Transportation

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 Transportation

⚫ The process of moving an item from point A to point

B.
⚫ Transportation refers to the movement of product
from one location to another as it makes its way from
the beginning of supply chain to the customer.

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 Transportation in SCM

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⚫ Safe, efficient, reliable, and sustainable movement of
persons and goods over time and space.
⚫ Transportation is an important supply chain driver
because products are rarely produced and consumed
in the same location.
⚫ Transportation is the most visible logistic operation
(approx 40-50 % of total Logistics cost).

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 Parties

Shipper:
⚫ the party who wants to transport the product from
one place to another place.
Carrier:
⚫ Carrier is company that moves the goods from one
place to another place.

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 Modes Of transportation/ Services

⚫ AIR
⚫ WATER RAIL

⚫ SURFACE ROAD/ TRUCK

PIPELINE

⚫ PACKAGE CARRIER
⚫ INTERMODAL

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 AIR

⚫ Air freighting is commonly used by companies who

work with short lead times, or advanced service
levels.
⚫ Air transportation is best suited for small, high-
value items or time sensitive emergency
shipments that have to travel a long distance.
⚫ Air carriers normally move shipments that have
high value but light weight .

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USED FOR
⚫ lightweight, high value and highly perishable
items.
⚫ urgent delivery
⚫ critical maintenance

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Advantages of Air transportation:
⚫ It is the fastest mode of transport.
⚫ It is very useful in transporting goods to the area, which are
not accessible by any other means.
⚫ Reduces lead time.
⚫ Improved service levels
⚫ Less loss(less protective packaging)

Disadvantages:
⚫ It is relatively more expensive mode of transport.
⚫ It is not suitable for short distance travel
⚫ Overall High Cost
⚫ Weather Disturbance

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 SEAWAYS/ Water Transportation

⚫ Water transport uses ships and large commercial

vessels that carry billions of tons of cargo.
⚫ water transport is used primarily for the movement
of large bulk commodity shipments and it is the
cheapest mode for carrying such load.
⚫ Water transport is particularly effective for
significantly large quantities of goods that are
non-perishable in nature and for cities or states that
have water access.

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Advantages of water transportation:
⚫ It is a relatively economical mode of transport for bulky and heavy
goods.
⚫ The cost of maintaining and constructing routes is very low most of
them are naturally made.
⚫ It promotes international trade.
Disadvantages:
⚫ It is a slow moving mode of transport and therefore not suitable for
transport of perishable goods.
⚫ It is adversely affected by weather conditions( winter season+ Flood)
⚫ Sea transport requires large investment on ships and their
maintenance.
⚫ Substantial packaging is needed especially against rough handling
during unloading and loading operations

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USED FOR:
⚫ Low valued bulk products
⚫ International trade.
⚫ Types- Tankers, Dry bulk carriers, Container ships
and Special vessels
⚫ India has around 639 ships
⚫ Major items are- crude oil and other petroleum
products, Iron ores, Coal, Food grains etc

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 RAIL

⚫ Rail transport uses freight trains for the delivery of

merchandise.
⚫ Freight trains are usually powered by diesel, and
electricity
⚫ Rail is suited for bulk shipment of products like
fertilizer, cement, food grains and coal etc. from the
production plant to the warehouses.

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USED FOR :
⚫ Good for Larger loads, long distance transportation.
⚫ Transport all types of goods-mostly the bulk items
like Coal, Iron ore, Cement, Fertilizers, Petroleum,
Heavy Machineries, Raw materials, Finished
products, live cattle etc.

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Advantages of Rail transportation:
⚫ It is relatively faster than road transport.
⚫ It is suitable for carrying heavy goods in large quantities
over long distances.
⚫ Cost effective.
Limitations of Rail transportation:
⚫ It is relatively expensive for carrying goods over short
distances.
⚫ It is not available in remote parts of the country.
⚫ It provides service according to fixed time schedule and
is not flexible for loading or unloading of goods at any
place.

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 ROAD/TRUCK

Trucking industry is divided into two parts i.e.

TL: Truck Load and LTL: Less than Truck load.

⚫ TL: TL pricing display the economic of scale with respect

the distance travel.
⚫ TL shipping suited for transportation between
manufacturing facilities and warehouses.
⚫ LTL: LTL operations are priced to encourage shipments
in small lots, usually less than half a TL.
⚫ TL shipping is suites for shipments that are large to be
mailed as small packages.

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Road Transport Advantages:
⚫ It is a relatively cheaper mode of transport as compared to other modes.
⚫ It is a flexible mode of transport as loading and unloading is possible
at any destination.
⚫ It provides door-to-door service.
⚫ Remote locations: It helps to carry goods from one place to another, in
places which are not connected by other means of transport like hilly areas.

Limitations of Road transport:

⚫ Due to limited carrying capacity road transport is not economical for long
distance transportation of goods.(Poor conditions of road)
⚫ Transportation of heavy goods or goods in bulk by road involves high cost.
⚫ Multi point police checks

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 MULTIMODAL/ Intermodal

⚫ Intermodal Transportation is use of more than one mode of

transport for the movement of shipment from origin to its
destination.
⚫ Intermodal operation is used two or more mode of transport
to take the advantage of inherent economies of each and thus
provide the integrated service at lower cost.
⚫ Combining of 2 or more modes of transportation
⚫ Services linking 2 nodal locations

⚫ Reasons: limited accessibility of rail, water, pipeline & air

modes.
⚪ Eg. Combination of rail & road may provide the long distance.
⚪ Economy of rail & high accessibility of road together
⚪ Eg. Rail-water combination could yield the speed & lower cost

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 PACKAGE CARRIER

⚫ Package carriers are transportation companies which

carry small packages. Examples: FedEx, UPS, DHL.
Etc.
⚫ Package carrier use air, truck and rail to transport
the goods.
⚫ Packages carriers also provide other value added
services that allow shippers to inventory flow and
track order status, shipper can proactively inform the
customer about their packages.
⚫ Package carrier is suited for e- business.

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 Pipeline?

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 Pipeline

⚫ Pipeline is used primarily for the transport of crude

petroleum, refined petroleum products and natural
gas.
⚫ It include a significant initial fixed cost in setting up
the pipeline and related infrastructure.
⚫ Pipelines are not flexible and this scope is limited
with respect to commodities.
⚫ Unable to transport a variety of materials

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⚫ Utilized for fluids, sewages, gas, chemicals etc
⚫ Privately owned or hired
Advantage-
⚫ Available all the time
⚫ Lower variable or operating cost
⚫ Large quantities in a single continuous shipment
⚫ Protection provided by pipeline
⚫ Disadvantage-
⚫ Limited to routes
⚫ Limited with respect to commodities
⚫ Highest investment cost or fixed cost

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 Modes Of transportation

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 LECTURE 2

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 Principles of Transportation

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 Economy of scale

⚫ It refers to the characteristic that transportation cost per unit of weight

decreases when the size of the shipment increases.
⚫ For example, truckload (TL) shipments (i.e., shipments that utilize the entire
vehicle’s capacity) cost less than less-than-truckload (LTL) shipments (i.e.,
shipments that utilize a portion of vehicle capacity).

⚫ It is also generally true that larger capacity transportation vehicles such as rail or
water are less expensive per unit of weight than smaller capacity vehicles such as
motor(truck) or air.
⚫ Transportation economies of scale exist because expenses associated with moving a
load can be spread over the load’s weight. As such, a heavier load allows costs to be
“spread out ,” thereby decreasing costs per unit of weight.
⚫ The fixed expenses include administrative costs of taking the transportation order,
time to position the vehicle for loading or unloading, invoicing, and equipment cost.
⚫ These costs are considered fixed because they do not vary with shipment volume.

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⚫ Also transportation vehicles having larger
holding capacity cost less than those with
smaller

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 DISTANCE

⚫ Unit cost of transportation decreases with increasing

distance in transportation.
⚫ Same load transported in one step across 1000 km
cost less than transporting load in two steps of 500
km each across the same 1000 km because of double
loading & unloading charges.
⚫ The two principles state that transportation
management decisions should aim to
maximize size of load & distance of shipment
in order to obtain cost benefits, taking care of
customers requirements & satisfaction.

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 Transportation Functionality

Transportation functionality
Following are the two major functionality of
Transportation:
⚫ Product movement
⚫ Product storage

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 Product Movement

⚫ Whether the product is in the form of materials, components,

assemblies, work-in-process, or finished goods, transportation is
necessary to move it to the next stage of the manufacturing process
or physically closer to the ultimate customer.
⚫ A primary transportation function is product movement up and
down the value chain.
⚫ Transportation utilizes temporal, financial, and environmental
resources, it is important that items be moved only when it truly
enhances product value. The major objective of transportation is to
move product from an origin location to a prescribed destination
while minimizing temporal, financial, and environmental
resource costs.
⚫ Loss and damage expenses must also be minimized.
⚫ The performance of transportation is vital to
procurement, manufacturing, and market distribution.

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 Product storage

⚫ A less visible aspect of transportation is product

storage. While a product is in a transportation
vehicle, it is being stored.
⚫ “Refrigerated vehicles”
⚫ Transport vehicles can also be used for product
storage at shipment origin or destination, but they
are comparatively expensive storage facilities.

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 Transport Participants

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 Transport Participants

⚫ The transportation environment impacts the range of

decisions that can be implemented in a logistical system.
Unlike most commercial transactions, transportation
decisions are influenced by six parties:
⚫ Shipper.
⚫ Destination party traditionally called the consignee.
⚫ Carriers and agents.
⚫ Government.
⚫ Internet.
⚫ The public.

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1.The shipper (consignor)

⚫ All transportation process begins with a company transferring its

goods from a warehouse to another place such as distributors,
customers or even another warehouse.
⚫ The consignor is the sender of a shipment in a contract of transport.
They are also called the Shipper, who wants to have their goods
moved as quickly and safely as possible. This could be done by the
shipper themselves through their in-house fleet or by a 3PL
company. Either way, both the shipper and the recipient would want
a completed sale or purchase transaction.
⚫ A successful transaction is considered when all the goods are
transported at the lowest cost and in the fastest time, from
origin to the correct destination. Apart from that, other issues
related to transportation including pickup and delivery time, loss
and damage,… should also be taken care of.

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⚫ 2. The recipient (consignee)
⚫ The consignee or the recipient is the receiver of a
shipment of freight.
⚫ The consignee wants transportation that is
low-cost, reliable and capable of delivery in the
shortest time possible.

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3.Carrier
⚫ A carrier is a company providing air ,sea or land transportation services. In
a transportation decisions, the carriers are responsible for actually moving
the goods and products.
⚫ Unlike the shipper and the recipient, carriers want to receive the highest
rate possible for services, while keeping labor, fuel and vehicle costs as
minimal as they can.

⚫ There are many different types of carriers, including common and contract
carriers; local, regional or national carriers as well as local or for-hire one.
⚫ While large carriers can have more capacity and provide better equipment,
smaller players provide a better, more personalized service and flexibility to
their shippers.
⚫ It’s important to consider your business needs, destination, freight volume,
and type when choosing a freight carrier to work with.
⚫

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4.Government
⚫ A stable and efficient transportation environment
requires that carriers provide essential services at
reasonable cost.
⚫ Because of the direct impact of transportation on
economic success, governments have traditionally
been more involved in the practices of carriers than
in most other commercial enterprises.

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5. Internet
⚫ A recent development in the transportation industry
is a wide assortment of internet based
⚫ The primary advantage of such communications is
the ability of carriers to share real time
information with customers and suppliers.
⚫ The availability of real time information is improving
shipment visibility to the point where tracing and
tracking are no longer a challenge.

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 Participants

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 Importance of an Effective Transportation
System

1.Greater Competition
With a poorly developed transportation system, the extent
of the market is limited to the areas immediately
surrounding the point of production.
2Reduced Prices (crude oil)
⚫ Inexpensive transportation also contributes to reduced
product prices.
⚫ As transportation becomes more efficient, as well as
offering improved performance, society benefits through
a higher standard of living.
3Economies of scale (Auto parts and low- labour
cost)

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 Transportation economic and
pricing

LECTURE 3

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 TRANSPORTATION COST

⚫ Transportation usually represents the most important

single element in logistics costs for most firms.
⚫ Freight movements have been observed to absorb
between one-third and two-thirds of total logistics costs.
⚫ A transportation service incurs a number of costs, such as
labor, fuel, maintenance, terminal, roadway,
administrative, and others. This cost mix can be
arbitrarily divided into those costs that vary with services
or volume (variable costs) and those that do not (fixed
costs).

1. Fixed cost
2. Variable cost

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 Fixed cost

They include the costs:

(i) Of providing the infra-structure (i.e., the roads, the port
or the railway line);
(ii) Of providing, equipping and staffing the terminal
facilities (i.e., bus depots, railway stations or airports);
(iii) Of providing managerial, administrative and
maintenance staff and their offices and workshops.
These costs are inescapable because they cannot be
avoided except by abandoning the whole operation. They
also do not vary with the level of traffic, but remain
independent of it.

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 Variable cost/ line haul cost

⚫ These are costs incurred by the actual movement of

traffic and therefore vary with the level of the traffic
passing.
⚫ They include the cost of fuel, crew wages and the
maintenance of vehicles due to the operation of
those vehicles in traffic service, for example the
replacement of worn bus tyres or routine inspection of an
aircraft.
⚫ They are called escapable because they can be avoided
or escaped by not running a particular train, suspending
a particular flight or a private motorist leaving his or her
car in the garage and walking to the shops.

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 Cost

Two important dimension

⚫ Distance
⚫ Shipment volume

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 Cost characteristics by mode

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 Toll plazas

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 Transportation Costs cont..

Transportation cost is the cost occurred during

transporting the freight from one place to another.
The followings are the elements of transportation
costs-
1. Tariff of transportation mode: It depends on-
– Nature of the product
– Distance to be covered
– Quantity of the shipment
– Transit time
– En route handling needs

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2.Transit Time Cost:
3. Obsolescence & Deterioration Cost:
- Changes in physical feature of the products resulting
in value reduction, especially perishable items like
Milk, Vegetables, Fruits, Fish, Egg etc

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4. Protective Packaging Cost-
– To avoid breakage and pilferage
– To avoid damage due to rain etc
– It depends on the mode of transport
5. Transit Insurance Cost-
-To cover the loss during transit
6. Miscellaneous Cost-
- Toll tax, Local levy etc

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 Carrier Pricing Strategies

⚫ Cost of service
⚫ Value of service

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 RATE PROFILES

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⚫ Volume related rates
⚫ Distance related
⚪ Uniform rates
⚪ Propotional rates
⚪ Tapering rates
⚪ Blanket rates

⚫ Demand related rates

⚫ Shipment size
⚫ Route

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 Transportation administration

LECTURE 3

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 TRANSPORTATION MANAGEMENT
DECISIONs

It has two stage process

1) Mode of transportation selection:-
Based on factors affecting desired performance , the total logistics
performance & cost incurred in it.
Speed of transportation affects lead time of inventory, availability to firm,
inventory carrying cost, stock out cost
2) The carrier …whether Common (Public) , Contract or Private:-
• Reliability or consistency of lead time affects stock out cost
• Safety
• Capability – ability to transport different products
• Flexibility – door to door delivery
• Capacity – amount that can be carried in one trip
• Frequency

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 Transportation documentation

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 Transportation documentation

⚫ Bill of lading
⚫ Freight bill
⚫ Freight claim

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 types

⚫ Negotiable
⚫ Non negotiable
⚫ Straight
⚫ Order

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⚫ Bill of lading
⚫ Freight bill
⚫ Freight claim

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⚫ Bill of lading
⚫ Freight bill
⚫ Freight claim

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 Freight claim

⚫ Loss, damage and delay

⚫ Overcharges

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 Other docs

⚫ Letter of credit
⚫ Insurance certificate
⚫ Commercial invoice

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 End

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 TRANSPORTATION TERMS

• Consignment (GOODS SHIPPED)

• Transportation mode (Form)
• Container (large box)
• Rights-of-way (legally permitted routes)
• Consignor (sender of goods shipment, seller)
• Consignee (receiver of goods shipment, buyer)
• Carrier (services of transporting goods)
• Public carrier (services to general public at non
discriminatory pricing)
• Private carrier (services to own organisation)

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