You are on page 1of 16

INTRODUCTION Each business has its own particular transport needs.

These depend on the nature of the business and the type of products or services it buys and sells. This guide will help you decide on the most appropriate transportation for your business needs and assess the tax implications and costs to your business. It also tells you what licenses, insurance and training you or your staff will need to operate business vehicles.

BASIC MODE OF TRANSPORTATION 1) RAILWAY Railways are primarily long-distance, large volume movers of low volume high density goods. Railways, which fall within the group of business undertakings labelled as natural monopolies require a large investment in terminals equipment and track age to begin operation. Today s railway indus try is changing considerably in response to the economy, deregulation and the logistic approach to business. It is imperative for railways to improve service and to integrate with other modes. The Indian railways is the monopoly carrier of this mode of tra nsportation in India. The rail network in India consists of broad gage and meter gage railway tracks with the broad gage catering to almost all of the freight traffic. Advantages of Railways 1. The major advantage that the railway offers is the efficient t ransportation of larger loads over long distances 2. The variable cost per ton-mile of transportation is lower for railways as compare s to other modes of transportation. 3. The availability in terms of service frequency to all categories of shippers . 4. The physical capability of transporting all types of commodities. 5. Railways also offer more reliable and safe transportation under all weather conditions as compare to other modes of transportation

6. Traditionally railways have been the most economical mode of transportation for low value high density and high volume products and hence the preferred mode for inbound logistical movements for firms. 7. the utilisation of standardise containers which can be easily transferred to and from other transportation vehicles have facilitated intermodal transportation along with railways. Utilisation of container on flatcar (COFC), Trailer on flat car and double stack railcars have help improve the performance of railways.

Disadvantages of railways 1. Railwayincur higher fixed cost due to requirement of infrastructure like railway tracks, specialized equipment s and terminals. 2. Low accessibility, the inability to service areas where railway tracks are not present. However, this short coming can be overcome by multi modal transportation, for example, in combination with roadways. 3. Slow speed due to consolidation of rail wagon into complete train units for a particular route, and breaking out of rail wagons that have reached their destination or have to be transferred to other trains for different routes. 4. The packaging costs for railway is higher due to the impact experienced by goods during the coupling of the rail cars. 5. In India, metre gauge routes remain underutilized due to the problem of transfer of loads from broad to metre gauge routes being uneconomical

2) ROADWAYS/MOTOR CARRIER Motor carriers very much the part of any firms logistics supply chain; almost every logistics operation utilizes the motor truck, from the smallest pickup truck to largest trailercombination, in some capacity. The motor carrier industry, unlike railroad industry, consists of for-hire and private carriers. Private motor carriers transport freight that is owned by the firm that owns/leases and operates the trucks. The motor carrier industry is

characterised by a large number of small carriers. The large number of carriers is due in part to the low capital that entering the trucking business requires. High variable cost and low fixed cost characterized the cost structure. The motor carrier does not require extensive terminal and equipment investment and does not invest in its own highway, and the carrier pays for highway use through fees such as use of taxes licencing charges. These variable expenses contribute to the high variety cost structure. Motors carriers are classified in manner as truckload and less than truck load. Less than truck load carrier accept small packages of shipment where truckload carrier accepts shipment of full truckload size. ADVANTAGES OF ROADWAYS 1.road transportation offers advantages of speed, door-to-door flexibility and widespread geographic coverage. 2. the major advantage of motor transport over the modes is its inherent ability to provide service to any location. 3. the large number of motor carriers suggest a high availability. For example,many more motor carriers than railroad facilities are available in an area. 4. motor carriers do not need to consolidate wagons together or decouple wagons at various locations on the route as it in railway transport it speeds up the transportation. 5. motor carriers used in road transportation have lower fixed capital costs as compared to other modes of transportation. 6. due to the lower entry costs of capital, this mode of transportation is characterized by competition and high availability. 7.the packaging requirements for motor carriers are less strigent than required for railway or air. 8. the characteristics of road transportation make it suitable for high value small shipments over short distances.

9 road transportation enables firms to reduce inventory carrying cost because of the facility of small shipments and improvement in customer service level due to the speed of transportation.

DISADVANTAGE OF ROADWAYS 1.Roadways have higher variable costs of fuel, drive r, tyres and other components, repairs, taxes, and toll charges for right of way usages. 2.because of higher variable cost, motor carrier rates are the second highest among all mades of transportation after air. 3.the relatively high cost of using a motor carrier suggests that commodities moved by truck must be of value high enough to sustain the transportation costs. 4.motor carriers are affected by adverse weather or traffic conditions. This affect their reliability. 5. although motor carriers can cary almost anything, tey are subject to gross weight and lenghth restrictions. 6.the physical and legal constraints on carrying capacity make motor transport suitable for small shipments.

3) WATER CARRIERS Water carriers are primarily long-distance movers of low value high density cargoes that mechanical device easily loads and unloads. This type of transportation is used for low value to weight relationship products and commodities like minerals, chemicals, cement, and agricultural. Water carriers compete heavily with railroads along certain routes andwith pipeline for movement of products like petroleum. Routes can be internal waterways, coastal waterways and international shipping routes. In india it is limited to coastal and international routes. Water

carriers are classified as private or for-hire, domestic, international and trumps or liners. Advantages of WATER CARRIERS 1.water transportation offers advantage of low cost for bulk shipment. 2.the cost of water transportation is lowest amongst all mode of transportation. has capacity to move very large shipment. 4.water transportation is most advantageous for commodities with low value to weight ratio. 5.the water transport requires only the entry capital necessary for equipment.

Disadvantage of water transportation 1.slow speed of transportation. range of availability near the waterways. conditions and low water level disrupt services. 4. water carriers are unreliable compared to other modes of transport and suffers from high degree of variability in delivery shedules. 5.they depend upon other modes of door to door delivery.

4) PIPELINES Pipelines are used for the transportation of fluids and slurries including the water and sewage. The products generally transported are petroleum products, natural gases and chemicals, pipelines can either be privately owned by users or available for hire. In India however most of the pipelines are owned by public sector for distributing their products; although, some pipelines in a joint sector and the private sector are coming through. Pipelines have the highest investment cost or fixed costs amongst all the transportation modes.

Advantages of Pipeline 1.pipelines have the basic advantage of being available all the time including during the adverse weather conditions. 2.pipelines also provide the benefit of transportation of very large quantities in a single continuous shipment. 3.due to protection provided by the pipeline throughout the route, losses, deterioration and pilferage of the products are avo ided. is the most dependable way of transport. conditions do not disrupt pipeline service. 6.Low cost, as compared with other modes is the major advantage of using oil pipelines.

Disadvantages of Pipelines 1.geographic accessibility to pipe line is limited to the routes. 2.pipelines transportation is not suitable for general commodity transportation. 3.the speed of transportation through pipelines is quite slow resulting in long transit times 5) Airway : Air transport provides the fastest means of transportation amongst all the available modes. While the high cost of transportation is disadvantage, set -off is possible when one takes into consideration the savings in inventory cost due to the speed of inventory transfer, as also, warehousing and packaging costs. Weather disturbances can affect the reliability of air transport. The fixed costs of air transport is lowest as compared to the other modes save for road transportation; whereas the high operating costs of fuel, labour, maintenance & other facilities creates the high total costs for air transportation.

High value products, critical maintenance and project components, highly perishable items, and urgent delivery shipments dominate in the use of air transportation. Small volume items and packages having high value to weight relationship for long distance transportation are most suited for utilizing this mode. International freight traffic is dominated by air along with water transportation. Passenger aircraft with cargo holds and all-cargo aircraft are utilized for freight movements.

6) Multimodal or Intermodal : Multimodal or intermodal transportation refers to the combining of two or more modes of transportation services linking two nodal locations. The basic reason for considering intermodal transportation is the limited accessibility of rail, water, pipeline & air modes. This necessitates use of multiple modes of transportation between the source node and destination node locations. Most combination includes road carriers due to door-to-door accessibility offered by this mode. The combined use of transportation modes also offers combination of the advantages and minimization of disadvantages of the individual modes utilized. For example, the combination of rail and road transportation may provide the long distance economy of rail and high accessibility of road together. Also, a combination of rail and water could yield the speed benefit of rail along with the lower cost of water transportation while affording the bulk carrying capability of both. One of the problems in intermodal transportation is the transfer of cargo from one mode to the other which is a cost and time consuming activity. One solution to this has been containerization.

The use of containers has facilitated intermodal f reight movements. Containers are protective enclosures in which goods are stored during transit. The container facilitates handling and provides a measure of protection to its contents. Once the material to be transported is placed in the containers, the material itself is not handled until it is unloaded from the container at the destination. Containers are easily transferred from one mode of transportation to another by the use of material handling equipment without affecting the material inside. This reduces the risks of damage and material pilferage.

Intermodal transportation also involves the use of coordinated systems known as bridges. Land bridges begin by shipping product across water, transferring the shipment to surface transportation, and then finishing the move across water, thus providing a land bridge between two water movements. For example, a container may be loaded onto an oceangoing vessel in Dubai and shipped across the ocean to India. At NhavaSheva Port the container would be placed on a railcar and shipped to Chennai. At Chennai, the container is then reloaded on an oceangoing vehicle for transportation to Port Blair. Land bridges can reduce the total transit time of a shipment, a major reason for the increase in their use. Transportation by oceangoing vehicle around a large landmass can take days or even weeks. A land bridge simply creates a shortcut across the landmass. A mini-bridge is similar to a land bridge. Where land bridges involve only water-land-water movements, mini-bridges involve only water-land move. For example a container loaded in Malaysia would by ocean to Chennai port where it is loaded on a flatcar to its destination in Mumbai. A micro-bridge involves a non-port city as either the origin or the destination of the shipment. For example, a shipment that originates in Lucknow , would be placed on a railcar bound for a port city. Once the product arrives at the port city, it is loaded onto an oceangoing vessel and shipped to its final destination.

TRANSPORTATION COST STRUCTURE Four basics associated with transportation: 1)fixed cost , 2)variable cost, 3)joint cost, 4)common cost FIXED COST: A fixed cost does vary with a change in output ,at least for the period under consideration .In other words , certain cost are constant regardless of the firm activities. For example capital invested in railroad tracks , airplanes , or tractors.

VARIABLE COST : A variable cost changes as output changes . If a tractor is driven more miles certain cost increases proportionately. Fuel cost , wages , maintenance cost and tire replacement depends on output. As miles increase so do these cost . To determine if a cost is variable, consider what happens if the operation shuts down. The cost that disappear are variable cost and those that continues are fixed . All the cost in long run are variable . High variable cost increase as volume increase , while fixed cost doses not . High fixed cost carries seek volume to spread the fixed cost over more units, greatly increasing profits. JOINT COST: A joint cost occurs when the production of one product or service requires or offers the production of another product or service . For example , a railroad moves goods from Pune to Kolkata. It now has engines available in Kolkata to provide back -haul service to Pune or additional transportation from Kolkata . The cost of placing the train in Kolkata is joint cost with the pune to Kolkata run and whatever run follows it. Fixed and variable cost can also be joint cost. All modes incur joint cost to some extent. COMMON COST: A common cost cannot be directly associated with a product or a activity. Since this creates confusion we normally assign activities percentages of this common cost. For instance a trailer travelling from Amritsar to Chennai with three shipment breaks down and requires Rs.50000 in repair .how much of this repair cost shou ld be allocated to the three different shipment ? Is it based on space used , weight , or both? That is the problem with the common cost! In transportation, common costs are significant and are found in all mode. LEGAL CLASSIFICATION OF CARRIERS Another frequently used grouping is related to the legal definition of the operating rights that govern each carrier. The four basic legal types are the common carrier, the contract carrier , the private carrier and the exempt carrier. Each type may exist within any of the basic transportation mode. Common carriers: The common carrier is the most frequently employed legal category for transportation resources. A common carrier is a firm that transports for revenue at any time and to any place within its

operating jurisdiction. They are required to publish all rates charged for this service and the rates charged must be the same for the similar service. Common carriers are authorized to offer transport for hire upon receiving a certificate for public conve nience and need. Contract Carriers: The contract carrier receives a permit that authorizes the transportation of specific items over the specified routes. It arise from contractual arrangement between two parties; the shipper and the carrier. Contract carriers unlike the common carriers are not required to charge the same rates for equal services. Exempt Carriers: Exempt carriers do not fall under the umbrella of direct regulation with regard to pricing policies and operating rights. But they have to conform to the law of the state in which they operate. The exempt carriers initially transported commodities such as agriculture products to processing centers. Currently exempt carriers support a much larger range of activities . Exemptions may also be granted for specific areas such as withi9n a city and the contiguous commercial areas of activity. Private Carriers : Private carriers originally consisted of transportation resources that are controlled by the firm through owner ship or lease . Now private carriers are also permitted to use owner- operator or other outside sources of vehicles and drivers. Private carriers are restricted in that the materials being shipped must be owned by the firm and the transportation of that material must be incidental to the primary business of the firm.

INDIRECT AND SPECIAL CARRIERS Another category of carriers offers specialized or inetermediary transportation service. In some cases, these carriers have line-haul equipment; in others, they merely provide pick up and delivery and consolidate the service. Moving shipments of less than 200 kgs creates serious operational problems for the major modes. To make the move economical, the carrier must consolidate the small shipments into larger ones, adding time and cost for the carrier and increasing transit times and transportations charges.

SMALL Package Carriers A numbers of transportation companies-namely, bus, express, and package carriers have concentrated upon small freight movements. Bus lines move small package in their vehicles luggage compartments. These carriers have cargo capacity only in the space that passenger luggage does not require, and therefore they do not require large shipments to make this service profitable. Coupled with frequent schedules, the bus lines offer a viable alternative to the logistics manager who must distribute many small -package shipments. A regulated motor carrier, united parcel service (ups), has made great strides in the efficient movement of small shipment. (another carrier of this type is FedEx). UPS, an innovator in terminal handling and in pickup and delivery scheduling, can transport small shipments profitably while providing better service and lower transit time than other major modes. Other express companies offer air transportation .federal express, the largest air express package delivery firm, utilizes a fleet of aircraft and ground vehicles to provide next-day delivery of small packages and envelopes internationally. Its operation, like that of most air express companies centers around a hub package distribution center. Typically, federal express picks up packages in the late afternoon, delivers them to the local airport, and flies them to the hub airport, where they arrive in the late ev ening hours, federal express then sorts the packages according to destination and reloads them onto aircraft scheduled for predawn arrival at the destination airport where the service loads the packages onto ground vehicles for morning delivery to the consignee. The major advantage of using air express companies is speed the speed required to get needed parts, equipment document, sales ,literatures, and specimens to their destinations the next day. But the high cost of such service generally prohibits the nonemergency shipment of low-value, high density commodities. Consolidators: The advent of B2C(business to consumers) E-commerce created a need for a new indirect carrier the consolidator B2C business generates many small shipments, and freight cost for a small shipments is very high . If the B2C landed cost of a item is higher than the cost at a local brick -and-motarstore , then the consumer may decide to buy the item locally rather than via the internet .The consolidator assits shipper of small shipment in reducing the freight cost by consolidating many small shipment and shipping the consolidated load at a lower freight rate

Freight Forwarders: The domestic surface freight forwarders is a consolidator that collects small shipment into large loads , and presents the consolidate shipments to rail road or motor carriers for intercity movements .At destination , the freight forwarders breaks the load down into individuals shipments and delivery them to the correct consignee the domestic freight forwarders realizes its revenue from the difference between the high less than volume rates the freight forwarders. The main advantage of using a freight forwarder is lower transit time for small shipments .the freight forwarders is a regulated carrier and is liable for cargo damage. Shipper association: An indirect form of transport known as the shoipper association moves small shipments for the shipper members the shipper association consolidates shipments , present the large loads to for hire carriers and pays a lower rate for the larger volume movements . the association passes on the lower volume rate to its members. Brokers: The freight broker is a person or a firm that act s as an intermediary between the shipper and carrier .the broker acts as the carriers sales agent and the shipper traffic manager. That is, the broker represents a number of carriers that need loads to move in given direct . with this knowledge of carrier capacity , the broker contacts the shipper and solicits freight to meet the carriers need .the broker typically charges the shipper the carrier published rate, deducts 7to10 percent ,and then remits the net amount to the carrier.There are two type of brokers licensed and unlicensed.


MODAL CHARACTERSTICS AND SELECTION Rail , water , truck , pipeline and air transportation all offers advantages and disadvantages. The choice of mode depends upon the nature of the goods access to carriers, price, speed or transit time , security of the goods,

government regulation , safety and f it with integrated logistics stratergy. The difficulty rise in accounting for all of these factors simentaneously. i) NATURE OF THE GOODS :

Low value bulk goods seldom fly. A dump truck load of sand will not bear the freight cost of filying, neither will it package well for handling in air freight operations. By the same token, diamonds and silicon chips rare link move by tramp steamer. The transit time is too uncertain and the value of goods is too high and the chance for the loss or damage of the package too great in ocean freight handling .thisextreams illustrate how the nature of the goods and the nature of the shipment affect modal choice. ii) ACCESS TO CARRIERS :

In india neither water system nor air, rail and pipeline reach all points of country the only near pervasive mode in india is motarcarriage .roads go almost everywhere so most goods reach there destination by truck. However motar carriage is expensive so truck may carry the goods only a short distance hence intermodeal nature is of much transportation. iii) PRICE :

Air transport cost more than motor transportation which cost more than rail which cost more than water which cost more than pipeline .taking transportation cost alone into consideration , cost relate directly to speed higher the cost higher the terminal to terminal speed however to consider only terminal to terminal cost is err. Goods do not move from terminal to terminal they move from origin to destination which often means additional cost. iv) TRANSIT TIME :

Transit time is a time from the shipment of the order at the origin to the receipt of the order at the destination. Transit time is the total time that elapses from the time the consiner makes the goods available for dispatch until. The carrier delivers dame to the consignee. This includes th e time required for pickup and delivery, for terminal handling, and for movement between origin and destination terminals. The transit time may be significant

part of the order cycle, which describes the time time from other placement to other receipt. v) SECURITY OF THE GOODS :

Security concerns the arrival of goods in the same condition they were in when tendered to the carrier. All thought the common carrier is held liable all loss and damage , with limited exceptions , the firm does incure cost when the carrier loses goods or delivers them in a damage conditions. The continued use of an unsafe carrier will adversily effect customer satisfaction and consequently sales . Terminals and other stocks in the system jeoparadize goods in any logistic system .when goods are in transit in a moving vehicle many hazards disappear. vi) GOVERNMENT REGULATION :

Goods may be handled differently on different modes. The hazards differ , as do the consiques of a problem. Regulation of load size affects mode selection as well. For example ,truks are generally limited by gross weights on highway. Regulations once governed every economic acpect of transportation. No more. Regulation now focus on safety although carrier ecomincs continues to be affected . vii) SAFETY:

Safety concerns in modal selections range from protecting the general public from explosions to protecting carrier employees as they load and unload the goods.the safety of the transportation personnel and the general public may also affect how goods are secured and what mo de they take.

CARRIER CHARACTERSTICS AND SELECTION Carrier selection logically follows mode selection having chosen a mode of transportation . theintergrated logistics manager must decide which carrier or

carriers to chose the choice will depend on which carrier best manifests .the chacterstics of the mode i.e which trucking more flexible. Carrier selection may also depend on criteria that apply to only a one mode of transportation this specific criteria relate closely to the more general criteria discussed below. i) PRICE :

Price will often influence carrier selection many intergrated logistic system demand the basic service offered by a mode of transportation .manager assume often correctly that most carriers provide the basic core service so the major extension between carriers is price . in effect , other consideration being equal integrated logistics manager will chose the low cost carrier . Distance has major impact on transportation pricing .as distance increases the total cost of the shipment .increases at the decreasing rate. ii) ACCESSIBILITY :

Accessibility is the corner stone for a shipper. the transportation must be available when and where the integrated logistic system needs it. Rail and motor carriers often spot equipment at customer sites to is loading and unloading of rail car. And trailars and carrier that places equipment in this manner usually creates the competitive advantage over those that do not . iii) RESPONSIVENESS :

For carrier selection, this means how readily the carrier response to changing customer needs. Some carriers provide service under related but provide only those services describe in the contract. That sometimes new the customer seeking unspecified services often from another carrier. This opens opportunities for small flexible carriers to fill the seams in the contract or even to grow at the expense of the large contracting carriers. iv) CLAIMS RECORD :

Put simpliy , some carriers damage goods more often than others . because of this , the low price carrier may not be the low cost carrier . imagine what happen when goods arrive damage . the customer cannot use the goods , so they must be discarded or returned at someone expense . the receiver experiences poor service , the shipper has a dissatisfied customer , and the

carrier pays a claim. No one wins .even much celebrated on time reliability means little when the goods (that arrived on time) arrived in useless conditions. v) CAPABILITY :

Capability refers to the carriers ability to provide the equipm ent and facilities that the movement of a particular commodity requires. Equipment that can provide controlled temperatures or humidity and special handling facilities are capability factors. vi) RELIABILITY :

Reliability refers to the consistency of the transit time a carrier ( the link supplier ) provides. Carriers that consistently deliver goods on time add more value than those that do not. Transit time and reliability affect inventory and stock outs costs (which take the form of lost sales or forgone productivity ).