TRANSPORTATION MANAGEMENT

1. Chapter 10:
Transportation Management

2. 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. reducing the number of carriers
2. negotiating with carriers
3. contracting with carriers
4. consolidating shipments
5. monitoring service quality

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

4. 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.

5. 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.

6. Management Strategy: Six
Factors
1. Proactive Management Approach
2. Reducing the Number of Carriers
3. Negotiating with Carriers
4. Contracting with Carriers
5. Consolidating Shipments
6. Monitoring Service Quality

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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 10-1.

14. Figure 10-1
Carrier Evaluation Report

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. Documentation: Domestic
 Bill of Lading
 Freight Bill
 Claims
 F.O.B. Terms of
Sale

23. Figure 10-2 Bill of Lading

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. 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.

30. 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

31. 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

32. 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.

33. 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

34. 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

35. 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

36. 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.

37. 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.

38. Table 10-1 Summary of
Incoterms Cost Obligations

39. Figure 10-3
Shipper’s Export Declaration

40. 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

41. 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.

42. 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.

43. 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.

44. Bases for Rates
 Cost of Service
 Value of Service
 Distance
 Weight of Shipment

45. 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 10-4.

46. Figure 10-4
Limits on Rates

47. 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.

48. Figure 10-5
Example of Value of Service Pricing

49. Table 10-2 Transportation
Rates and Commodity Value

50. 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.

51. Figure 10-6 Example of the
Tapering Rate Principle

52. 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.

53. Transportation Services
 Terminal Services
 Consolidation
 Dispersion
 Shipment services
 Vehicle services
 Interchange
 Loading & Unloading
 Weighing
 Tracing/Expediting
 Line-Haul Services
 Reconsignment
 Diversion
 Pooling
 Stopping in Transit
 Transit Privilege

54. 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.

55. 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.

56. 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 one-half
hour.
 After free time, rail charges a demurrage fee;
motor charges a detention fee.

57. 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.

58. 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.

59. 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 stop-
off 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.

60. Figure 10-7 Example of
Stopping-In-Transit Service

61. Chapter 10:
Summary and Review Questions
Students should review their knowledge of the chapter
by checking out the Summary and Study Questions
for Chapter 10.

62. Table 10A-1
Table of Rate Basis Numbers

63. Table 10A-2
National Motor Freight Classification

64. Table 10A-3 Class Tariff

65. Table 10A-4
Exception Tariff

66. Table 10A-5
Commodity Tariff
Commodity Rates in Cents per 100 Pounds
Item Commodity From To
TL
Rate
Min.
Wt.
493 PAINTS
GROUP, as
described in
NMFC Items
149500 to
150230, rated
Class 35
Reading...P
A
Baltimore….MD
Beltsville….MD
Washington…
DC
79
82
82
23M
30M
30M

67. End of Chapter 10 and 10A
Slides
Transportation Management