Transportation

OperationsCHAPTER71

TransportationoperationsinvolvesthefollowingmajortopicsTransportationeconomicsandpricingTransportationadministrationDocumentationPricing2TransportationoperationsseeksanoptimalbalancebetweenlowcostandhighserviceTransportationissinglelargestelementoflogisticscostRisingfuelcostsEnvironmentalcostofcarbonfootprintTransportationmanagersareresponsibleforinventorytobepositionedinatimelyandeconomicalmanner3TransportationeconomicsandpricingareconcernedwithfactorsthatdrivecostAneffectivelogisticsstrategymustunderstandfourinterrelatedtopicsEconomicdriversthatinfluenceratesCostingmethodstoallocatecostsCarrierpricingstrategyusedtosetratesRatesandratingmechanicsusedbycarriers4EconomicdriversinfluenceratesDistanceWeightDensityStowabilityHandlingLiabilityMarket5DistanceisamajorinfluenceoncostDirectlycontributestovariableexpensesLabor,fuel,andmaintenanceCostcurvestartsabovezerobecauseoffixedcostsassociatedwithpickupanddeliveryregardlessofdistanceHowever,rateofcostdecreasesasdistanceincreasesThisiscalledthetaperingprincipleGeneralizedRelationshipbetweenDistanceandTransportationCost6WeightisthesecondmajorfactorformosttransportationcostsCostperpounddecreasesasweightincreasesuntilthecarriervehicleisfullRelationshipstartsagainforthenextvehicleloadSmallloadsshouldbeconsolidatedintolargerloadstomaximizescaleeconomiesGeneralizedRelationshipbetweenWeightandTransportationCost/Pound7DensityisthecombinationofweightandvolumeVolumeisimportantbecausevehiclesaretypicallyconstrainedmorebycubiccapacitythanbyweightloadedCostperunitofweightdeclinesasproductdensityincreasesHigherdensityproductsallowedfixedtransportcoststobespreadovermoreweightGeneralizedRelationshipbetweenDensityandTransportationCost/Pound8StowabilityishowproductdimensionsfitintotransportationequipmentOddpackageshapesandsizescanwastecubiccapacityItemswithrectangularshapesareeasiertostowNestingreferstoabilityofproducttobeplacedinitselforcollapsedforbetterstowability9HandlingsomeproductsmayrequirespecialequipmentSpecialequipmentmaybeneededtoloadandunloadtrucks,railcars,orshipsHowproductsaregroupedtogetherinboxesorpalletswillalsoimpacthandlingcost10LiabilityincludesproductcharacteristicsthatcanresultindamageCarriersmustpayforliabilityinsuranceoracceptfinancialresponsibilityShipperscanreducetheirriskbyImprovedpackagingandloadingForexample-pneumaticdunnageReducingsusceptibilitytolossordamage11MarketfactorssuchaslanevolumeandbalanceinfluencetransportationcostTransportlane

referstomovementsbetweenoriginanddestinationpointsCarriersmustfindabackhaul

loadorvehicleisreturnedemptyImbalancesinvolumebetweenshippingpointscanresultinhighertransportcosts

12Variablecostschangeinapredictable,directmannerinrelationtosomelevelofactivityVariablecostsintransportationareonlyincurredifyouoperatethevehicleTransportratesmustcovertheseattheveryleast!GenerallymeasuredpermileorunitweightorbothE.g.perton-miles13FixedcostsmustbepaidevenwhenthecompanyisnotoperatingFixedcostsarenotinfluencedbyshipmentvolumeIncludesvehicles,terminals,rights-of-way,informationsystems,andsupportequipmentMustbecoveredbycontributionabovevariablecostsonapershipmentbasis14JointcostsarecreatedbythedecisiontoprovideaparticularserviceTypicalexampleistheimplicitdecisiontoincurajointcostforabackhaulfromadestinationE.g.BigandLittleEnosinSmokeyandtheBanditSignificantimpactonchargesCarrierquotationsmustincludeimpliedjointcostsbasedonassessmentofback-haulrecovery15CommoncostsareincurredonbehalfofalloraselectgroupofshippersTerminalormanagementexpensesaretypicalexamplesUsuallyallocatedtoshippersbasedonlevelofactivityforthatcustomerE.g.numberofshipments16CarrierpricingstrategiesforsettingratesfollowsoneortwoofthefollowingapproachesCost-of-servicestrategyValue-of-servicestrategyCombinationpricingstrategyNet-ratepricingstrategy17Carrierpricingcost-of-servicestrategyCost-of-serviceissimilartocost-pluspricingstrategyformanufacturingCarrierestimatescostofprovidingservicethenaddsonapercentprofitmarginCommonlyusedforpricingtransportoflowvaluegoodsorinhighlycompetitivesituations18Carrierpricingvalue-of-servicestrategyValue-of-servicepriceisbasedonvalueasperceivedbytheshipperratherthanthecarrierHighermarginsthancost-of-servicepricingDependsonthevalueofthegoodsbeingshippedUsedforhighvaluegoodsorwhennocompetitionexistsE.g.1980’sFedExovernightdelivery19CarrierpricingcombinationstrategyCombinationpriceissetatavaluebetweencost-of-serviceminimumandvalue-of-servicemaximumMostcarriersusesomeformofcombinationpricingCommoninhighlyvolatilemarketsandchangingcompetitivesituations20Carrierpricingnet-ratestrategyNet-rateisasimplifiedpricingformatmadepossiblebyderegulationEstablisheddiscountsandaccessorialchargesarerolledintooneall-inclusivepricePricingistailoredtotheindividualcustomer’sneedsUPScommercial:“WhatcanBrowndoforyou?”21PagefromaCatalogbyAWDirectShowingShippingCharges22RatesandratingmechanicsusedbycommoncarriersClassratesarethepriceindollarsandcentsperhundredweighttomoveaspecificproductbetweentwolocationsClassificationisthegroupingofsimilarproductsintouniformclassesthatareassignedaratingRatedeterminationisbasedontheclassificationrating,shipmentorigin,anddestinationCuberatesreplacethe18traditionalfreightclassificationsoftheNMFCwithfivecubegroupingsStillindevelopmentCommodityratesareforalargequantityofproductwhichmovesbetweentwolocationsonaregularbasisTypicalformostrailfreighttodayExceptionratesarespecialratestoprovidepriceslowerthantheprevailingclassratesSpecialratesandservicesincludeFAKrates,Jointrates,Transitservices,Splitdelivery,etc.23PagefromNationalMotorFreightClassification24ThreefactorsdeterminethebaserateHowmuchareyoushipping?Truckload(TL)orLessthantruckload(LTL)Whatareyoushipping?DeterminesfreightclassHowfarareyoushippingfromorigintodestination?Determinesratetable25SpecialratesandservicesFreight-all-kind(FAK)ratesallowamixtureofdifferentproductstobetransportedunderanegotiatedratingJointratescanbenegotiatedifshipperneedstouseacombinationofcarriersTransitservicespermitshipmentstobestoppedatanintermediatepointbetweenoriginanddestinationforspecialprocessingDiversionandreconsignmentallowschangingthedestinationand/orconsigneepriortoarrivalattheoriginaldestinationSplitdeliveryisdeliveringportionsofashipmenttomultipledestinationsProductstorageservicesDemurrage(rail)chargeforholdingarailcarformorethan48hoursbeforeunloadingDetention(motor)chargeforholdingatruckformorethanafewhoursbeforeunloading26TracingandExpeditingTracingistheattempttolocatelostorlateshipments.DonebycomputeratnocostExpeditingisrapidlymovingashipmentthroughacarrier’ssystem.Bothofthesearelesslikelytobeusedtodaysinceshipmentscanbepinpointedenrouteandcarriersprovidebetteron-timeperformance27LossandDamageShippersandcarrierstrytoresolvefirstWhatisthefullactualloss?ConcealedlossordamageWhotakespossessionofdamagedgoodsafterclaimsettled?Ifunresolved,movestocourtsystem28TransitPrivilegesTransitprivilegesallowcargotobestoppedenroutebetweenoriginanddestinationtobeunloaded,stored,orprocessedandthenreloadedfordeliverytooriginaldestination.Oftenusedinhouseholdgoodsmovingandstorageindustry29ReparationsReparationsarepaymentsmadetoashipperbyacarrierthathaschargedillegallyhighratesinthepast.Alsocollectedwhencarriersdonotliveuptotermsofcontractswithshippers30TransportationadministrationactivitiesincludeOperationalManagementConsolidationNegotiationControlAuditingandclaimsadministrationLogisticalintegrationTransportationofHazardousMaterials31KeyelementsofoperationalmanagementEquipmentschedulingandyardmanagementLoadplanningRoutingandadvanceshipmentnotification(ASN)MovementadministrationTransportationManagementSystem(TMS)Anintegralinformationtechnologysolutiontohelpoverseeday-to-dayactivities32ConsolidationConsolidationiscombiningLTLorparcelshipmentsmovingtoagenerallocationShiftto“response-based”logisticshasmadetheindustryrethinkconsolidationTwogroupsoftechniquesReactiveapproachdoesnotattempttoinfluencecompositionandtimingoftransportationmovements,butreactstoshipmentsastheycomeExampleisUPSnightlysortingofpackagefreightforintercitymovementProactiveapproachincludespreorderplanningofquantityandtimingwiththeshippertofacilitateconsolidatedfreightmovement33TheTransportationManagerConsolidatesShipmentsWheneverHeorSheCan34NegotiationSeekingwin-winagreementswherebothshippersandcarrierssharetransportationconsolidationandproductivitygainsBothpartiesseekthelowesttotallogisticalcostconsistentwiththeshipper’sneededservicelevel(i.e.deliverytime)35Controlresponsibilitiesincludetracing,expeditinganddriverhoursadministrationTracingisproceduretolocatelostorlateshipmentsi.e.trackingwithRFIDandGPSsystemsExpeditinginvolvestheshippernotifyingcarrierthatitneedsaspecificshipmenttomovequicklyandwithnodelaysTrackingdriverhoursofservice(HOS)tocomplywithfederalregulations36AuditingandclaimsadministrationisneededwhenservicesarenotperformedaspromisedAuditingischeckingfreightbillstoensureaccuracyPreauditdeterminesproperchargespriortopaymentPostauditdoesthesameafterpaymentClaimscanbeLossanddamageresultingfrompoorperformanceOvercharge/underchargewhenamountbilledisdifferentfromexpected37

LogisticalintegrationistheprimaryroleofthetrafficmanagerIntegrationisfindingthebestcombinationofpackaging,selectionofcarrier,modeandconsolidationforlowesttotallogisticalcostconsistentwiththeshipper’sserviceneeds38TransportationofHazardousMaterialsHazardousmaterialisasubstanceormaterialinaquantityandformwhichmayposeanunreasonablerisktohealthandsafetyorpropertywhentransportedincommerce.MustbemovedsafelyLabeledwithplacardMusthave24-hourhotlineusedineventofspills39Figure7-12:SpecializedContainerwithSumptoCaptureHazardousWasteLeaksfromBarrels40PrimarypurposeofdocumentationistoprotectallpartiesinvolvedinthetransactionBillofladingisthebasicdocumentutilizedinpurchasingtransportservicesServesasareceiptanddocumentsproductsandquantitiesshippedSpecifiestermsandconditionsofcarrierliabilityFreightbillrepresentsacarrier’smethodofchargingfortransportationservicesrenderedCanbeprepaidorcollectShipmentmanifestliststheindividualstopsorconsigneeswhenmultipleshipmentsareplacedonasinglevehicle41DocumentationBillofladingStraightbillofladingOrderbillofladingLong-formbillofladingPreprintedshort-formbillofladingFreightbill42PagefromaPortofHoustonTariffShowingSomeLoading,Unloading,andWharfageCharges43Figure7-6:ALong-FormBillofLading44Figure7-7:APreprintedShort-FormBillofLading45

PricingpracticeshaveadirectimpactonlogisticaloperationsTraditionally,logisticspricingwas“bundled”intothepriceforaproductorserviceTrendhasbeentodebundlethesechargessotheybecomeseparateandvisibletothecustomerFocusisstillondeliveringvaluetothecustomer46PricingfundamentalsofF.O.B.pricingF.O.B(freightonboard)pricingF.O.B.origin—sellerstatespriceatpointoforigin,andagreestoloadacarrier,butassumesnofurtherresponsibility.Buyerselectscarrierandmode,paystransportationandassumestheriskforin-transitlossordamageF.O.B.destination—sellerarrangesfortransportationandaddschargestothesalesinvoice.Titledoesnotpasstothebuyeruntildeliveryiscompleted47ThreedifferentpaymentoptionsforeachF.O.B.priceTermsofSalesandResponsibilities48PricingfundamentalsofdeliveredpricingDeliveredpricing—thesellerincludestransportationintheproductpriceSinglezonedeliveredpricingBuyerpaysasinglepriceregardle