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Lecture 5

Transportation

1. The role of transportation


Reduce the resistance of time and space
to the production of economic goods
and services. (time and place utility)
Without it organized human activity
would be impossible.

It affects the allocation of economic


resources. A large part of the national
wealth is directly devoted to transport.
USA:1/3 , China 5-7%
Complete stoppage of a community's
transport services is the quickest way to
assure complete paralysis of cooperative
effort: economic, political and social.

How is Time Utility Created


Time utility is mostly created or added by the
warehousing and storage of product until it is needed.
Transportation is also a factor in time utility; it
determines how fast a product moves from one point
to another. 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.

2. Transportation System
There are five basic transportation modes --motor, rail, air, water, pipeline.
In addition, certain modal combinations are
available, including rail-motor ("piggyback"),
motor-water, motor-air, and rail-water.

Five
Five Major
Major Transportation
Transportation Modes
Modes
Rail
Rail

Nations
Nationslargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback

Truck
Truck

Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods

Water
Water

Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form

Pipeline
Pipeline

Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcesto
tomarkets
markets

Air
Air

High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items

Piggyback (TOFC/COFC)
A motor carrier trailer( ) or a container

is placed on a (rail) flatcar and


transported from terminal to terminal. Axles
can be placed under the containers so that
they can be delivered by a truck or a
tractor. At the terminal facilities, a motor
carrier performs the pickup and delivery
functions. Piggyback service thus combines
the low cost of long-haul rail movement with
the flexibility and convenience of truck
movement.

3. Factors Influencing Transportation


Costs
Product's characteristics
Density

stowability
ease or difficulty of handling
liability

Density (weight-to-volume
ratio)
Low density products
electronics, clothing, luggage, toys, etc.
High density products
steel, canned foods, paper goods, etc.
Which tends to cost more to transport
on a per-pound (kilo) basis?
Low density products

Stow-ability
The degree to which a product can fill the
available space in a transport vehicle. It
depend on size, shape, fragility and other
physical characteristics.
High Stow-ability products
grain, ore, petroleum products in
bulk......
low Stow-ability products
cars, machinery, livestock
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ease or difficulty of handling


Products less costly to transport:
Uniform in physical characteristics
Can be manipulated with materialshandling equipment
e.g. raw materials and items in
cartons, cans or drums

liability
Important for items
with high value-to-weight ratios
Easily damaged
Subject to higher rates of theft or
pilferage

Greater liability to carriers, higher cost


to thansport
computer, jewelry, home entertainment
products

Market-related

factors

degree of intramode and intermode

competition
location of markets
nature and extent of government regulation
of transportation carriers
balance or imbalance of freight traffic in a
territory
seasonality of product movements
whether the product is being transported
domestically or internationally.

4. Service Characteristics
dependability (consistency of service);
time-in-transit/total transit time
market coverage (door-to-door service);
flexibility (the variety of products that can

be handled and meeting the special needs of


shippers);

4. Service Characteristics
loss and damage performance;
ability to provide more than just

basic transportation service (to


become part of a shipper's
overall marketing program).

5. Economic Characteristics
Kinds of goods moved
Economic distance
Freight rate
Market coverage
Degree of competition
Equipment capacity

Comparative of Transportation Modes

6. Other Transportation Arrangements


Third parties
Small-package carriers
Intermodal services

Third Parties
Transportation brokers
Freight forwarders
Shippers associations
Intermodal marketing companies
Third-party logistics service providers

Inter-modal

Use of two or more modes of transportation


for a single shipment
Used predominantly with international
shipments
Rail and Motor carrier are most common

7.Legal Forms of Transportation


Common Carrier
Contract Carrier
Exempt Carrier
Private Carrier

For-Hire
Carriers

8. Traffic Management
Definition The administration of
transportation activities

Inbound / outbound transportation


Carrier-shipper contracts
Strategic partnerships and alliances
Carrier selection (private vs. for-hire)
Routing and scheduling
Service offerings

Must be well coordinated with other depts.

9. Several Terms
Freight
Freight rate
Volume

rate

Full car load rate


Full truck load rate
Less

than truck load rate

Time in transit
Total transit time

10. International Transportation


Types of International Transportation
Types of International Cargo
Ocean Freight Costs
Ocean Bill of Lading
Non-Negotiable Sea Waybill
Multimodal Transport Document
Letter of Credit and Ocean Bill of Lading
Parties Responsible for Shipping Arrangements
Arrival Notice
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Truck and Rail

Primary carriers among countries in the


same continent such as the USA,
Mexico, & Canada. EU countries
Containerized piggyback service on rail
Combined transportation of ocean and
inland to domestic final destination

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Air Transportation

Most expensive but fastest mode of transportation


High valued goods
Fragile goods
Perishable goods
Shorter transit time: Speedy delivery
Less burden on inventory: Just-in-time delivery

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Air Transportation
Air freight

By weight or volume
Steep progressive rate structure
Depending on commodities

Air Transportation
Air freight carriers
Airlines: Operate own air planes
Air freight consolidators
Air freight wholesalers for less than
container load (LCL)
Small shippers pay the consolidator less
than they would pay the airline themselves
More waiting time for consolidation
Freight forwarding service by freight
consolidator
Export customs clearance service by freight
consolidator
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Air Transportation
Air freight carriers

International couriers

Documents and small packages


House to house service
One to three day guaranteed delivery
DHL, UPS, Federal Express, Emery, US
Postal Service

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Ocean Transportation
Least expensive transportation mode
Faster, more fuel-efficient vessels

Shipping lines

Usually own the cargo vessels


Operate the cargo vessels
Belongs to Conference or Non-conference

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Ocean Transportation
NVOCC's (Non-Vessel Operating Common
Carriers)

Do not own or operate the vessels


Freight consolidators and wholesalers: Less freight
than shipping lines for small shipments
Specialized in LCL cargoes-- Small shipments in a
container without expensive export crating
Have a warehouse or terminal for receiving and
consolidating small shipments
Have own rate tariffs filed with the Federal Maritime
Commission
Issue a negotiable ocean bill of lading

General Cargo
Packaged cargo transported not in
container
Fiberboard (Cardboard) box,
crate(wooden box), fiber drum, steel
drum, wooden barrel, bag or sack, and
bale
Loaded in the cargo holds
Refrigerated holds for frozen meat or
fresh fruit

Bulk Cargo
Cargo without package
Dry bulk cargo: Coal, grain, ore, gravel loaded
into the holds by cranes or clamshells or
conveyor system
Liquid bulk cargo: Gasoline, edible oil, liquidified
natural gas (LNG) or liquidified petroleum gas
(LPG) loaded into the tank by piping system

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Container Cargo
Packaged cargo transported in a container

House to house service


Shipper's load and count notation on the
B/L
Unloaded to Container Freight Station
(CFS) in the case of more than one cargo
owner and Container Yard (CY) in the case
of one cargo owner
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Container Cargo
Container size (Outside dimension)

Standard:
20 Footer: W.8' x H.8' 6" x L.20' (7' 8"x 7'
10"x 19' 4")
40 Footer: W.8' x H.8' 6" x L.40' (7' 8"x 7'
10"x 39' 4")

High Cube:
40 Footer: W.8' x H.9' 6" x L.40' (7' 8"x 8'
10"x39' 4")
45 Footer: W.8' x H.9' 6" x L.45' (7' 8"x 8'
10"x44' 4")
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Container Cargo
Specialized container
Tanker container
Refer container
Advantages of containerization
No need for expensive crating
Prevents theft at the dock
Fast loading & unloading leading to savings on
both time and money
Savings on freight through consolidation of
small shipments
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Ocean Freight Cost


Pure

freight: Rate tariff published & filed with

the FMC

Surcharges: Add-on costs after pure freight


published
Currency Adjustment Factor (CAF): When US
dollar drops, CAF goes up.
Fuel Adjustment Factor (FAF):Bunker charge.
When price of bunker c fuel increases, FAF
goes up
Terminal Handling Charges (THC): Charges for
moving cargoes on the pier, loading or
unloading. Regular lines usually include these
charges in the ocean freight
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Ocean Bill of Lading


Negotiable Bill of Lading: Order Bill of

Lading

Made out "To order" or To the order of ----."


Cargoes are released only on presentation of
an original bill of lading duly endorsed by the
shipper or consignee named in the bill of
lading

Non-Negotiable Bill of Lading: Straight B/L


Consigned to the importer. Cargoes are
released only to the consignee. Endorsement
not needed
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Ocean Bill of Lading


Long form B/L:

It contains all terms & conditions of carriage


printed on the reverse side of the B/L

Short form B/L:

It contains some of terms and conditions by


reference to a source or document

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Non-Negotiable Sea Waybill

Cargoes are released only to the


consignee on the Sea Waybill without
surrendering an original Sea Waybill.
Often used

When consignee, or importer does not need to


sell the goods during transit
Specially convenient in the case of a very
short transit time.

Processing shipping documents through


exporters bank and importers bank take
several days
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Multimodal Transport
Document

Multimodal (Combined or Intermodal) Bill of

Lading
Covers two or more transportation modes:

truck or rail vessel-truck or rail


Covers all transportation from the place

dispatched, taken in charge or shipped on


board to the place of final destination
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Letter of Credit and Ocean Bill of


Lading
Ocean Bill of Lading must conform to
conditions of Letter of Credit (UCP 600)
To be accepted by banks, a bill of lading
must appear to

indicate the name of the carrier and be


signed by the carrier or its agent, or
master or its agent

indicate that goods have been shipped


on board on a named vessel at the
port of loading stated in the Credit

Shipment date: the date of B/L issuance or


On Board notation date

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Letter of Credit and Ocean Bill of


Lading
To be accepted by banks, a bill of lading
must appear to (continued)

indicate shipment from the port of


loading to the port of discharge stated
in the Credit
be the sole original or the full sets of
originals as so issued
contain the terms & conditions of
carriage
contain no indication subject to a
charter party
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Letter of Credit and Ocean Bill of


Lading
If the Credit calls for a multimodal bill of
lading, it must appear to

indicate that goods have been


dispatched, taken in charge or shipped
on board at the place stated in the
Credit with the date dispatched, taken
in charge of shipped on board

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Letter of Credit and Ocean Bill of


Lading
If the Credit calls for a multimodal bill of
lading, it must appear to (continued)
indicate the place of dispatch, taking in
charge or shipment and the final
destination of stated in the Credit, even if
it states a different place of dispatch, taking in
charge or shipment or place of final destination
or
it contains the indication intended as to the
vessel, port of loading or port of discharge

meet other terms & conditions of a


standard bill of lading
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Letter of Credit and Ocean Bill of


Lading
Banks accept a bill of lading which

bears a clause of shippers load and count


or said by shipper to contain in container
shipment
indicates as the shipper or consignor of the
goods a party other than the beneficiary of
the Credit (3rd party B/L)
indicates that transshipment will or may take
place if cargo shipped in Container, Trailer or
LASH (Lighter Aboard Ship) barge and
covered by one B/L even if the L/C prohibits
transshipment
bears a reference to charges additional to the
freight.
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Letter of Credit and Ocean Bill of


Lading
Banks reject a bill of lading which

states that the goods are or will be


loaded on deck
indicates a defective condition of the
goods or the package: Not clean B/L
shows a transshipment, if it is
prohibited by the Credit, unless it is a
multimodal transport document or the
cargo is shipped in Container, Trailer
or LASH
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Letter of Credit and Ocean Bill of


Lading
Common discrepancies in Bill of Lading

Less than a full set of original Bill of Lading


presented
Changes not initialed by the signor of the B/L
Not properly endorsed
No "On Board" notation indicating the date
of shipment and the name of the actual
vessel, if the B/L contains the indication
intended vessel or similar qualification
such as Received for shipment
Date of the B/L later than shipping date in the
L/C

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Letter of Credit and Ocean Bill of


Lading
Common discrepancies in Bill of Lading
(continued)

Stale B/L not presented to the negotiating


bank within specified time after shipment
stipulated in the L/C (Presentation date)
Different markings from L/C
Different description of the goods from L/C in
general terms
Not clean (foul) B/L with a notation of
defective goods or packages
On-deck shipments
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SHIPPER

HAN JIN ARTS AND CRAFT L/E CORP


TIANJIN CHINA

CONSIGNEE

TO
ABC
ORDER
ORDER
CO. OF

COSCO

NOTIFY PARTY

SCHLITER CO.BREMEN
3601 AW. HERO ROAD,BREMEN,GERMAN
PRE-CARRIAGE BY
PLACE OF RECEIPT
OCEAN VESSEL VOY.NO.

Bill of Lading

PORT OF LOADING

PAUL RICKMERS

TIANJIN,XINGANG

PORT OF DISCHARGE

PLACE OF DELIVERY

BREMEN
MARKS&NO.

S
BREMEN
NO.1-50

NO.OF CONTANINERS KIND OF PACKAGES

GROSS WEIGHT

WILLON PRODUCTS

150CTNS

MEASUREMENT

4200KGS

6CBM

SAY TOTAL PACKAGES IN ONE HUNDRED AND FIFTY ONLY

TOTAL NUMBER OF CONTAINERS


(IN WORDS)
FREIGHT&CHARGES
REVENUE TONS

RATE

TIANJIN,XINGANG
PREPAID AT
NUMBER OF3ORIGINAL BS/L

PAYABLE AT

PER

PREPAID

COLLECT

FREIGHT PREPAID
XINGANG,TIANJINDATE:040801

PLACE AND DATE OF ISSUE

SIGNED FOR OR ON BEHALF OF THE MASTER AS AGENT

Parties Responsible for Shipping


Arrangements
Under a CFR or CIF Transaction

Exporter is responsible for shipping


arrangement, loading, paying freight
or freight & marine insurance premium

Exporter may ship by the least


expensive vessel even though it is the
slowest. Long voyage is a waste of
time and money.

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Parties Responsible for


Shipping Arrangements

Under FOB Transaction

Importer is responsible for shipping


arrangement, paying ocean freight and
marine insurance premium

Exporter responsible for loading the


cargo on the carrier

Exporter may ship by the most


convenient vessel even though its
freight is higher than other vessels.
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Parties Responsible for


Shipping Arrangements

First, import on a CFR or CIF basis


Second, if you can get a better freight rate, then
change to the FOB
FOB ties up line of credit less than CFR or CIF,
specially when the freight portion is very high.

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Arrival Notice
Carrier unloads Containers with one cargo
owner to C.Y. (Container Yard) and
Containers with more than one owner to
C.F.S. (Container Freight Station)
Arrival Notice to Notify Party in the B/L
indicating ETA and wharf demurrage
starting date, generally
8th day after vessel arrival for CY cargos
13th day for CFS cargos excluding
weekend & holidays
Much shorter free period for reefer
containers
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