Contemporary Logistics

Twelfth Edition, Global Edition

Chapter 13
Transportation Management

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Learning Objectives
13.1 To discuss how rates are determined
13.2 To learn about modal and carrier selection
13.3 To distinguish among various transportation documents
13.4 To illustrate select activities associated with making
and receiving shipments
13.5 To learn about transportation service quality

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Transportation Management (1 of 2)
• Transportation management
─ Refers to the buying and controlling of transportation
service by either a shipper or consignee1
• Transportation is the most costly logistics activity

John J. Coyle, Edward J. Bardi, and Robert A. Novack, Transportation, 6th ed. (Mason, OH: South-Western, 2006).
1

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Transportation Management (2 of 2)
• Transportation managers also involved in other operations
of the firm:
– Marketing
– Manufacturing
– Outbound shipping
– Purchasing

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Rate (Pricing) Considerations (1 of 10)
• Rate determination
– One key responsibility of transportation managers
– Rate
• Price charged for freight transportation
– Fare
• Prices charged for passenger transportation

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Rate (Pricing) Considerations (2 of 10)
• Rate determination
– Weight x rate = transportation cost
– Transportation rates based on three factors:
 Product
 Weight
 Distance

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Rate (Pricing) Considerations (3 of 10)
• Rate determination
– Commodity rate
 One specific rate for every possible combination of
product, weight, and distance
– Class rate system
 System to simplify rate determination
 Simplifies each of the three primary factors:
product, weight, and distance
 National Motor Freight Classification (NMFC)

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Figure 13.1: Page from National
Motor Freight Classification

Source: Reprinted from the National Motor Freight Classification © ATA 2013.

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Rate (Pricing) Considerations (4 of 10)
• Rate determination
– Factors used to determine product’s freight classification
 Density
 Stowability
 Ease of handling
 Liability to damage and theft

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Rate (Pricing) Considerations (5 of 10)
• 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

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Rate (Pricing) Considerations (6 of 10)
• 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

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Rate (Pricing) Considerations (7 of 10)
• Rate determination
– Weight groups are used to simplify shipment weight
– Weight group examples:
 Less than 500 pounds (highest rate)
 500–999 pounds
 1000–1,999 pounds
– Distances are simplified through rate basis numbers
 Zip codes are replacing rate basis numbers

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Table 13.1: Example of the Class Rate System

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Rate (Pricing) Considerations (8 of 10)
• 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

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Figure 13.2: Motor Carrier Classification Docket Proposal for
Changing the Classification of Soft Contact Lenses (1 of 2)

©2014 National Motor Freight Traffic Association, Inc.

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Figure 13.2: Motor Carrier Classification Docket Proposal for
Changing the Classification of Soft Contact Lenses (2 of 2)

©2014 National Motor Freight Traffic Association, Inc.

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Rate (Pricing) Considerations (9 of 10)
• 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

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Table 13.2: Representative Rate and Service Items in the
Carrier–Shipper Negotiation Process

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Rate (Pricing) Considerations (10 of 10)
• Rate and service negotiations
– Domestic terms of sale
 When freight charges are paid for a particular domestic
shipment
– Transportation cost analysis
 Especially valuable in the shipment consolidation
decision
 Facilitated by advances in information technology

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Modal and Carrier Selection (1 of 2)
• Two-step process
1. Determine appropriate mode(s)
2. 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

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Modal and Carrier Selection (2 of 2)
• Amodal 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

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Documentation (1 of 6)
• 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

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Documentation (2 of 6)
• Bill of lading
– Most important single transportation document
– Functions as a delivery receipt when products are
tendered to carriers
• Bills of lading types:
– Straight bill of lading (white paper)
– Order bill of lading (yellow paper)

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Documentation (3 of 6)
• Bill of lading
– Additional classifications:
 Long-form
 Short
 Preprinted

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Figure 13.3: A Long-Form Bill of Lading

Credit: Burlington Northern Santa Fe Railroad

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Documentation (4 of 6)
• 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

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Documentation (5 of 6)
• Freight bill
– Internal audits
 Conducted to:
– Detect current errors that result in overcharges
– Correct these errors in the future
– External audits
 Work is performed by an independent third party to
detect errors in freight bills

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Documentation (6 of 6)
• 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

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Making and Receiving Shipments (1 of 5)
• 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 unloading2

2
John E. Tyworth, Joseph L. Cavinato, and C. John Langley, Traffic Management: Planning, Operations, and Control
(Prospect Heights, IL: Waveland Press, 1991).

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Making and Receiving Shipments (2 of 5)
• Consolidating small shipments
– Shipments more than 50 pounds and less than 500
pounds
– To get a lower rate, shipment consolidation may occur:
aggregating customer orders across time or place

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Figure 13.4: The Transportation Manager
Consolidates Shipments Whenever Possible

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Making and Receiving Shipments (3 of 5)
• Demurrage and detention
– Demurrage
 Penalty payment made to the railroad for keeping a
railcar beyond the time when it should be released
back to the carrier
– Detention
 Same concept as demurrage except it usually refers to
the trucking industry

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Making and Receiving Shipments (4 of 5)
• Routing
– Process of determining how a shipment will be moved
between origin and destination3
– Routing guide
 Example of routing
 Document that can provide a variety of shipment-
related information

http://www.cscmp.org/sites/default/files/user_uploads/resources/downloads/glossary.pdf
3

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Making and Receiving Shipments (5 of 5)
• 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

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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 their carriers’
performance
• Can measure performance through the use of performance
scorecards

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Table 13.3: Example of a Carrier Performance
Scorecard

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Key Terms (1 of 2)
• Amodal shipper • Density
• Bill of lading • Detention
• Class rate system • Documentation
• Commodity rate • Expediting
• Concealed loss or damage • FOB destination
• Demurrage

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Key Terms (2 of 2)
• FOB origin
• Freight bill • Routing guide
• Freight claims • Stowability
• Rate • Tracking
• Routing • Transportation Management

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