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