TLM-6006

Strategies of LCCs
Category Strategy
On-board - Optimum use of seating space (often maximum allowed)
Operations - Minimal crew.
- Limited and paying cabin service.
- In plane advertising and merchandize sales (duty free, phone cards,
etc…).
Aircraft - Few (often one) types of aircraft used to minimize maintenance costs.
Operation - Stair boarding instead of sky bridges.
- Usage of both front and back doors for faster boarding.
- Maximal usage of runway length (take-off thrust and braking on
landing).
- Fast turn-around to maximize aircraft use.
- No freight being carried.
Services - Point-to-point services.
Network - Destinations commonly of less than two hours apart.
- Usage of secondary airports (lower usage rates).
Booking - Online booking to minimize transaction costs.
- No travel agent commissions.
- Active yield management.
- Luggage fees.
- Offer of ancillary services (hotels, car rentals, travel insurance).

Common features of LCCs

Common features of LCCs are
1) Fleet simplicity
2) Fast turnaround times
3) Rapid growth
4) Emphasis on secondary airports
5) Reduced importance of hubs
6) Aggressive use of the Internet
Common features of LCCs
 Fleet simplicity; Legacy carriers operate diverse fleets because they serve many
kinds of routes, from long hauls to feeders. LCCs emphasize on relatively short-haul routes.
The minimal number of aircraft types (Southwest and Ryanair only flies B737s, though
several different models) lowers costs.
 Fast turnaround times; LCCs operate their networks in ways that keep their aircraft
in the air earning money for a higher number of hours on average compared to legacy
carriers. Minimal inflight service, for instance, reduces the time needed to clean and cater
flights.
 Rapid growth; This is not just a product of the LCCs‟ success but an element in it.
Fast growth enables the LCCs to continue to add aircraft and staff at a steady pace which
keeps the average fleet age and average years of employee service low – both of which
help to keep operations costs low.
 Emphasis on secondary airports; Secondary airports, such as Houston-Hobby
instead of George Bush Houston Intercontinental or Charleroi instead of Brussels National,
typically have lower landing and parking fees for airlines as well as a more entrepreneurial
approach to recruiting new airline service. However, LCCs have also directly challenged
established carriers in major hubs.
 Reduced importance of hubs; Most LCCs do have hubs, but for some carriers hubs
are substantially less important than they are for legacy carriers. Southwest Airlines, for
instance, distributes air traffic more evenly among a ten or so top “focus cities” in its
network than is true of any traditional hub-and-spoke airline.
 Aggressive use of the Internet; Internet booking has partially neutralized the one-
time advantage that legacy carriers enjoyed through their proprietary computer
reservations systems. The Internet is an additional way of reducing costs.
Q) Describe the first world of logistics Practice. Be sure to comment on infrastructure,
performance information systems, human resources and strategic and financial
resources.

A world of interlinked economies, where corporations span national boundaries and

render the concept of a nation state secondary to corporate activity.
This interlinked economic world consists largely of three distinct geographical
clusters of nations: Japan, the United States and Canada, and the members of the European
Union.
Companies have become more important than nation states as their power
transcends national borders. The national identity of any of these companies begins to blur.
This blurring of the lines between nations and corporate identities has a profound impact
on the practice of logistics.
In the coming decades, we envision the broad diffusion of advanced applications in
transportation, inventory management, customer service, and procurement functions
throughout firms in the first world of logistics.
Infrastructure
Highly developed national highway systems, port facilities, state-of-the-art air
freight handling, sophisticated information systems, advanced communications facilities,
elaborate rail, and multimodal transportation. Certain differences remain due to historical
development and geography. Advances in the use of multimodal transportation and
containerization standards have largely rendered these minor roadway differences moot.
Environmental issues stay the same since the 1990s.
Performance
Business logistics performance expectations of the consumer market has been
widely spread and will continue to increase. Thus, overnight air freight, the instantaneous
tracking of goods in transit, electronic data interchange, just-in-time, materials resource
planning, distribution resource planning and enterprise resource planning have
transcended buzzwords to become norms of logistics operating practice.
Information systems
Advances in computer technology and communications capabilities spread at the
same rate throughout the logistics first world. Inventory managers in Spain have similar
assess to retail store point-of-sale (POS) data as U.S. managers do.
Human resources
 Logistics managers have also become increasingly sophisticated as the level of
demand for better logistics performance has increased.
As managers have learned to balance inventory needs against information needs,
logistics professionals have increasingly become information specialists.
One encouraging trend has been the spread of logistics professional education and
training programs throughout the first world. European and Japanese business schools are
now offering specialized study in logistics and transportation management.
Strategic and financial resources
One driving strategy that has shaped logistics practice is the change from a company-
centered view to a consumer-centered view.
Logistics managers are now very aware of customer service standards, managing
exceptional order requirements, and custom tailoring their system performance to the
needs of customers.
This new strategic thrust has brought considerably more financial resources to bear
in the development of advanced, customer-driven logistics systems.
Corporate trends such as sole-sourcing have forced many companies to spend
additional capital resources to develop their logistics systems and human resources.

Transportation Risk Reduction Strategies

The six common risks of freight transportation are as follows;

- Product loss
- Product damage
- Product contamination
- Delivery delay
- Supply chain interruption
- Security breach
Risk Category Specific risk Reduction strategies Anticipation outcomes

Product loss - Theft and pilferage - Use generic - Mitigate risk of

- Piracy and hijacking packaging & financial loss
- Cargo jettison descriptions - Reduce customer
- Avoid lawless hot delivery delays, and
spots avoid replacement
- Strategic routing shipment expenses

Product - Operator accident - Use protective - Enhance freight safety,

damage - Poor freight handling packaging reduce freight claims
methods - Establish training administration, and
- Improper equipment programs profit margin protection
loading - Monitor carrier
performance

Product - Temperature control - Leverage pervasive - Safeguard brand

contaminatio failure automation equity, decrease
n - Product tampering - Secure feight/lock potential for product
- Exposure to containers liability lawsuits, and
hazardous materials - Isolate dangerous trim product recalls and
freight inventory replacement
costs

Delivery delay - Congestion - Use event - Proactive response to

- Poor weather management problems resulting in
- Equipment software less wait time, greater
malfunction - Employ dynamic re- delivery reliability, and
routing tools improved customer
- Perform satisfaction
preventative
maintenance

Supply chain - Capacity shortage - Contact with quality - Avoid major

interruption - Carrier bankruptcy carriers disruptions of product
- Labor disruptions - Monitor carrier flows that can impact
and strikes finances supply chain
 - Establish alternate productivity, and
carrriers & ports product availability

Security - Shipment control - Employ cargo - Greater protection

breach breakdown tracking technology against terrorist
- Unprotected transfer - Screen & evaluate activity, fewer
facilities vulnerabilities government
- Lax security - Participate in C- inspections, and
processes TPAT and FAST streamlined border
clearance

Labelling and Marking

Goods must be labelled so that they can be handled in the distribution channel so
that they can be presented for retail sale in the country of import. There are four major
contents are as follows-
1. Foreign languages and metric measurements
2. Weight, width, length and height Cautionary pictures to guide for handling and
storing the cargo
3. Bar codes (two dimensions/RFID)

Sometimes, importing countries are very stringent for labelling requirements e.g
goods sold in Quebec must be labeled in French (provincial requirement). In marketing
aspects, labelling includes Information on specifications, Instructions for assembly (or) a
warranty. For moving through the distribution System, the packages must be labeled to
the extent necessary as required by the buyer and carrier.

Correct and complete marking of packages helps to prevent incorrect handling,

accidents, incorrect delivery, losses of weight and volume and Customs fines. Marking must
be clear and precise. It is usually black in color. Alternatively, it may also be applied on
adhesive labels. If possible, black symbols on a white background should be used. Both the
marking directly onto the package and adhesive labels must use carefully to applying a
legible and durable manner. Adequate marking is an essential component of the package.
If the marking is at variance objections may be raised by the Customs authorities. If
handling marking is inadequate, those parties whose actions during transport, handling or
storage of the cargo have caused damage may be excluded from liability.
 It is needed three parts to become a complete marking. They are ship mark,
information mark and handling instruction.
(1) Ship mark
The categories of ship mark are as follows,
a) Identification mark
b) Identification number: e.g. receiver's order number
c) Total number of items in the complete consignment
d) Number of the package in the consignment,
e) Place and port of destination

(2) Information Mark

The categories of information mark are as follows,
a) Country of origin
b) Indication of weight of package
c) Dimensions of packages

(3) Handling instructions

Handling marks help to cargo handling. The followings are the examples
1) whether the package is sensitive to heat or moisture
2) whether it is at risk of breakage
3) where the top and bottom are and where the center of gravity is located
4) where loading tackle may be slung
Short Note
1) What is bulk cargo? Give some example? (4 marks)

Bulk cargo is said to be stowed in bulk between it is stowed loose instead of being first
packed in container. (sea going container that are 8 x 8 x 20 - 40 feet).

Bulk cargo, for example – raw sugar, would be loaded into the container and become
container). Common example of bulk cargo are petroleum, grain coat, iron ore and scrap
iron, phosphate and sulphur sand.

Bulk cargoes are those that can be air blown, pumped belted.

Generally handled in bulk rather than in discrete separate from other units.

2) What is break bulk cargo? Give some example? (4 marks)

Bulk cargo are generally cargoes that are conventionally stevedored and stowed as
opposed to bulk, utilized and containerized cargoes. Example are peas, bean, lentils,
machinery, yachts and some wood products such as newsprints, pulp and linerboard.

3) What is Neo- break bulk cargoes? Give some example?

Neo-bulk cargoes are general cargoes, move in volume, usually on specialized or

dedicated vessel. For Example include autos, steel, logs, and livestock.

4) What is Plimsoll mark? Why are they used?

A load line or a set of load –line makings on an ocean going cargo ship –also called
plimsoll line.

Mark painted on both sides of merchant ship to indicate the maximum point they are
allowed to sink loaded depending on the specific gravity of water which varies according
to season and place.

To ensure safe & smooth sailing of cargo loaded vessel in the sea.
T – tropical freshwater allowance
T – tropical load line
S - summer load line
W – winner load line
WNA- North Atlantic

5) What is LASH mark?

LASH vessel Lighter Aboard Ship carry very large container barges.

First, because of the shallow draft of the barges, they can be loaded in shallow- water
seaport where the mother vessel itself cannot be accommodated. They can also be
loaded \ unloaded at river ports away from the seacoast and be towed down or up. LASH
barges are 10x20x60 feet and there are vessels handling even larges barges known as
Seabees.

6) When are ocean – going barges used?

Barges are unmanned vessel pulled or pushed by tugboat. The principal saving in in crew
costs since the tug requires a much smaller crew there are saving in product inventory
costs.

Barges are also used for oversized cargos. Hence, if one were building a large structure for
shipment to another waterway. The structure would be towed across the ocean by barge.
One form of this application is the movement of off-shore oil-drilling rigs.

7) Certificates of Origin

This document certifies that goods were manufactured in the United States. It is signed by
the shipper or by a local chamber of commerce, notarized, and even visa by a resident
foreign consul. A Certificate of Origin may be required by a foreign government for control
purposes, or by the foreign importer to ensure that he receives U.S. goods. Specific C/Os
are required for duty reductions with Canada (U.S./Canada Free Trade Agreement) and
Israel (U.S./ Israel Free Trade Area).
8) Collection Letter

A collection letter is the procedure whereby the exporter entrusts the movement of his
commercial documents to a remitting bank for further processing through a collection bank
for settlement from the buyer. A Collection Letter is the document used by the remitting
bank to relay complete and precise instructions to the collecting bank.

9) Commercial Invoice

A Commercial Invoice is the basic statement of the seller to the buyer for payment of the
goods shipped. It must follow to any Letter of Credit requirements, foreign government
requirements, and U.S. export control requirements regarding destination statements. It is
used as one of the primary documents in the collection process, and is the main document
used by foreign Customs for control, valuation, and duty determination. The C/I should
contain a full description of the goods, pricing, terms of sale, payment and delivery, bills of
lading numbers, method of shipment, and ship date. Letter of Credit numbers, import
license numbers, shipper and consignee names, and shipping marks and numbers.
Commercial Invoices are usually signed by the exporter.

10) Consular Invoice

Prepared from the information on the Commercial Invoice by the buyer’s consulate or
embassy in the shipper’s country, there documents are usually stamped with an official
seal. They may be specific forms required by the destination country’s government or
simply copies of the Commercial Invoice, Consular Invoices are required for control of
certain commodities and to ensure valuation control.

11) Custom Invoice

Certain countries require special invoices containing specific information for the Customs
clearance and valuation of imported shipments. These documents contain most of the
elements of the Commercial Invoice, and are usually in the language of the importing
country. The Canadian Customs Invoice is the most popular of this type.
12) Packing List

This important document describes all items in the box, crate, pallet, or container, plus the
type, dimensions, and weight of the container. It is used to determine total shipping weight
and volume (cubes) by Customs officials to check cargo, and by the buyer to inventory
merchandise received. Prices and item values are usually omitted from the packing list.
Shipping marks, reference numbers, and carton numbers are also important additions to
the packing list.

13) Phytosanitary Inspection Certificates

Also referred to as “plant health” certificates, these are required by many foreign countries
for shipments of plants and plant products. They serve to certify conformity to local plant
quarantine import regulations with respect to pest and disease infections.

14) Pro Forma Invoice

The Pro Forma is used primarily to document to the buyer, in advance, the cost and terms
of sale of a proposed export. It is used by the foreign buyer as quotation from the
exporter, and also to assist in applying for a Letter of Credit from his bank. The Pro Forma
Invoice serves as the basis for the subsequent Commercial Invoice.