Ch. 10:Transportation Management Management Strategy: Six Factors

1
Ch. 10Transportation Management Management
Strategy Six Factors

• Proactive Management Approach
• Reducing the Number of Carriers
• Negotiating with Carriers
• Contracting with Carriers
• Consolidating Shipments
• Monitoring Service Quality

2
Management Strategy Proactive Management Approach

• Absence of the regulatory safety net encourages
  logistics mangers to take a proactive management
  approach to identify and solve transportation
  problems.
• Creativity in problem solving no longer
  restricted by fixed regulations.
• Positive attitudes result in using transportation
  to solve company problems in many functional
  areas.

3
Management Strategy Reducing the Number of
Carriers

• Consolidation of freight increases the shippers
  leverage with the remaining carriers.
• Being one of a carriers largest customers gives
  the shipper increased negotiating power.
• Shippers become more important to the carriers as
  they funnel larger volumes to fewer carriers.

4
Management Strategy Reducing the Number of
Carriers

• One shipper went from 131 to 14 carriers.
• Improved service from the remaining carriers
  decreased its inventory by 30 million.
• Supply chain strategic alliances are also created
  through consolidation.
• However, risk of increased dependency on fewer
  carriers must be balanced against the benefits.

5
Management Strategy Negotiating with Carriers

• With rate negotiation a common outcome of
  deregulation, consolidation provides the leverage
  to successfully negotiate more favorable terms of
  carriage.
• Elevating the carrier to partnership status in
  the supply chain philosophy assists in assuring a
  win-win arrangement between the partners.

6
Management Strategy Contracting with Carriers

• Both the Motor Carrier Act of 1980, the Staggers
  Act of 1980, and the ICC Termination Act of 1995
  increased the ability of motor carriers to
  contract with shippers.
• As in any contract, special and/or custom
  services such as JIT can be negotiated.
• Contracting widely adopted by rail rates, types
  of equipment, service levels and minimum
  quantities are subject to contract terms.

7
Management Strategy Consolidating Shipments

• Another benefit of carrier consolidation is that
  shippers are often rewarded with lower rates as
  the amount shipped increases.
• Contracts may be written with minimum shipment
  size per shipment or for annual cumulative
  shipment size.
• Quantity discounts are real savings that the
  carriers pass on to shippers.

8
Management Strategy Monitoring Service Quality

• Product movements that are consistent, timely,
  and undamaged can be a competitive advantage for
  a customer.
• Trade-offs between speed and cost of service must
  be analyzed to provide the service customers need
  without paying for speed that might not be
  required.
• Examine the Carrier Evaluation Report in Figure
  10-1.

9
Federal Regulation An Overview

• Federal regulation has been with the
  transportation industry since the Act to Regulate
  Commerce in 1887.
• The genesis of regulation lies in the concept
  that a transportation system functions in the
  public interest, similar to a public utility.
• Individual states were not and still are not
  permitted to control interstate commerce.

10
Federal Regulation An Overview

• In the United States, private industry rather
  than government provides the transportation
  services, thus a perceived need for regulation of
  rates, routes and safety issues empowered federal
  officials to act in the name of the public good.
• Reasonable rates, absence of discrimination, and
  the need to serve all formed the core of the
  federal regulations.

11
Federal Regulation An Overview

• The ICC was formed as a result
  of the 1887 law and grew in
  stature until it controlled economic and safety
  issues for rail, domestic water, freight
  forwarders, and motor carriers.
• Air cargo was controlled by the CAB pipelines by
  the Federal Energy Regulatory Commission and
  ocean carriage by the Federal Maritime Commission.

12
Federal Regulation Deregulation

• Beginning in 1977, the political and economic
  climate encouraged economic deregulation, and
  began with air transportation.
• The Staggers Act of 1980 reduced regulation for
  rail and motor transportation.
• Virtual deregulation occurred with the ICC
  Termination Act of 1995.
• Transportation carriers became able to negotiate
  rates and services with shippers rather than
  adhere to published rates and services.

13
Federal Regulation Deregulation

• Motor and Water Carriers
• Rate and tariff-filing regulations eliminated
  except for household and noncontiguous trade.
• Common carriage concept is eliminated.
• All carriers may contract with shippers.
• Antitrust immunity for collective ratemaking.

14
Federal Regulation Deregulation

• Air Carriers
• In 1977, economic regulation of air carriers
  eliminated.
• Safety regulation remains in force.
• Rail Carriers
• Remains the most regulated of the transportation
  modes.
• Complete deregulation over certain types of
  traffic, piggyback and fresh fruits, for example.

15
Federal Regulation Deregulation

• Freight Forwarders and Brokers
• Both are required to register with the Surface
  Transportation Board (STB).
• Brokers must also post a 10,000 bond to ensure
  payment to the carriers.
• No economic rate or service controls.
• Freight Forwarder is considered a carrier and is
  thus liable for freight damages.

16
Documentation Domestic

• Bill of Lading
• Freight Bill
• Claims
• F.O.B. Terms of Sale

17
Documentation Domestic Bills of Lading

• Shows title to the goods,
  name and address of the consignor
  and consignee.
• Summarizes the goods in transit
  and their class rates.
• Electronic bills now
  appearing where the carrier and shipper have an
  established strategic alliance.

18
Documentation Domestic Bills of Lading

• Straight Bill
• Non-negotiable
• Contains terms of the sale including the
  time/place of title transfer.
• Order Bill
• Negotiable
• Consignor retains original until bill is paid.

19
DocumentationDomestic Freight Bills

• Carriers invoice for charges for a given
  shipment.
• Credit terms are stipulated by the carrier and
  can vary extensively.
• Credit may be denied if the charges are worth
  more than the freight.
• Bills may also be either prepaid or collect.
• Freight bills are typically audited internally or
  externally.

20
Documentation Domestic Claims

• A document filed with the carrier to recover
  monetary losses due to losses, damage, delay or
  overcharges by the carrier.
• Typically, claims are filed within 9 months,
  claimant is notified by receipt within 30 days,
  and settlement or refusal within 120 days.
• Claims terms can be stipulated in the contract of
  carriage agreement and may be atypical.

21
DocumentationDomestic F.O.B. Terms of Sale

• Determines which party is to pay the freight
  bill, which party has title to the goods, and
  which party controls the movement of the goods.
• F.O.B. origin - buyer pays freight, owns goods
  once loaded, controls movement of the goods
• F.O.B. destination - seller pays freight, owns
  goods until delivered, controls movement of the
  goods

22
Documentation International

• Documentation for international transportation is
  far more complex than required for domestic
  transportation.
• Types of documents vary widely by country.
• Sales Documents
• Terms of Sale
• Transportation Documents

23
Documentation International Sales Documents

• Sales contract is the initial document.
• Letter of Credit may also accompany shipment
  (guarantees payment).
• May also use cash and other means of
  demonstrating an ability to pay for the goods.

24
DocumentationInternational Terms of Sale

• AKA Incoterms--- international credit terms

• Terms may include
• Export packing costs
• Inland transportation
• Export clearance
• Vehicle loading
• Transportation costs
• Insurance
• Duties
• Insurances

25
Documentation International Transportation
Documents

• Export Declaration - describes the goods
• Export License - allows export of goods
• General license allows export of most goods w/out
  any special requirements
• Validation export license for export of
  controlled items
• Commercial invoice - determines value
• Carnet - seals shipment at origin

26
Documentation International Transportation
Documents

• Bill of Lading - initiating document for all
  shipments
• Export B.O.L. - can govern foreign domestic,
  intercountry, and domestic movements of the
  goods.
• Ocean B.O.L. - sets terms, lists origin and
  destination ports, quantities and weight, rates,
  special handling needs for the ocean movement.

27
Documentation International Transportation
Documents

• Order B.O.L - negotiable
• Clean B.O.L. - issued by carrier when goods
  arrive in port damages and other exceptions
  should be noted
• Ocean carrier held liable for losses due to
  negligence only.
• Other losses responsibility of the shipper.
• Certificate of insurance may be required.
• Dock receipt provided to domestic carrier.

28
Bases for Rates

• Cost of Service
• Value of Service
• Distance
• Weight of Shipment

29
Bases for Rates Cost of Service

• In economic terms, basing rates on cost of
  service is defined as supply side pricing.
• The cost of supplying the service establishes the
  minimum rate.
• Historically, deciding what carrier costs to
  include in setting the minimum rate is
  problematic.
• Examine Figure 10-4.

30
Figure 10-4 Limits on Rates
31
Bases for Rates Value of Service

• In economic terms, basing rates on value of
  service is defined as demand side pricing.
• The value of supplying the service establishes
  the maximum rate.
• Cost at A (2), Cost at B (2.50), max rate
  0.50
• Historically, deciding what the traffic will
  bear in setting the maximum rate is also
  problematic.
• Generally, higher-valued goods can more easily
  absorb higher rates and vice-versa.

32
Bases for Rates Distance

• Rates also vary directly with distance the
  longer the haul, the higher the rate.
• This relates to the carriers higher costs of
  moving the product longer distances.
• Two exceptions to the the distance principle are
• Blanket Rates - fixed rates within blanket area
• Tapering Rates - rates rise with increased
  distances, but at a decreasing rate.

33
Figure 10-6 Example of the Tapering Rate
Principle
34
Bases for Rates Weight of Shipment

• Rates also vary inversely with weight the
  heavier the shipment, the lower the rate.
• This relates to the carriers lower costs of
  moving more quantity at one time.
• Carriers refer to these rates as CL or TL.
• One exception to the the weight principle is the
  Any Quantity or AQ rate where the carrier charges
  a fixed rate for carriage in this case there is
  no quantity discount.

35
Transportation Services

• Line-Haul Services
• Reconsignment
• Diversion
• Pooling
• Stopping in Transit
• Transit Privilege

• Terminal Services
• Consolidation
• Dispersion
• Shipment services
• Vehicle services
• Interchange
• Loading Unloading
• Weighing
• Tracing/Expediting

36
Transportation Services Terminal Functions

• Consolidation - carrier will consolidate many
  small shipments into a one shipment going to a
  customer, qualifying the shipper for a lower
  rate.
• Dispersion - the opposite of Consolidation one
  large shipment being distributed to multiple
  customers at the destination terminal.
• Shipment Services - carrier provides freight
  handling for consolidation and/or dispersion as
  well as clerical services for bills of lading,
  freight bills and routing of the shipment.

37
Transportation Services Terminal Functions

• Vehicle Service - carriers need to maintain a
  diverse and adequate fleet of transit vehicles
  for shippers use.
• Interchange - carriers provide capability to
  interconnect with other carriers of the same or
  different modes so that through rates may be used
  by the shipper.

38
Transportation Services Other Terminal Services

• Loading and Unloading - carrier responsible for
  loading and unloading LTL or LCL shipments
  shipper responsible for TL and CL loading and
  unloading.
• Carrier specifies the amount of time the shipper
  and receiver have for loading and unloading.
• Rail free time is 24 to 48 hours (M-F).
• Motor varies widely, but can be as little as
  one-half hour.
• After free time, rail charges a demurrage fee
  motor charges a detention fee.

39
Transportation ServicesOther Terminal Services

• Weighing - Carrier or shipper provides weight of
  shipment some items are provided at a
  predetermined weight, precluding necessity of
  weighing of each shipment.
• Tracing - carriers can tell shipper where the
  shipment is and when it might be delivered. This
  is important for JIT or QR systems.
• Expediting - moving the shipment faster than
  normal. This may involve a premium over regular
  handling.

40
Transportation Services Line-Haul Services

• Reconsignment - changing the consignee while the
  shipment is in transit. Popular in certain
  industries where goods are shipped before they
  are sold.
• Diversion - changing the destination of a
  shipment in transit. Often used in conjunction
  with reconsignment.
• Pooling - provides the ability for a shipper to
  use a CL or TL rate by consolidating many smaller
  shipments going to one destination and one
  consignee into a pool car or truck.

41
Transportation Services Line-Haul Services

• Stopping in Transit - permits the shipper to use
  a CL or TL rate and drop off portions of the load
  at various intermediate destinations the carrier
  charges a stop-off charge for each stop, but this
  is usually much less than shipping the load at
  LCL or LTL rates.
• Transit Privilege - permits the shipper to unload
  a car or trailer, process the shipment, and
  reload and ship the processed product to its
  final destination using a through rate.

42
Figure 10-7 Example of Stopping-In-Transit
Service