CHAPTER 13

Transportation Management
Contemporary Transportation Management
• Transportation management
─ refers to the buying and controlling of
transportation service by either a shipper or
consignee1
• Transportation is the most costly logistics
activity

1Source:John J. Coyle, Edward J. Bardi, and Robert A. Novack, Transportation, 6th ed. (Mason, OH: South-
Western, 2006).
Contemporary Transportation Management
• Transportation managers also involved in other
operations of the firm
– Marketing
– Manufacturing
– Outbound shipping
– Purchasing
 Rate (Pricing) Considerations
• Rate Determination
– One key responsibility of transportation
managers
– Rate
• Price charged for freight transportation
– Fare
• Prices charged for passenger transportation
 Rate (Pricing) Considerations
• Rate Determination
– Weight x rate = transportation charge
– Transportation rates based on three factors
• Product
• Weight
• Distance
 Rate (Pricing) Considerations
• Rate Determination
– Commodity rate
• One specific rate for every possible combination of
product, weight, and distance

– Class rate system

• System to simplify rate determination
• Freight classification used to simplify the number of
commodities
• National Motor Freight Classification (NMFC)
Rate (Pricing) Considerations
 Rate (Pricing) Considerations
• Rate Determination
– Factors used for determine product’s freight
classification
• Density
– refers to how heavy a product is in relation to its size
– Viewed as primary factor for setting a product’s
classification
• Stowability
– refers to how easy the commodity is to pack into a load
– possible considerations involve the commodity’s ability to
be loaded with hazardous materials and ability to load
freight on top of the commodity
 Rate (Pricing) Considerations
• Rate Determination
– Factors used for determine product’s freight
classification
• Ease of difficulty of handling
– refers to challenges to handling that might be presented
by a commodity’s size, weight, and so on
• Liability for loss and damage
– considers, among others, a commodity’s propensity to
damage other freight, its perishability, and its value
 Rate (Pricing) Considerations
• Rate Determination
– Weight groups are used to simplify shipment
weight
– Weight group examples:
• <500 lbs (highest rate)
• 500-999 lbs
• 1000-1,999 lbs
– Distances are simplified through rate basis
numbers
• Zip codes are replacing rate basis numbers
Rate (Pricing) Considerations
 Rate (Pricing) Considerations
• Rate Determination
– Commodity Classification Standards Board
develops and maintains commodity freight
classifications
– Shippers prefer lower classification number
(lower rate)
– Carriers prefer higher classification number
(higher rate)
– Transportation managers can appeal a
commodity’s classification
Rate (Pricing) Considerations
 Rate (Pricing) Considerations
• Rate and Service Negotiations
– Both rates and service levels may be negotiated
due to economic deregulation
– Allows transportation managers to take advantage
of trade-offs between price and service
Rate (Pricing) Considerations
 Rate (Pricing) Considerations
• Rate and Service Negotiations
– Domestic terms of sale
• When freight charges are paid for a particular domestic
shipment
– Transportation cost analysis
 Modal and Carrier Selection
• Two-step process
– First determine appropriate mode(s)
– Then select carrier(s) within the chosen mode(s)
• Carrier selection is more challenging
– Difficult to be aware of every possible carrier
– Lack of agreement on the number of relevant
factors
 Modal and Carrier Selection
• A modal shipper
– Refers to a transportation manager who purchases
a prespecified level of transportation service and
is indifferent to the mode(s) and or carrier(s) used
to provide the actual transportation service.
• Research indicates shippers are more
interested in transportation metrics than in
modes
 Documentation
• Documentation
– Serves practical function
• What, where, and how much is being transported
– Potentially provides legal recourse
– Transportation department is responsible for
completing all documents needed to transport the
firm’s products
 Documentation
• Bill of lading
– Functions as a delivery receipt when products are
tendered to carriers
• Bill of lading classifications
– Straight bill of lading
– Order bill of lading
– Long-form bill of lading
– Preprinted short-form bill of lading
Documentation
 Documentation
• Freight bill
– Invoice submitted by the carrier requesting to
be paid
– Freight bill-paying service
– Automated service in attempt to pay carriers within
a specific number of working days
 Documentation
• Freight bill
– Internal audits
• Conducted to detect current errors that result in
overcharges and to
• Correct these errors in the future
– External audits
• Work is performed by an independent third party to
detect errors in freight bills
Documentation
 Documentation
• Freight claims
– Refers to a document that notifies a carrier of
wrong or defective deliveries, delays, or other
delivery shortcomings
– Concealed loss or damage difficult for shippers
and carriers
• Refers to situation where loss or damage is not
apparent until after a shipment has been unpacked
and inspected
 Making and Receiving Shipments
• Key area of decision making in transportation
management involves making and receiving
shipments
– Refers to tactical planning and control of
shipments along with supervision of freight
loading and unloading

Source: John E. Tyworth, Joseph L. Cavinato, and C. John Langley, Traffic Management: Planning, Operations,
and Control (Prospect Heights, IL: Waveland Press, 1991).
 Making and Receiving Shipments
• Consolidating small shipments
– Shipments > 150 and < 500 pounds
– To get a lower rate, shipment consolidation may
occur: aggregating customer orders across time
or place or both
Making and Receiving Shipments
 Making and Receiving Shipments
• Demurrage and Detention
– Demurrage
– Penalty payment made to the railroad for keeping a
railcar beyond the time when it should be released
back to railroad
– Detention
– Same concept as demurrage except it usually refers to
the trucking industry
 Making and Receiving Shipments
• Routing
– Process of determining how a shipment will be
moved between origin and destination1
– Routing guide
• Example of routing
• Document that can provide a variety of shipment-
related information

1http://www.cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary.pdf
 Making and Receiving Shipments
• Tracking and Expediting
– Tracking
• Refers to determining a shipment’s location during the
course of its move
– Expediting
• Involves the need to rapidly move a shipment to its
final destination
 Transportation Service Quality
• Macroenvironmental changes have caused
organizations to demand higher levels of
service quality
• Economic deregulation allowed for both price
and service competition resulting in a need to
measure performance
• Can measure performance through the use a
performance scorecard
Transportation Service Quality