: Domestic Bills of Lading


Articles of extraordinary value must be in tariff or carrier can refuse carriage. Explosives require written notice. No recourse on freight bills to the shipper. Substitute bill of lading same terms as original. Water carriers liable for loading and seaworthiness of vessel. Alterations to bills must be initialed by carrier.

Documentation: Domestic Freight Bills


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.

Documentation: Domestic Claims

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 in 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.

Documentation: Domestic F.O.B. Terms of Sale

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

Documentation: International

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


Documentation: International Sales Documents


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.


Documentation: International Terms of Sale

AKA Incoterms --international credit terms

Terms may include:  Export packing costs  Inland transportation  Export clearance  Vehicle loading  Transportation costs  Insurance  Duties  Insurances

Documentation: International Terms of Sale

E Terms(1) - departure contract  Seller makes shipment available at plant.  Buyer takes title at point of origin and arranges for transportation. F Terms(3)  Seller only obligated to present the goods to buyer s carrier; buyer pays for all other costs.  FCA Free delivery to the carrier  FAS (Water only) Free Alongside Ship  FOB (Water only) Free On Board

Documentation: International Terms of Sale

C Terms (4) - seller pays main carriage and insurance costs.  CFR - cost and freight - seller pays main carriage & insurance (water only).  CPT - carriage paid to - same as CFR but no insurance, but used by modes other than water.  CIF - cost, insurance, freight costs, water only  CIP - carriage and insurance paid to, not water


Documentation: International Terms of Sale

D Terms (5) - seller incurs all costs relayed to delivery to destination.  DAF - Delivered At Frontier - seller is accountable to a particular point; buyer thereafter to final delivery.  DES - Delivered Ex Ship - seller pays to port; responsible until goods are made available to buyer onboard ship.

Documentation: International Terms of Sale

D Terms - continued  DEQ - Delivered Ex Quay - seller pays to port; responsible until goods are unloaded onto dock (quay) and duties paid.  DDU - Delivered Duty Unpaid - seller incurs all costs except customs duties.  DDP - Delivered Duty Paid - seller incurs all costs including duties.

Table 9-1 Summary of Incoterms Cost Obligations


Figure 9-3 Shipper s Export Declaration


Documentation: International Transportation Documents



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

Documentation: International Transportation Documents

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.

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.



Documentation: Improving International Documentation

Streamlining of paper-laden processes on the horizon. Examples of over 100 potential international documents requiring multiple copies demonstrate need to ultimately go paperless. EDI and Internet use becoming more common. Harmonized Commodity Description and Coding System will assign an internationally accepted identification number.

Bases for Rates


Cost of Service Value of Service Distance Weight of Shipment


Bases for Rates: Cost of Service

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 9-4.

Figure 9-4 Limits on Rates


Bases for Rates: Value of Service

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. 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.

Figure 9-5 Example of Value of Service Pricing


Table 9-2 Transportation Rates and Commodity Value


Bases for Rates: Distance

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.


Figure 9-6 Example of the Tapering Rate Principle


Bases for Rates: Weight of Shipment


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.

Transportation Services

Terminal Services

Line-Haul Services

Consolidation Dispersion Shipment services Vehicle services Interchange Loading & Unloading Weighing Tracing/Expediting

Reconsignment Diversion Pooling Stopping in Transit Transit Privilege


Transportation Services: Terminal Functions

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.

Transportation Services: Terminal Functions

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.


Transportation Services: Other Terminal Services

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 onehalf hour.  After free time, rail charges a demurrage fee; motor charges a detention fee.

Transportation Services: Other Terminal Services

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.

Transportation Services: Line-Haul Services

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.

Transportation Services: Line-Haul Services

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.


Figure 9-7 Example of StoppingIn-Transit Service


Chapter 9: Summary and Review Questions

Students should review their knowledge of the chapter by checking out the Summary and Study Questions for Chapter 9.

Table 9A-1 Table of Rate Basis Numbers


Table 9A-2 National Motor Freight Classification


Table 9A-3 Class Tariff


Table 9A-4 Exception Tariff


Table 9A-5 Commodity Tariff

Commodity Rates in Cents per 100 Pounds Item Commodity
493 PAINTS GROUP, as described in NMFC Items 149500 to 150230, rated Class 35



TL Min. Rate Wt.

79 82 82 23M 30M 30M

Reading...PA Baltimore .MD Beltsville .MD Washington DC


End of Chapter 9 and 9A Slides

Transportation Management