Transportation Management

DISC 333: SUPPLY CHAIN MANAGEMENT

Transportation Economics and Pricing
Factors that drive transport costs; 2. Cost structures or classifications; 3. Carrier pricing strategy; 4. Transportation rates and ratings.
1.

1. Economic Drivers
Distance Volume Density Stowability
Product case dimensions w.r.t. transportation equipment
Cost

Distance Cost per pound Weight of Load Cost per pound Product Density

Handling
Physical grouping

Liability Market
‘Lane volume’ and ‘balance’

2. Cost Structure
Variable Costs
Change in a predictable direct manner in relation to some level of activity e.g. labor, fuel and maintenance costs.

Fixed Costs
Expenses that do not change in short run and must be serviced even when the company is not operating e.g. vehicles, terminals, rightsof-way, information systems, and support equipment.

Joint Costs
Expenses unavoidable when providing a particular service e.g. backhaul costs.

Common Costs
Expenses that are incurred on behalf of all or selected shippers e.g. terminal or management expenses.

3. Carrier Pricing Strategies
Cost-of-Service
Price based on cost + profit basis; Suitable for low value goods or in highly competitive situations;

Value-of-Service
Price based on value perceived by the shipper; Suitable for high-value goods or when limited competition exists;

Combination Pricing
A price in between cost-of-service minimum & value-of-service maximum;

Net-Rate Pricing
Established discounts and accessorial charges are built into the net rates that result into an all-inclusive price.

4. Rates and Ratings
Class Rates
Rate ($/CWT) for a class of products; A two-step process:
1. 2.

Product Classification for transportation purposes Rate Administration

Product Classification
Products with similar density, stowability, handling, liability, and value characteristics are grouped together into a ‘class’. A number of different classifications may apply to the same product depending on where it is being shipped, shipment size, transport mode, and packaging.

4. Rates and Ratings (contd.)
Rate Administration
Is usually based on the shipment origin and destination, although the actual price is normally subject to a minimum charge and a surcharge assessment; The origin and destination rates are obtained from the published tables for a particular shipment in the form of $/CWT or $/mile; Then two additional charges are added namely: minimum charges (fixed costs) and surcharges (anticipatory expenses);

4. Rates and Ratings – Special Rates
Commodity Rates
Special rates for commodity products without regard of classification.

Exceptional Rates
Under competitive and large volume conditions, discounted rates are provided by lowering the class of a product.
Aggregate Tender Limited Service

Special Rates and Services
Freight-All-Kind Rates
To simplify paper work associated with the movement of mixed commodities to lower the costs.

4. Rates and Ratings – Special Rates
Special Rates and Services
Local Rate
Commodity movement under tariff of one carrier.

Joint Rate
Commodity movement under tariff of multiple carriers.

Proportional Rate
Special price incentives to utilize a published tariff that applies to only part of the desired route.

Combination Rate
A rate that combines multiple rates when no single-line or joint rate exist between origin and destination.

Traffic Department Administration
Responsible for:
1. 2. 3. 4. 5. 6.

Operations Management Freight Consolidation Rate Negotiation Freight Control Auditing and Claims Logistical Integration

Operations Management
Equipment Scheduling Load Planning Routing Carrier Administration
Carrier Selection – core carrier strategy Carrier Integration – assessing the level of integration needed with carriers Carrier Evaluation – assessing relative capabilities

Freight Consolidation
Reactive Consolidation
Does not attempt to influence the composition and timing of transportation movements. Seeks to combine freight into larger shipments for line-haul movements. Can be achieved by three ways: (1) market area, (2) scheduled delivery, and (3) pooled delivery. Market Area:
Consolidation for a specific market area. Volume deficiency for an area can be addressed by: Intermediate break-bulk point for line-haul transportation savings; Consolidated shipments on specific days; Small shipments by 3rd party logistic providers

Freight Consolidation
Scheduled Delivery:
Shipments to specific markets on selected days each week. The plan is communicated to customers in order to manage their expectations.

Pooled Delivery:
Freight forwarder, public warehouse, or transportation company arranges consolidation for multiple shippers serving the same geographical market area.

Proactive Consolidation
To achieve responsive logistics by active participation of shippers, carriers, and consignees to realize consolidation savings. Requires Preorder Planning, and Multi-firm Consolidation.

Documentation
Bill of Lading
Acts as a receipt and documents products ad quantities shipped. Specifies terms and conditions of carrier liability and documents responsibilities for all possible causes of loss or damage except those defined as acts of God. Types of Bill of Lading may be: Uniform, Order-Notified, Export, and Government Uniform: or Bill of Lading Order-Notified: a credit instrument used during international shipments Export: allows shipper to use export rates Government: used when shipping Government products

Documentation (contd.)
Freight Bill
A method to charge for transportation services performed. Can be Prepaid or Collect

Shipment Manifest
Lists individual stops or consignees when multiple shipments are placed on a single vehicle.

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