TY BMS: SEM 5.

LOGISTICS: Transportation
Introduction

Transportation plays a key role in economic success by allowing for the safe and efficient
distribution of goods and services throughout the supply chain.

Transportation links the various integrated logistics activities. Without transportation,

the integrated logistics system breaks down. Some view transportation as the glue that holds the
entire system together. Without the transportation link raw material cannot flow into the
warehouses and plants, nor can be finished product flow out of the plant to field warehouses
and finally to the customer.

If a product is not available at the precise time it is needed, there may be expensive
repercussions, such as lost sales, customer dissatisfaction, and production downtime, when the
product is being used in the manufacturing process.

Transportation Functionality

Transportation is the most visible of all functions of logistics and high contributor to
logistics cost. We can see trucks, containers and wagon loads of material being moved from
place to place as an activity directly associated with trade and business. We should also
appreciate that this is an activity that adds highest amount of cost to the activity of making
inputs and outputs available to consumers. Transportation function moves the products to meet
customer expectations at minimum cost.

A) PRODUCT MOVEMENT :

What is moved?
Raw material, semi finished items, WIP, finished goods, packaging material, rejected material
movement is required up or down the supply chain.

How is this done? What resources are used?

Resources used by transportation:
a) Temporal -- product is locked up during transit, hence inaccessible. We have to spend a
positive amount of time in transporting material. Time is a resource [temporal resource]
that is expended in transportation. During the time the product is locked up costs are
incurred in proportion to the time.
b) Financial -- several cost elements like administration costs, salaries, maintenance costs
are expended. Loss on account of product loss and damage also needs to be accounted for.
c) Environmental -- Fuel consumed is a big cost in transportation. This activity is a fuel
guzzler, eats up natural fuels like oil, directly and indirectly. 67% of all domestic fuel usage
in the US is by transportation activity. Creates congestion, air pollution and noise
pollution. Environmental cost is tangible and sustainability intangible. As transportation
utilizes temporal, financial and environmental resources items must be moved only when
product value is enhanced.

B) PRODUCT STORAGE :

Temporary storage in stationery vehicles kept moving on a circuitous route. Product storage is
expensive in a transport vehicle. But some times keeping overall cost in mind this is adopted.
a. When unloading and loading is more expensive than storage.
b. When storage space is limited. [situation when inventory levels are very high]

1
 Principles of
Transportation
Principles of Transportation
a) Economy of scale Economy of Economy of
It is common knowledge that per Scale Distance
unit transportation cost comes down as the
bulk of the items transported increases.
Hence in order to gain benefits in terms of
reduction in transportation costs logistician
tries to consolidate the bulk and then ship
the consignment rather than shipping half truck loads or half container loads. This benefit is
Economy of scale.
The fixed costs in transportation includes administrative costs of taking the
transportation order, time to position the vehicle for loading and unloading, invoicing and
equipment cost. These do not vary with the volume of shipment. The administrative cost of
shipping 1 kg of goods and 1000 kg of goods is same. When scale increases, the economies in
scale are achieved because fixed expenses associated with moving a load are spread out,
thereby decreasing costs per unit of weight.
E.g. suppose the cost to administer a shipment is $ 10.00. Then the 1-pound shipment has
per a unit of weight cost of $10.00, while the 1,000 pound shipment has per a unit of weight
cost of $0.01. Thus, it can be said that an economy of scale exists for the 1000-pound
shipment.

b) Economy of distance
The transportation cost per kilometer comes down as the distance moved increases.
Hence transportation is planned in a single long lap rather than number of short laps to
reach the destination. The fixed costs and costs like overheads of loading and unloading are
spread over the distance through which the load is moved.
E.g. a shipment of 1000 miles will cost less than two shipments (of the same combined
weight) of 500 miles.
Transportation economy of distance is also referred to as tapering principle since rates or
charges taper with distance. The rationale of distance economies is similar to that for
economies of scale. Longer distances allow the fixed expenses to be spread over more miles,
resulting in lower overall per mile charge.
When alternate transportation strategies are evaluated to meet customer service
expectation, economy of scale and economy of distance are fundamental.

Participants in Transportation Decisions

Normal commercial transaction has limited number of parties to the business decision. They
are seller, buyer and directly or indirectly government. But a transportation decision has
number of parties to the decision. These parties have very important roles to play in
transportation environment. Parties to a transportation decision are those who have a stake
in transportation. They are
1. Shipper: shipper (or Consigner) is a party who wants to transport the goods to his
customer in a business transaction.
2. Consignee: is the party to whom the goods are sent.
3. Carrier: is the service provider who carries the consignment from shipper to consignee.
4. Government: has a role to play as they are keenly interested in transportation and have
a stake in it. Transportation makes business happen which is fundamental to the
economy of any society. Economic prosperity to the society is the objective of the
government of the day. Government also collects tax on the transaction. Government
represents general public whose interest they have to protect.
5. General public: is another party who has a large stake in the transaction involving
transportation. Public want goods produced at different parts of not only country but
also world. Their demand can not be met without transportation.

2
 Impact of transportation mode on other costs associated with transportation.
(Or important elements of Transportation that adds to Transportation costs.)

a) Modal Movement costs: cost of power to drive the vehicle of transport depends on the
mode selected.
b) Inventory costs: it is quite clear that inventory holding costs are temporal costs and are
directly proportional to the transit time. Longer the inventory is in transit, larger are
the costs. Transit capital remains blocked during transit time and unavailable for use.
Mode of transport determines the transit time and thereby influences these costs.
c) Obsolescence: Specially, when the transit time is quite large, the inventory can become
redundant when it arrives at the point of use. We know that in the changed
environment, product life cycles are shrinking and hence this cost becomes highly
relevant. Other situations are product deterioration time & expiration date of the
product.
d) Packaging: These costs are mode dependent as bad road condition needs robust
packaging and smooth transit does not need such packaging. This will also depend on
handling system.
e) Insurance: this cost obviously proportional to risk of damage and loss in transit as this
is liability of carrier.
f) Breakage: this depends on smoothness of transit and handling system associated with
the mode.
g) Pilferage: this cost can be eliminated by switching to options like container transport.
h) Customer Service Costs: shortage of product when demanded by the customer leads to
customer dissatisfaction and thereby loss of sale for the company. So customer service
should be raised to be able to meet customer expectations. When we try to raise
customer service level costs are incurred. Conventionally, companies stockpile to raise
service level. But the current thinking is to increase response time to customer need
rather than increase the stock, as stock of inventory are well understood. This is done
by improving information flow to anticipate demand and reduce transit time by
changing to faster mode of transport. The second method is cheaper than the
conventional. But rise in customer service beyond a certain level does not result into
increased revenue. In other words it is only cost and not value.

Transport Infrastructure

Infrastructure is the main facilitator for any activity to take place. For transportation to take
place a strong infrastructure is primary. If this infrastructure is inadequate transportation gets
slowed down resulting into a major obstacle in the growth of trade and business in that area.

 Elements of transportation infrastructure

1) Terminal facilities: well maintained loading unloading facilities, space for movement
of vehicles, platforms railways yards.
2) Vehicles: trucks, ships or wagons depending on the mode. Their size, shape & speed.
3) Right of way: passage to move on: Rails, roads, airways, limitations on speed,
weight, height etc. if we use this particular passage.
4) Prime movers: the power houses moving the vehicle of transport shortage of which
seriously affect transportation. Shortage of good locomotives impairs the utility of
railway as a mode of transport.
5) Carrier organizations: are the transportation service providers in business.
Transportation is their core business. Good service provides a vital fillip to business and
trade. Railways, roadways, airlines, shipping lines are service providers.

3
 Modes of Transportation
There are five major modes of freight transportation, airlines, motor carries, pipelines, railroads
and water carriers. Each of these modes has distinct characteristics that give them advantage
over the others. Which mode is the best depends on the freight hauled cost, speed, reliability,
capacity, length of haul and flexibility.

Rail Network

Rail network is fully owned and operated by government of India. This major step for
facilitating movement of goods throughout the country at a very low cost for promoting trade
and business in the country. Rail network stands for maximum tonne kilometers moved in India
now, thereby being an important mode of transport in the country. Rail network accounts for
226 billion tonne kilometers and 55.8% of total tonne kilometers moved in 1982 in India.

Rail network needs a high capital investment due to the right of way, switching yards, terminals
but it operates with low running costs. To capitalize on this basic advantage, railways focus on
specific products rather than on broad range. In the US, inter modal transport by railways
through alliances and acquisition is practiced to provide hassle free service to customers. We
can see an example of this practice in their courier business. Various modes of transport are
used for taking the parcel to the addressee by this business.

Advantages of Rail Transport

• Capability to efficiently transport large tonnage over long distances.

• Speed of operation.
• Useful for heavy and bulk products.
• Intermodal operations have also expanded through alliances. Rail roads are even
concentrating on development of special equipment. There are unit trains where the entire
train carrying the same commodity, which are bulk products such as coal or food grains.
Unit trains are faster, less expensive to operate and quick as it can bypass rail yards and go
direct to the products destination.
• There are also various types such as articulated cars for extended rail chassis, double
stack railcars, having two levels of containers, thereby doubling the capacity of each car.

Disadvantages of Rail Transport

• Not effective for small loads and short distances.

• Less flexible. Moves only on specific routes.
• Secondary transportation is needed.
• In India, certain items are moved on priority – particular items might not be on priority
list. (food, oil, coal, steel etc. are on priority list)

Cost in Rail Transport

• Railroad operations incur high fixed costs because of expensive equipments, right of way.
(Railroads must maintain their own track), switching yards and terminals.
• Rail experiences relatively low operating costs. The replacement of steam by diesel power
reduces the railroads variable costs.
• Electrification offers potential for more reductions. New labour agreements have reduced
work force requirements, further decreasing variable costs.

4
Road Transport

Road transport is rapidly pulling the carpet from under the feet of railways, as we saw earlier,
post world war. Its popularity is growing everyday. In India, 179.2 billion tonne kilometers were
moved by roadways in 1982. This is 44.2% of total tonne kilometers moved by all modes as
against 55.8% by railways.

Important features of this mode of transport are discussed below:-

• High flexibility and speed: - this is the strength of roadways. No other mode can
connect any given pair shipper consignee as roadways. Neither any other mode can handle
the variety as roadways do. As there is no need for shunting and waiting for as in railways,
road transport reaches the goods to the consignee very fast.

• Ultimate mode transport: - irrespective of the mode chosen ultimately the

consignment reaches the doorsteps of the customer by road.

• Low capital costs as compared to railways: - railways obviously need huge amount
of capital for setting up the infrastructure in view of the need of rails for movement. This
feature along with flexibility forms the formidable strength of this mode.

• Operating costs are higher: due to fuel requirement and higher labor requirement.
This feature makes roadways ideal for small shipments over short distances.

• Occasional fuel shortages: as the fuel is not available in full measure in the country
internally scarcity is experienced once in a while.

• Disputes with government: on account of conflicting interests between the parties to

transportation decision. We have experience transportation contractors or carriers going on
strikes to project their problems with the government.

• Vehicle availability: limited availability trucks pose a constraint to this business. Now
as more and more truck manufactures have come into business this facility is likely to be
short lived.

• Maintenance and spares costs and availability of service facilities: as the road
networks quite extended and reaches deep in the rural India non availability of such services
is a problem.

• Octroi: is along standing grouse of carriers. Octroi posts are notorious for delays and
harassment of carriers.

5
 • Old motor vehicles act: the legislation that controls movement of vehicles on the
roads is an important law for this business. There is a feeling that this law is now outdated
and new legislation should made to tackle the challenge of current business environment.

• Bad and unsafe road conditions: pathetic condition of our roads a major stumbling
block for business which causes delays, accidents and damage.

• Restrictive permits: carriers resent restrictive regime of permits and licenses imposed
by the government all over the country.

Problems faced by Road Transport

• Pathetic road conditions

• Shortage of quality fuels (adulteration problem).

• Increasing cost of accessories and components.

• Wastage of time at octroi check post in doing formalities.

• Restriction of movement of vehicles on all India basis.

• Requirement of specific road permits.

• Non availability of professional persons.

• Non recognition from industry.

Advantage of Road Transport

• Door to door service to customer which neither rail nor sea nor air transport can offer.

• Very flexible as they can operate on all types of roads.

• Transport is quite speedy.

• Highest availability since they can drive directly from origin to destination.

• Highly suitable for short distances.

Disadvantages of Road Transport

• Delays in transit time due to bad road condition and climatic hazards

6
 • Unsuitable for very heavy and large size loads.

• Unsuitable for very long distance.

• More chance of accidents and damages to goods.

Costs in Road Transport

• In companies to railroads, motor carriers have relatively small fixed investment in

terminal facilities and operate on publicly maintained highways. Although the cost of license
fees, user fees, and tolls are considerable, these expenses are directly related to the number
of units and miles operated. (On per unit basis, the cost of making a road is 1/6 th that of
laying a railway line.)

• Capital investment in case of roadways is much less than railways designed to carry
equivalent quantum of traffic.

• The variable cost per mile for motor carriers is high because a separate power unit and
driver are required for each trailer or combination of tandem tailors.

7
Water Transport

This mode is the link between countries separated by water. Business is known to have existed
between far off lands for long time in the past. Sailing vessels existed since that far away times.

Example: Mechanized water transport came into being in the form of steam ships since 1800;
diesel driven ships came into existence since 1920.

Water transport is classified into deep water transportation and navigable inland water
transportation or domestic water transportation on lakes, rivers or canals. Main advantage of
water transportation is its capacity to move extremely large shipment at a very low cost. Inland
water transport is not used to its full potential in India although we have used mechanized
Inland Water Transport [IWT] since early 1800. Lack of clarity in thinking receding water levels
in rivers and tough competition offered by other modes of transport appear to the hurdles.

Main features of water transport are the following:

• Low capital costs and low operating costs.

• Low speed.
• Capacity to carry huge bulk.
• Limitation due to availability of harbor.
• Maneuverability is low due to size.
• Deep water ships designed for ocean and lakes are limited to deepwater ports.
• Shallow water vessels like diesels towed barges are flexible but are limited by their range
of operations and speed.

Advantages of Water Transport

• The main advantage of water transportation is the capacity to move extremely large
shipments.
• Suitable for long distances and large volume shipments.
• The capability to carry very high cargo at an extremely low variable cost places this mode
of transport in demand when low freight rates are desired and speed of transit is
secondary consideration.
• Regularity in sailing.

Disadvantages of Water Transport

• The main disadvantage of water transport is the limited range of operation and low
speed.
• Unless the port and destination are adjacent, supplementary haul by rail or truck is
required.
• Labor restrictions on loading and unloading at docks create operational problems and
tend to reduce the potential range of available traffic.

Costs in Water Transport

• Water transport ranks between rail and motor carrier in the fixed cost aspect. Although
water carriers must developed and operate their own terminals, the right –of – way is
developed and maintained by the government and results in moderate fixed costs as
compared to railways and highways.
• Though operating costs are high, it is spread over large volumes and hence the cost per
unit is low.

8
Air Transport

Generally, this transport mode is used in emergency rather than in normal times.

Main features of this mode of transport

• Speed of transport is highest.

• Fixed costs are lower than rail or road or pipeline. But operating costs are highest.
• Air transport brings distant market closer perishables market in gulf countries.
• Overcomes the hassle and cost of setting up depots and service centers overseas.
• Full potential of peak seasonal demand can be exploited moving entire facility to meet
peak demand.
• Test marketing is easy. Product can be shipped directly from the factory as time of high
importance.

Advantages of Air Transport

• Brings distant and new market within the reach

• Extends export market
• Meets seasonal demand at fastest rate
• Reduces time of delivery for urgent needs
• Flexibility in carrying goods of varied nature
• Minimum handling of cargo and hence less damages
• Low insurance premium due to less transit time
• Helps in meeting committed delivery time.
• Minimum handling of cargo & hence less damages

• Low insurance premium due to less transit time

• Helps in meeting committed delivery times.

Disadvantages of Air Transport

• Comparatively costly mode of transport

• Caters on primary transport [airport to airport only]

• Certain categories of items are not allowed to be transported [hazardous goods as

specified by IATA]

• Facilities not available through out the country

• Shipping space available is limited.

Cost in Air Transport

• The air transport costs are highest

• The fixed cost of air transport is low as compared to rails, water & pipeline. In fact Air
transport ranks second only to highway with respect to low fixed cost. Airways & airports
are maintained by governments [airport authority]. Thus fixed costs of airfreight are
associated with aircraft purchase & requirement for specialized handling systems and
cargo containers.

9
 • The variable cost, however is extremely high as a result of fuel maintenance & lab our
intensity of both in flight and ground crews.

Pipeline Transport

 Pipelines

What is transported in a pipeline? Generally liquids like oils, crude, petroleum products are
transported in a pipeline. In India pipelines are extensively used for transporting crude and
petroleum products. More than 5000km of pipeline exists in India for crude and petroleum
products. In addition to the products above slurries, gases, vapors and solids in powder form
are also transported in pipelines.

Slurries-coal slurry, iron-ore, lime, huge quantity of water is necessary which a concern is for an
environment is. In India pipeline is used for transporting iron ore.
Gases and vapors- natural gas, LPG, in India LPG pipeline in existence.

Main Features of this Mode of Transport

Reliable all weather means of transport

• Low energy consumption
Pipeline being under ground space occupation in minimal
Pipeline operates all the time except when it is shut down for maintenance
No empty container or wagon to be brought back
• Highest fixed costs, due to right of way and laying of pipeline, and lowest
operating costs [ not labor intensive]
• Not flexible by nature. Pipelines are stationery
• Physical state of the commodity to be transported is limitation.
• This mode of transport can release capacity of other modes for transport for
essential commodities.

Advantages of Pipeline Transport

• Reliable & Continuous Mode

All Seasons- All Whether Mode of Transport
Low Energy Consumption & hence Low Cost
Lower Operating & Maintenance Cost
Under Ground hence No Additional Space Required
Can Reach To Remote & Distant Places
Transit Losses Are Minimum
Cheapest Mode Of Transport

Disadvantages of Pipeline Transport

Ideal only For Continuous Operations (Bulk Products)

Only For Bulk Liquid & Gas Transportation
So Far Restricted To Very Few Route
National Consensuses Are Required
Continuous Vigilance Is Required

10
 Costs in Pipeline Transport

Pipelines have highest fixed cost and lowest variable cost among transport modes
• High fixed costs results from right- of – way, construction and requirements
for control stations, and pumping capacity.
• Since pipelines are not labor intensive, the variable operating cost is
extremely low once the pipeline has been constructed.
Rope Ways Transport

Used for transporting materials in hilly and otherwise inaccessible area. Fruits produced in hilly
area are brought to low land for further transportation to consumption centers. This mode is
good when gradients are steep as road or rail would take a very long route to negotiate the
gradient. Ropeways cause minimum ecological imbalance. Ropeways connect point of supply &
demand by shortest route.

Advantages of rope ways transport

• Transports bulk materials over short distance

• Lower capital costs

• Ideal for Hilly areas

Disadvantages of rope ways transport

• Limited scope of operations

• Slowest mode of transport

Containerization

The concept of “UNIT LOAD”: Containerization is the method of distributing merchandise

in a unitized form thereby permitting an inter-modal transport system, to be evolved providing
a possible combination of rail, road, canal and maritime transport.

Unit Load Devices as containers are being transported through ships in recent times,
contributing to a sizeable volume of sea freight. By using containers, shipping interests save
substantially on packaging cost and take advantage of safe, secure and speedy transit of cargoes.
Containerization has led to inter-modal transportation systems wherein cargo is transported
from the point of origin to the point destination [door to door] on the basis of a single contracts
and a through freight rate . This has led to the establishment of dry ports, which are essentially
inland inter modal clearing Houses.

A container is a metal box of standard dimensions (20’x8’x8 or 40’x8’x8). There are various
types of containers-closed, open refrigerated, etc. containers are also made of various materials,
such as steel, stainless steel, aluminum etc. In bigger types of container ships are handled by
shore-based equipment like harbor cranes.

Types of Containers

• Normal containers are 8’x 8’ x 40’ (40 feet containers).

• High cube containers have similar dimensions but the height is 9’.
• General cargo containers – used for general cargo.

11
 • Thermal containers – have facility to maintain required temperatures.
• Garment containers – has hangers.
• Bulk container – for bulk cargo with manholes to facilitate loading and unloading by
gravity.
• Liquid containers – usually made of non-corrosive steel with man holes.
• Gas containers – with thick walls and special metals having fittings for filling and
emptying.

Benefits of Containerization

1) Ease of handling once stuffed.

2) Less risk of damages and pilferage.
3) Less packing needs.
4) More competitive shipment rates.
5) Provision for through movement/ through documentation.
6) Better quality transportation.

Disadvantages

1. Need for special cranes and equipment

2. Dimensions are restricted
3. Not useable for some trades like live stock
4. Container owning company has to ensure full utilization ----shipping back empty
containers will be very expensive
5. There can be road restrictions particularly in case of 40’ containers.

Inter-modal Operators

Inter-modal operators: They use two or more carriers of different modes in the through
movement of a shipment, to take advantage of the inherent economy of each mode.

Rail Air

Piggyback Birdy back

Truck

Fishy back
Water Pipeline

12
 Piggyback / TOFC: (Road + Rail)

The best-known and most widely used Inter-modal system is the trailer on a flatcar (TOFC).
Piggyback or trailer- on flatcar (TOFC) is a specialized form of containerization in which rail
and road transport coordinate.
In piggyback, the carrier places the carrier trailer on a rail flatcar, which moves the trailer by rail
for long distances. A motor carrier then moves the trailer for short-distance pickups and
deliveries. This service combines the long haul, low-cost advantage of rail with accessibility of
motor.

 Road – Railers or Trailer – Trains: (Road + Rail) using single vehicle

They combine motor & rail transport in a single piece of equipment. The road-railer resembles a
conventional motor carrier (truck) trailer. However, the trailer has both rubber truck tiers &
steel rail wheels. Over highways, tractor power units transport the trailers in the normal way,
but instead of placing the trailer on a flatcar for rail movement, the wheels of the trailer are
retracted & the trailer rides directly on the rail tracks.
The advantages of this inter modal form of transport are that rail flatcars are not required & that
the switching time to change wheels on the trailer is less than loading and unloading the trailer
from the flatcar.
The major disadvantages of road-railers are the added weight of the rail wheels, which reduces
fuel efficiency & results in higher movement costs in addition to the higher cost of the
equipment. The disadvantages have tended to outweigh the advantages, resulting in very low
usage of this inter modal option.

 Container on Flat Car (COFC)

Railways offer double – stack cars, which allow two containers to be transported on one railcar.
This type of service allows a shipper to transport goods over water and surface without having to
waste time and money unloading and reloading trailers or railcars. COFC allows for
inexperience and efficient transportation of a wide variety of goods.

 Fishy - back
There are two 1) Train – ship & 2) Container – ship. These are examples of the oldest form of
Inter-modal transport. They utilize waterways, which is one of the least expensive modes for
line – haul movement. The fishy back train – ship and containership concept loads a truck
trailer, railcar, or container onto a barge or ship for the line haul move.

 Birdy - back
It is a combination of Air & Truck Movement.

 Land Bridge
A variant of this Intermodal option is the “LAND BRIDGE” concept, which moves containers by
a combination of sea and rail. The Land Bridge concept is based on the benefit of ocean and rail
combination that utilize a single tariff, which is lower than the total cost of the separate rates.
The goods can be transported by water transferring the shipment to surface transport and again
finish by water transport.
E.g. A container coming to JNPT from a foreign destination will be placed on a rail car and
transported to Chennai from where it will again be loaded on a vessel for transferring to say port
Blaire.

The other two international options are Mini Land Bridge and Micro Bridge.

 Mini Bridge

13
Mini Land Bridge is a variant of land bridge in which freight movement is only water – land
movement. Mini – land Bridge (also called as Mini Bridge) is a special case of land bridge where
foreign cargo originates or terminates at a point within the same country.

 Micro Bridge
It is a relatively new service being provided by ports in contrast with mini bridge. This service
provides door-to-door rather than port-to-port transportation. The big advantage of micro
bridge is that it provides a combined rate, in clubbing rail and ocean transportation on, in a
single tariff that is lower than the sum of the separate rates.

Transport Formats

In addition to classifying transportation by mode, another common grouping is the legal

status or format of carrier operating authority. From an operating authority perspective there
are four carrier classes: Common, Contract, Private, and Exempt

COMMON CARRIERS: The basic foundation of public transportation system is the common
carrier. Common carriers have the responsibility to offer service at non-discriminatory prices to
the public. They have the right to transport all commodities, or it may limit transport to
specialized commodities such as steel, specified and indicates if such service is to be on a
scheduled or unscheduled basis.
E.g.: BEST bus or Auto rickshaw is a type of common carrier-with regulations on area of
operation, rates, number of passengers etc.

CONTRACT CARRIERS: Contract carriers provide transport services for select customers.
Although, contract carriers must receive authorization, requirements are normally less
restricted than common carriers operating authority. The basis for the contract is an agreement
between a carrier and a shipper [customer using the service] for a specified transportation
service at a previously agreed cost.

PRIVATE CARRIERS: A private carrier consists of a firm providing its own transportation.
Private carriers are not for hire and are not subject to economic regulation, although they must
comply with regulations concerning hazardous goods movements, employee safety, vehicle
safety, and other social regulations established by government agencies.
The firm must own or lease the transport equipment and provide managerial direction,
regarding transportation operations. The primary distinction between private and for-hire
carriage is that the transportation activity must be incidental to the primary business of the firm
to qualify as private carrier. Earlier, the private carrier was required to own a product it
transported that is no longer the case. Now pvt. Carriers can transport goods for another
company to reduce “empty miles”.

EXEMPT CARRIERS: Exempt carriers, as their name implies, are not constrained by
economic regulation. The traditional exemption was for specified, commodities hauled or
market served. Typical exempt commodities include unprocessed agricultural products and
extracted raw materials. Typical exempt markets include unprocessed agricultural products and
extracted raw materials. Typical exempt markets include the zones around airports or
metropolitan areas. Exempt carriers, however must comply with the licensing and safety laws of
the states in which they operate. If the exempt carrier is engaged in interstate movement, rates
must be published.

Carrier Selection

Steps involved in the carrier selection process are:

14
 1. Selection of transportation mode by the firm: The choices include the basic
modes of road rail water, air and pipeline. Inter modal transportation which used two or
mode modes to provide service over a given traffic lane may be selected.

E.g.: inter modal transportation include rail-road [piggy back], truck-air and rail water.

2. Selection of a specific carrier: from within the chosen mode or inter modal form.
Involves selecting legal carrier type: common, regulated, contract, exempt or private.

CARRIER SELECTION DETERMINANTS

Transportation cost Service performance

I. TRANSPORTATION COST: This is a major carrier selection determinant. It includes the

minimum weights, loading and unloading facilities, packaging, damage in transit and special
services available from carrier

E.g.: stopping in transit

II. SERVICE PERFORMANCE:

a) Transit time is the total time that elapses from the time the consignor makes goods
available for dispatch until the carrier delivers the same to the consignee.

b) Reliability refers to the consistency of the transit time a carrier provides.

Transit time and reliability affect inventory and stock-out costs. Reliable time enables the
marketer to gain product differentiation and competitive advantage in the market place.
c) Capacity determines whether a particular carrier can physically perform the transport
service desired. Capacity refers to the carriers ability to provide the facility required

d) Accessibility considers the carriers ability to provide service over the route question. It
refers to carriers physical access to facilities

e) Security concerns the arrival of goods in the same condition they were in when tendered
to the carrier.

15