Chapter 8
restrictive element, flexible element
2 important elements of transportation
35
According to recent Logistics Management research, only ____ % of logistics operations are using a transportation management system (TMS) as part of their overall supply chain management strategy
economic drivers, costing methods, carrier pricing strategy, rates and rating mechanics
An effective logistics strategy must recognize four interrelated financial topics:
collaborative negotiation
Both parties seek the lowest total logistical cost consistent with the shipper's needed service level (i.e. delivery time)
competition, free, negotiation
Cons of transportation regulation Regulation discourages _____ and does not allow prices to adjust based on ____ market demand or through _____
monopoly, safety
Pros of transportation regulation Regulation tends to assure adequate transportation service throughout the country. Protects consumers from ____ pricing, ensures ____, and creates liability
motor, water
Rail and ____ carriers or rail and ___ carriers can offer point-to-point pickup and delivery service
trailer on flatcar
Rail carriers have begun purchasing motor carriers and can now offer point-to-point pickup and delivery service known as ___ ___ ___ service
negotiation
Seeking win-win agreements where both shippers and carriers share transportation consolidation and productivity gains
water, motor
____ and ____ can offer point to point service for overseas manufacturers
rail
____ has historically handled the largest number of ton-miles within the US constitutes of 9% of total US freight expenditures
air
____ is the fastest mode of transportation
pipeline
____ is the lowest cost per unit and most reliable transportation
truck
____ is the most accessible mode of transportation
rail
____ is the most capable mode of transportation
roll on roll off
______ containership truck trailers and containers can be directly driven on and off the ship without the use of cranes
non vessel operating common carrier
a company (often a forwarding agent) who does not own or operate the carrying ship, but who contracts with a shipping line for the carriage of goods
consolidation
administration activity combining LTL or parcel shipments moving to a general location Shift to "response-based" logistics has made the industry rethink consolidation (The trend towards smaller, more frequent shipments make reduced time in-transit more important. LTL consolidation generally requires multiple stops and longer routes which is not conducive to this trend) two groups of techniques- reactive and proactive
control
administration activity responsibilities include tracing, expediting and driver hours of service administration
auditing and claims administration
administrative activity is needed when services are not performed as promised
150, palletized
air characteristics shipment size > ___ pounds (parcel and express is less than this) ____-parcel is never on a pallet
expedited
air service type 3-5 days transit; moderate cost
consolidated
air service type 4-7 days transit; network; lowest cost
charter
air service type entire aircraft; $250 million +
IATA
air service type pharma DEA controlled; timing critical (international air transport association)
customized
air service type specific situations; cold chain
high, high, perishability
air shipped products are generally ____ value ____ priority extreme _____
2nd, high, expensive, heavy, light, half
air: fixed cost is ___ lowest variable costs are extremely ___ ____ relative to other modes of transportation cannot carry extremely ___ of bulky cargo mostly for ___, high value goods over long distances quickly (jewelry, fine wines) ___ of the goods transported by air are carried by freight only airlines (Fed Ex) paired with trucks for door to door delivery
steamship line
asset based company operating the ships with whom both cargo owners (sometimes called beneficial cargo owner) and NVOCCs contract with for the carriage of goods note- cannot handle a LCL (less than container load) booking directly; a freight forwarder would need to be involved
net rate
carrier pricing strategy a simplified pricing format made possible by deregulation established discounts and accessorial charges are rolled into one all-inclusive price pricing is tailored to the individual customer's needs
value of service
carrier pricing strategy based on value as perceived by the shipper rather than the carrier higher margins than cost-of-service pricing depends on the value of the goods being shipped used for high value goods or when no competition exists
combination
carrier pricing strategy set at a value between cost-of-service minimum and value-of-service maximum most carriers use some form of this pricing common in highly volatile markets and changing competitive situations
cost of service
carrier pricing strategy similar to a cost-plus pricing strategy for manufacturing the carrier estimates the cost of providing the service and then adds on a percent profit margin commonly used for pricing transportation of low value goods or in highly competitive situations
general freight carriers
carry the majority of goods shipped, includes common carriers
150
characteristics of parcel shipments: are usually packages that weigh < ___ lbs There are multiple service levels Next Day, 2nd Day Air, 3rd Day Air, and Ground (1 - 5 days)
45,000, 24, team, flat
characteristics of trucks: max freight weight: _____ pounds entire truck cannot exceed 80,000 pounds typical tractor weights 35,000 pounds standard trailer: 53' long x 8'6" wide x 9' high max cube utilization: 3,509 cube max pallets: 60 booking a shipment requires at least ____ hours advance notice ____ service: roughly 10-15% up charge on standard rate rate structure- ____ cost per mile typical equipment: 53' dry van, 53' reefer, day cab
slow, rail, pipeline, heavy
characteristics of water mode: inexpensive ____ and inflexible competes with ____ and ____ includes inland water way, coastal and intercostal, and deep sea inland water way transportation is used for ____, bulky, low value materials because transport by water is so cheap almost any item may be shipped by water including: automobiles, petroleum, containerized cargo, produce, etc paired with trucks for door to door delivery
auditing
checking freight bills to ensure accuracy Pre-audit determines proper charges prior to payment Post-audit does the same after payment Pay particular attention to accessorial charges
performance, expected
claims in auditing and claims administration can be: Loss and damage resulting from poor ___ Overcharge/undercharge when amount billed is different from _____
less than truckload
commodities are evaluated and grouped based on 4 characteristics: density (primary)- space in relation to weight stowing- ability to load other freight in the same trailer handling- how difficult it is to actually handle the freight liability (value and risk)- potential claims from damage or loss
drayage
commonly used to mean the transportation of containerized cargo by specialized trucking companies between ocean ports or rail ramps and shipping docks in intermodal freight transport
contract, private, common, exempt
companies transporting freight are classified according to 4 categories:
transportation structure
consists of right of way, vehicles, and carriers operating within five basic modes
reactive
consolidation technique approach does not attempt to influence composition and timing of transportation movements, but reacts to shipments as they come Example is UPS nightly sorting of package freight for intercity movement
proactive
consolidation technique approach includes preorder planning of quantity and timing with the shipper to facilitate consolidated freight movement
variable costs
costing method change in a predictable, direct manner in relation to some level of activity are only incurred if you operate the vehicle transport rates must cover these at the very least! generally measured per mile or per unit weight or both
common costs
costing method incurred on behalf of all or a select group of shippers terminal or management expenses are typical examples usually allocated to shippers based on level of activity for that customer (ex: number of shipments)
fixed costs
costing method must be paid even when the carrier is not operating its equipment not influenced by shipment volume includes vehicles, terminals, rights-of-way, information systems, and support equipment must be covered by contribution above variable costs on a per shipment basis
joint costs
costing method unavoidably created by the decision to provide a particular service transportation carriers make "round trips" (i.e., "to" and "from" a location) Transportation costing models must account for both legs of the trip for example, when a carrier elects to haul a truckload from point A to point B, there is an implicit decision to incur a joint cost for the back-haul from point B back to point A have a significant impact on transportation charges because carrier quotations must include implied joint costs (either a haul back shipper must be found or cost must be covered by original shipper)
ICC termination act and ocean shipping reform act
deregulation ICC was eliminated and a requirement for ocean carriers to file rates ended
shipping act
deregulation allowed ocean carriers to pool shipments, assign ports, publish rates, and enter into contracts with shippers
railroad revitalization and regulatory reform act
deregulation railroads could change rates without ICC approval
motor carrier act
deregulation this act deregulated the motor carrier industries entry restrictions for new businesses were relaxed restrictions for types of freight and range of services were abolished individual carriers were given the right to price their services trucking industry's collective rate-making practices were abolished
staggers rail act
deregulation this act deregulated the rail industry provided railroad management with freedom necessary to revitalize the industry rail carriers were authorized to use selective pricing to meet competition and cover operating costs carriers were given increased flexibility with respect to surcharges contract rate agreements between individual shippers and carriers were legalized rail management given liberal authority to proceed with abandonment of poorly performing rail service, i.e., eliminate unprofitable routes
encourages
deregulation _____ competition and allows prices to adjust as demand and / or negotiations dictate
tracking
driver Hours of Service (HOS) to comply with federal regulations
stowability
economic driver that influences rate how product dimensions fit into transportation equipment odd package shapes and sizes can waste cubic capacity items with rectangular shapes are easier to stow nesting
liability
economic driver that influences rate includes product characteristics that can result in damage carriers must pay for liability insurance or accept financial responsibility shippers can reduce their risk by improved packaging and loading and reducing susceptibility to loss or damage
market factors
economic driver that influences rate lane volume and balance influence transportation cost transport lane refers to movements between origin and destination points carriers must find a backhaul load or vehicle is returned empty imbalances in volume between shipping points can result in higher transport costs
handling
economic driver that influences rate special equipment may be needed to load and unload trucks, railcars, or ships how products are grouped together in boxes or pallets will also impact this cost
density
economic driver that influences rate the combination of weight and volume volume is important because vehicles are typically constrained more by cubic capacity than by weight loaded cost per unit of weight declines as product density increases higher density products allowed fixed transport costs to be spread over more weight
distance
economic driver that influences rates major influence on cost directly contributes to variable expenses through labor, fuel, and maintenance cost curve starts above zero because of fixed costs associated with pick up and delivery regardless of distance however, rate of cost decreases as distance increases (tapering principle)
weight
economic driver that influences rates second major factor for most transportation costs cost per pound decreases as weight increases until the carrier vehicle is full small loads should be consolidated into larger loads to maximize scale economies
restrictive
element of transportation in-transit inventory is 'captive', usually inaccessible during transportation
flexible
element of transportation inventory can be diverted during shipment to a new destination
air
in 1977 ____ freight was deregulated
truck
in 2014 this mode took up 81% of total freight expenditures
intermodal
interchange of equipment between differing modes of transportation to execute a single transport, which includes: rail, truck, or ocean
expediting
involves the shipper notifying carrier that it needs a specific shipment to move quickly and with no delays
equipment, routing, movement, transportation
key elements of operational management: _____ Scheduling and Yard Management Load Planning and _____ Advance Shipment Notification (ASN) _____ Administration (managing for-hire and private transport carriers) _____ Management System (an integral information technology solution to help oversee day to day activities)
minimum, fuel, base
less than truckload rates: each carrier has a ____ charge for LTL. some have one overall minimum charge, but many carriers are more specific for minimum charges for hard to reach destinations. ____ and accessorials are additional charges applied onto the ____ rate
shipment manifest
lists the individual stops or consignees when multiple shipments are placed on a single vehicle
liquid, gaseous
materials are transported through pipeline in a ____ or ____ state
motor carrier
mode ____ ____ has expanded rapidly since the end of WWII (same as truck) nearly 1 million miles of highways in US key benefits include speed of transit, ability to operate door to door many companies have their own fleets
freight forwarders
non operating intermediary businesses that consolidate small shipments from various customers into bulk shipment for a common carrier to transport
shipper associations or agents
non operating intermediary groups of shippers who employ an agent to consolidate purchases and shipments for them
brokers
non operating intermediary intermediaries that coordinate transportation arrangements for shipper, consignees and carriers, operating on a commission basis
improved
not all transportation security measures have ____ security as envisioned
FedEx
parcel Has 2 separate operations (one for air, one for ground) Drivers are independent contractors
UPS
parcel Has one operation for both air and ground All drivers are UPS employees
signature, dangerous, invalid, address, fuel, oversize
parcel shipping costs; things to consider: Additional Handling Adult ____ Required Delivery Inaccessible ____ Goods Inside Pickup Charge _____ Account Number Saturday Delivery ____ Correction ____ Surcharge Invalid 3rd Party ____ Charge Priority Alert Residential Delivery Return
exempt carriers
person or company specializing in services or transporting commodities exempt from regulation by the Interstate Commerce Act
private carriers
person or company that transports its own cargo as part of a business that produces, uses, sells or buys the cargo that is being hauled
non asset based
person or company who does not own their own equipment they contract with an asset based carrier (or an owner operator) for the carriage of goods
common carriers
person or company who transports freight for a fee that can be hired by anyone to transport goods
contract carriers
person or company who transports freight under contract to one or a limited number of shippers
owner operator
person who owns his/her own tractor and is responsible for the maintenance and upkeep of his/her tractor
delivered pricing
pricing fundamentals the seller includes transportation in the product price, i.e., Bundled Pricing
single zone pricing
pricing fundamentals of delivered pricing Buyer pays a single price regardless of where they are located Example, USPS First class letters
base point pricing
pricing fundamentals of delivered pricing Final delivered price is determined by the product's list price plus transportation cost from a designated base point
multiple zone pricing
pricing fundamentals of delivered pricing Seller charges different prices for different geographic areas Parcel carriers use this
bundled
pricing practices traditionally, logistics pricing was ____ into the price for a product or service
de-bundle
pricing practices trend has been to _____ these charges so they become separate and visible to the customer focus is on delivering VALUE to the customer
documentation
primary purpose of _____ is to protect all parties involved in the transactions
tracing
procedure to locate lost or late shipments i.e., tracking with RFID and GPS systems Proof of delivery
detention
product storage service (motor) charge for holding a truck for more than a few hours before unloading
demurrage
product storage service (rail) charge for holding a railcar for more than 48 hours before unloading
trailer on flatcar
rail and motor carriers offer point-to-point pickup and delivery service
container on flatcar
rail and water carriers offer point-to-point pickup and delivery service
slow, inflexible
rail is ____ and _____
truck
rail is paired with ____ for door to door delivery
fixed, variable
rail: new technologies include articulated cars, unit trains, and double stack cars this leads to high ____ costs and low ____ costs
infrastructure, equipment
railroad ____ and aging ____ are problems for the railroads
special rates
rate/rating mechanic used by common carriers FAK rate, joint rates, transit services, split delivery, etc
exception rates
rate/rating mechanic used by common carriers are special rates to provide prices lower than the prevailing class rates
commodity rates
rate/rating mechanic used by common carriers for a large quantity of product which moves between two locations on a regular basis typical for most rail freight today
rate determination
rate/rating mechanic used by common carriers is based on the classification rating, shipment origin, and destination
cube rates
rate/rating mechanic used by common carriers replace the 18 traditional freight classifications of the National Motor Freight Classification (NMFC) with five cube groupings
classification
rate/rating mechanic used by common carriers the grouping of similar products into uniform classes that are assigned a rating
class rates
rate/rating mechanic used by common carriers the price in dollars and cents per hundredweight to move a specific product (i.e., class) between two locations
nesting
refers to the ability of product to be placed in itself or collapsed for better stowability
carrier
refers to the company that transports the goods
mode
refers to the way in which goods are transported
old transportation act
regulation 1920 this act changed the interstate commerce act
new transportation act
regulation 1940 established interstate commerce commission control over domestic water transportation
merchant marine act
regulation Only U.S.-built ships operating under a U.S. flag with U.S. crews can ship goods directly from a U.S. port to another U.S. port The thought at one time was that such a law would promote U.S. shipping by providing preferential treatment of US vessels over "foreign" vessels
Granger's
regulation ____ laws regulated the railroads
100, 80, 43, 6
regulation by 1970, ICC had oversight of: ___% of rail and air ___% of pipeline ___% of trucking ___% of water carrier operations
federal aviation act
regulation created air traffic and safety regulations and the national airport system
interstate commerce act
regulation created the interstate commerce commission (ICC) to oversee interstate transportation primarily to stop the railroad monopolies
department of transportation act
regulation established to coordinate all transportation related matters
continued dumping and subsidy offset act
regulation fines for artificial underpricing and 'dumping' of foreign goods in US markets repealed effective on october 1, 2007
electronic signatures in global and national commerce act
regulation gave digital signatures legal status
patriot act
regulation increased inspections at port, airport security, and increased security at border crossings
motor carrier act
regulation this act brought motor carriers under interstate commerce commission control
freight bill
represents a carrier's method of charging for transportation services rendered Can be prepaid or collect
economic regulation
seeks to make transportation equally accessible and economical to all without discrimination government created infrastructure intended to prevent carriers from taking advantage of shippers while ensuring long term financial stability or carriers
FOB destination
seller arranges for transportation and adds charges to the sales invoice. Title does not pass to the buyer until delivery is completed. The seller assumes the risk for in-transit loss or damage
FOB origin
seller states price at point of origin, and agrees to load a carrier, but assumes no further responsibility. Buyer selects carrier and mode, pays transportation and assumes the risk for in-transit loss or damage
freight all kinds
special rate allow a mixture of different products to be transported under a negotiated rating
joint rates
special rate can be negotiated if a shipper needs to use a combination of carriers
transit services
special rate permit shipments to be stopped at an intermediate point between origin and destination for special processing
split delivery
special service delivering portions of a shipment to multiple destinations (aka, "a milk run")
diversion
special service this and re-consignment allows changing the destination and/or consignee prior to arrival at the original destination
expensive, rental, secure
storing product in transport equipment at origin or destination is: Usually more ____ than traditional warehousing Must pay ____ or demurrage charges on transport equipment used for storage Less ____ Special handling (e.g., cold chain), could be an issue
roll on roll off ship
strongest of all modes in US domestic market driven by cost reductions, road congestion, and 'green initiatives' transit times becoming more competitive with truckload rate structure- flat (door to door)
social regulation
takes measures to protect public safety and the environment department of transportation took an active role in hazardous material safety and driver safety hazardous materials transportation uniform safety act took precedence over state and local regulations
diversion
term used when a shipment destination is changed / re-routed after a product is in transit
stowage planning
the act of allocating space to containers on board a container ship in the order of the discharge ports
bill of lading
the basic document utilized in purchasing transport services serves as a receipt and documents products and quantities shipped specifies terms and conditions of carrier liability
economy of distance
the cost per unit decreases as distance increases often called the tapering principle longer distances allow the fixed cost of the carrier to spread over more miles, lowering the per mile/per unit charge
economy of scale
the cost per unit decreases as the size of the shipment increases (until at least you totally fill the conveyance)
load, distance
the goal of fundamental transport principles (economy of scale and economy of distance): to maximize the size of the ____ and ____ shipped while still meeting service expectations
air
the newest transport mode and the least utilized makes up 3% of total US freight expenditure
water
the oldest form of US transport dating back to the birth of our nation makes up 5% of total freight expenditures percentage of ton miles has stayed between 19 and 30% since 1960 ranks between rail and truck in fixed cost right of way (canals and rivers) maintained by federal government
product movement
the transfer of inventory to specified destinations
truckload
these carriers are used when you have enough to fill the truck, or you don't want other suppliers cargo on your truck (security, faster delivery)
less than truckload
these carriers move small shipments, when you don't have enough to fill a truck stop at depots and transfer locations to match load to the final location
pipeline
this mode of transportation accounts for about 68% of all crude and petroleum ton-mile movements in US makes up 2% of total US freight expenditures lowest cost per unit for transportation little maintenance needed once up and running not flexible- limited in the variety of commodities they can carry; examples- petroleum, natural gas, drinking water, gasoline
truck
this mode of transportation carries more than 80% of US freight because of interaction with other transportation modes to and from ports and warehouses
rail
this mode of transportation competes for transportation when the distance is long and the shipments are heavy or bulky
truck
this mode of transportation dominates freight moves under 500 miles and from manufacturing to wholesalers to retailers
truck
this mode of transportation is more efficient than rail for small shipments over short distances
base rate
three factors to determine the _____ _____: 1. how much are you shipping? (TL, LTL) 2. what are you shipping? (determine freight class) 3. how far are you shipping from origin to destination? (determine rate table)
deregulated
today, the US transportation industry remains mostly ______
specialized carriers
transport commodities like liquid petroleum, household goods, building materials, and other types of specialized items
60
transportation accounts for more than ____% of the total cost of logistics
consolidation, control
transportation administration activity includes: operational management, _____, negotiation, ____, and auditing and claims administration
asset based carrier
transportation carrier having their own tractors and trailers responsible for maintenance of all their equipment traditionally, truckload carriers look to replace tractors every 3-4 years and trailers ever 7-8 years
time, finances, environmental, resources
transportation consumes ____, _____, _____, and _____
product movement, product storage
transportation functionality consists of ____ ____ services (primarily) and ____ ____ services
oil, gas
transportation is one of the largest consumer of ____ and ____
traffic
transportation negatively impacts ____, congestion, noise, and air pollution
department of homeland security
transportation security created to provide overall US security leadership
aviation and transportation security act
transportation security this act created the transportation security administration (TSA)
rail, air
trucks compete with ____ and _____ for short to medium hauls short haul= 0-200 miles of the driver's home terminal long haul= 200+ miles from driver's home terminal
true
true or false? rail companies use each other's rail cars. keeping track of rail cars and getting them where needed can be problematic
sole source, free agents
type of owner operators (2)
number, hazardous, discharge
variables considered in stowage planning: Scheduled list of ports that the ship will be calling at, in the order of rotation A summary of the ____ of containers - size/type/weight of containers per port that are planned to be loaded on the ship A summary of the number of ____, reefer and of dry containers per port that are planned to be loaded on the ship A list and summary of containers that are on board after ____ of the containers at your port
less than container load
water/ocean rate a cost based on whichever is greater, the space in cubic meters or the weight in metric tons
full container load
water/ocean rate a cost per container
bunker adjustment factor
water/ocean rate bunker is the type of fuel burned by vessels BAF, or ____ ____ ____, is a per container fee charged by the carriers for this fuel
demurrage
water/ocean rate holding a container AT port beyond a certain time limit and incurring a penalty charge such as a daily rent after the free time ends commonly referred to as storage when container is held at a rail yard
per diem
water/ocean rate holding a container OFF port beyond a certain time limit and incurring a penalty charge such as daily rent after the free time ends
demurrage, detention
what are 2 product storage services
freight forwarders, shipper associations and agents, brokers
what are 3 non operating intermediaries
economy of scale, economy of distance
what are the 2 fundamental transport principles
bill of lading, freight bill, shipment manifest
what are the 3 different documentation practices
cost of service, value of service, combination pricing, net rate pricing
what are the 4 carrier pricing strategies?
variable, fixed, joint, common
what are the 4 costing methods
consolidated, expedited, customized, IATA, charter
what are the 5 air service types
truck, rail, air, pipeline, water
what are the 5 modes of transportation
distance, weight, density, stowability, handling, liability, market
what are the 7 economic drivers that influence rates
economic, social
what are the two types of transportation regulation
truck
what is the most flexible mode of transportation
air
which mode of transportation accounts for only 1% of intercity ton miles fastest of all the modes
rail
which mode of transportation track mileage has declined by over half since 1970 (until 2005 and then stabilized) traffic shifted from broad range of commodities to hauling specific freight in traffic segments (bulk items, heavy items)
pipeline
which mode of transportation has the highest fixed cost and lowest variable cost of all modes
pipeline
which mode of transportation is the most reliable (can operate 24 hours a day, 7 days a week; no emissions, no empty container or vehicle to return)
product storage service
while product is in vehicle / conveyance in-transit inventory is held captive in the transport system; managers strive to reduce in-transit inventory to a minimum product can also be stored in transport equipment at origin or destination (trailers, containers, railcars, pipeline, etc)
shipper, receiver, carrier and agents, government, internet, people
who are the 6 transport participants