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  • Transportation Functionality

    1.) Primarily consists of product movement services

    Product movement is the transfer of inventory to specified destinations.

    2.)Secondarily consists of product storage services while product is in a vehicle / conveyance
    -In-Transit Inventory is captive in the transport system
    --Managers strive to reduce in-transit inventory to a minimum

    Two important aspects of transportation are:

    Restrictive Element — in-transit inventory is "captive", usually inaccessible during transportation

    Flexible Element — inventory can be diverted during shipment to a new destination

    Transportation consumes time, finances, and environmental resources. Transportation:

    -Accounts for more than 60% of the total cost of logistics
    -Is one of the largest consumers of oil and gas
    -Negatively impacts traffic congestion, noise and air pollution

    Product can also be stored in transport equipment at

    -Product can also be stored in transport equipment at origin or destination (trailers, containers, railcars, pipeline, etc.)
    -Usually more expensive than traditional
    -Must pay rental or demurrage charges on transport
    equipment used for storage
    -Less secure
    -Special handling, i.e. cold chain, could be an issue

    Diversion occurs when

    a shipment destination is changed / re-routed after a product is in transit

    Economy of Scale:

    The cost per unit weight decreases as the size of the shipment increases
    At least until you totally fill the conveyance (i.e. "max out" or "cube out").
    Cost decreases because the fixed cost of the carrier is allocated over a larger weight of shipment.

    Economy of Distance:

    The cost per unit weight decreases as distance increases
    Often called the tapering principle
    Longer distances allow the fixed cost of the carrier to be spread over more miles, lowering the per mile / per unit charge.

    Fundamental Transport Principles

    Economy of Scale and Distance

    -The goal is to maximize the size of the load and distance shipped while still meeting service expectations

    Transport Participants

    Consignor (Shipper)
    Consignee (Receiver)
    Carrier and Agents

    Common Carriers -

    serve the public at published rates between locations without discrimination.

    Contract Carriers -

    Not bound to serve the public. Serve customers under contractual agreements.

    Exempt Carriers -

    Exempt from regulation of services and rates if they transport exempt products like produce, livestock, coal, or newspapers.

    Private Carriers -

    not subject to economic regulation. Typically transport goods for the company owning the carrier.

    Transportation Regulation

    Social and Economic regulation

    Social Regulation

    Social regulation which takes measures to protect public safety and the environment

    -Department of Transportation (DOT) (1966) took an active role in hazardous material safety and driver safety

    -Hazardous Materials Transportation Uniform Safety Act (1990) took precedence over state and local regulations

    Economic Regulation

    seeks to make transportation equally accessible and economical to all without discrimination

    Government created infrastructure (roads, canals, ports, etc.)

    Intended to prevent carriers from taking advantage of shippers while ensuring long-term financial stability for carriers

    Regulation time period

    1800's - The rise of steamships and railroads created immense wealth and monopolies (e.g., Commodore Vanderbilt and the railroad "barons")
    1870's - Granger laws regulated the Railroads
    1887 - Interstate Commerce Act created the Interstate Commerce Commission (ICC) to oversee interstate transportation
    Primarily to stop the railroad monopolies
    1920 - Transportation Act changed the Interstate Commerce Act
    1935 - Motor Carrier Act brought motor carriers under Interstate Commerce Commission control.
    1940 - Transportation Act established Interstate Commerce Commission control over domestic water transportation
    1958 - Federal Aviation Act created air traffic and safety regulations and the national airport system.
    1966 - Department of Transportation Act established to coordinate all transportation-related matters.
    By 1970, ICC had oversight of
    100% of rail and air
    80% of pipeline
    43% of trucking
    6% of water carrier operations

    1920 - Merchant Marine Act

    Only U.S.-built ships operating under a U.S. flag with U.S. crews can ship goods directly from a U.S. port to another U.S. port
    The thought at one time was that such a law would promote U.S. shipping by providing preferential treatment of US vessels over "foreign" vessels.

    2000 - Electronic Signatures in Global & National Commerce Act

    Gave digital signatures legal status

    2000 - Continued Dumping and Subsidy Offset Act

    Fines for artificial underpricing and "dumping" of foreign goods in U.S. markets. Repealed effective October 1, 2007

    2001 - Patriot Act

    Increased inspections at ports, airport security, and increased security at border crossings
    C-TPAT, CSI, etc.

    Transportation Deregulation

    1976 - Railroad Revitalization and Regulatory Reform Act
    Railroads could change rates without ICC approval

    1977 - Air freight deregulated

    1980 - Motor Carrier Act deregulated the motor carrier industries
    Entry restrictions for new businesses were relaxed
    Restrictions for types of freight and range of services were abolished
    Individual carriers were given the right to price their services
    Trucking industry's collective rate-making practices were abolished

    Staggers Rail Act deregulated the rail industry

    Provided railroad management with freedom necessary to revitalize the industry
    Rail carriers were authorized to use selective pricing to meet competition and cover operating costs
    Carriers were given increased flexibility with respect to surcharges
    Contract rate agreements between individual shippers and carriers were legalized
    Rail management given liberal authority to proceed with abandonment of poorly performing rail service, i.e., eliminate unprofitable routes.

    1984 -- Shipping Act

    1984 - Shipping Act
    Allowed ocean carriers to pool shipments, assign ports, publish rates, and enter into contracts with shippers

    1995 ICC Termination Act and the 1998 Ocean Shipping Reform Act

    ICC was eliminated and a requirement for ocean carriers to file rates ended

    Transportation Regulation Pro's and Con's

    Pro's - Regulation tends to assure adequate transportation service throughout the country. Protects consumers from monopoly pricing, ensures safety, and creates liability.

    Con's - Regulation discourages competition and does not allow prices to adjust based on free market demand or through negotiation.

    -U.S. transportation industry remains mostly deregulated

    Transportation security

    2001 - Aviation and Transportation Security Act created the Transportation Security Administration (TSA)
    2003 - Department of Homeland Security (DHS) was created to provide overall U.S. security leadership.

    Transportation Structure

    Consists of rights-of-way, vehicles (conveyances) , and carriers operating within five basic modes

    A mode identifies

    -a basic transportation method or form
    Motor Carrier / Truck

    Motor carrier has expanded rapidly since the end of world war II

    -81% US Freight expense
    -Nearly 1 million miles of highways in U.S.
    Key benefits include
    -Speed of transit
    -Ability to operate door-to-door
    -More efficient than rail for small shipments over short distances
    -Dominate freight moves under 500 miles and from manufacturing to wholesalers to retailers
    -Many companies run their own truck fleets as well (e.g., Walmart)
    Most flexible mode of transportation.
    Carries > 80% of U.S. Freight.
    Competes with Rail and Air for short-to-medium hauls.

    General freight carriers

    - carry the majority of goods shipped. Includes common carriers.

    Specialized carriers

    - transport commodities like liquid petroleum, household goods, building materials, and other types of specialized items.

    Less-than-truckload (LTL)

    carriers move small shipments, when you don't have enough to fill a truck. Stop at depots and transfer locations to match load to the final location.

    Truck-load (TL)

    carriers are used when you have enough to fill the truck, or you don't want other suppliers cargo on your truck (security, faster delivery)


    ex: Walmart
    Carrier having their own tractors and trailers and responsible for maintenance of all their equipment. Traditionally, truckload carriers look to replace tractors every 3-4 years and trailers every 7-8 years.


    Person or company who does not own their own equipment. They contract with an asset-based carrier (or an owner operator) for the carriage of goods

    Owner operator:

    Person who owns his own tractor and is responsible for the maintenance and upkeep of his tractor.
    Types of owner operators:
    Sole source
    Free agents


    Max Freight Weight: ~45,000 pounds
    Entire truck weight cannot exceed 80,000 pounds
    Typical tractor weighs 35,000 pounds
    Standard trailer: 53' Long x 8'6" Wide x 9' High
    Max Cube Utilization: 3,509 cube
    Max Pallets: 60 (assuming 40"L x 48"W x 48"H)
    Booking a shipment requires at least 24 hours advance notice
    Team Service: roughly 10% - 15% up charge on standard rate (depending on the carrier)
    Rate structure - flat rate or cost per mile
    Drop trailers vs. live load/unload

    Hours of Service (HOS) Rules STOP HERE

    Total on-duty hours = 14 hours
    Consecutive days hours = 11 hours
    Mandatory break = 30 mins after 8 hours
    On-duty "retstart" = 34 consectutive off duty hours
    Penalities for not following rules for both DRIVERS and COMPANIES

    Commodities are evaluated and grouped based on four characteristics:

    Density (Primary) - Space in relation to its weight
    Stowing - Ability to load other freight in the same trailer
    Handling - How difficult it is to actually handle the freight
    Liability (value and risk) - Potential claims from damage or loss

    18 classes: (50-500)


    Each carrier has a minimum charge for LTL.
    Some have one overall minimum charge, but many carriers are more specific for minimum charges for hard to reach destinations.


    Rail has historically handled the largest number of ton-miles within continental US 9% total freight expense.

    -Track mileage has declined by over half since 1970 (until 2005 and then stabilized)
    -Traffic shifted from broad range of commodities to hauling specific freight in traffic segments (bulk items, heavy items)

    -New technologies include articulated cars, unit trains and double-stack cars


    Rail ish more

    Compete for transportation when the distance is long and the shipments are heavy or bulky.

    Rail is slow and inflexible

    Rail carriers have begun purchasing motor carriers and can now offer point-to-point pickup and delivery service known as trailer-on-flatcar (TOFC) service.

    Rail companies use each other's rail cars. Keeping track of rail cars and getting them where needed can be problematic.

    Railroad infrastructure and aging equipment are also problems for the railroads.

    Paired with trucks for door-to-door delivery


    Accounts for only 1% of intercity ton-miles
    Fastest of all the modes
    Fixed cost is 2nd lowest
    Variable costs are extremely high

    Air-shipped products are generally:

    High value
    High priority
    Extreme perishability

    More AIR shit

    Expensive relative to other modes of transportation
    Cannot carry extremely heavy or bulky cargo.
    Mostly for light, high value goods over long distances quickly.
    Half of the goods transported by air are carried by freight-only airlines, e.g., FedEx.
    Paired with trucks for door-to-door delivery

    Shipment size is > 150 lbs (70 KG)
    Parcel/Express is < 150 lbs
    Parcel is never on a pallet

    Who Uses Airfreight and Why?

    Medical Device & Diagnostics (MD&D)
    -Normal supply chain
    -Inventory levels
    -Product value supports the cost
    -Normal supply chain
    -Risk in transit
    -Freight characteristics
    -Product value supports the cost
    Consumer Products
    -Exception basis
    -Risk to customer launch/promotions
    -Unexpected demand


    -Has 2 separate operations
    -One for air
    -One for ground
    -Drivers are independent contractors

    -Has one operation for both air and ground
    -All drivers are UPS employees

    Characteristics of parcel

    Parcel Shipments are usually packages that weigh < 150 lbs
    There are multiple service levels
    Next Day, 2nd Day Air, 3rd Day Air, and Ground (1 - 5 days

    Pipeline accounts for about 68 percent of all crude and petroleum ton-mile movements in US

    Lowest per unit cost for transportation
    Highest fixed cost. Lowest variable cost of all modes
    Most reliable form of transportation
    Can operate 24 hours a day, 7 days a week
    No emissions
    No empty container or vehicle to return
    Little maintenance needed once the pipeline is running.
    Not flexible. Limited in the variety of commodities they can carry.

    -Materials are transported in a liquid or gaseous state

    Ocean mode is the oldest form of US transport dating back to the birth of our nation

    Percentage of ton-miles has stayed between 19 and 30% since 1960's
    Ranks between rail and truck in fixed cost
    Right of way (canals and rivers) maintained by Federal government


    Slow and inflexible
    Competes with rail and pipeline.
    Includes inland waterway, coastal and intercostal, and deep-sea.
    Inland waterway transportation is used for heavy, bulky, low-value materials (e.g., coal, grain). Barge
    Paired with trucks for door-to-door delivery.

    Stowage Planning

    is the act of allocating space to containers on board a container ship in the order of the discharge ports.

    -Scheduled list of ports that the ship will be calling at, in the order of rotation
    -A summary of the number of containers - size/type/weight of containers per port that are planned to be loaded on the ship
    -A summary of the number of hazardous, reefer and of dry containers per port that are planned to be loaded on the ship
    -A list and summary of containers that are on board after discharge of the containers at your port

    NVOCC (Non-Vessel Operating Common Carrier)

    A company (often a forwarding agent) who does not own or operate the carrying ship, but who contracts with a shipping line for the carriage of the goods.

    Steamship Line

    Asset based company operating the ships with whom both cargo owners (sometimes called BCO - Beneficial Cargo Owner) and NVOCCs contract with for the carriage of goods.

    Note, a steamship line cannot handle a LCL (less than container load) booking directly. A Freight Forwarder would need to be involved.


    Commonly used to mean the transportation of containerized cargo by specialized trucking companies between ocean ports or rail ramps and shipping docks in intermodal freight transport.

    Water/Ocean - Rates

    FCL (Full Container Load) is a cost per container.

    LCL (Less than Container Load) is a cost based on whichever is greater, the space in cubic meters or the weight in metric tons

    Demurrage = Holding a container at port beyond a certain time limit and incurring a penalty charge such as a daily rent after the free time ends. This is commonly referred to as storage when container is held at a rail yard.

    Per Diem = Holding a container off port beyond a certain time limit and incurring a penalty charge such as daily rent after the free time ends.

    Fuel (BAF) = Bunker is the type of fuel burned by vessels. BAF, or Bunker Adjustment Factor is a per container fee charged by the carriers for this fuel.


    interchange of equipment between differing modes of transportation to execute a single transport, which includes: rail, truck, or ocean.

    Rail and motor carriers or rail and water carriers can offer point-to-point pickup and delivery service
    Water and motor can offer point to point service for overseas manufacturers

    -RO-ROs or roll-on-roll-off containership truck trailers and containers can be directly driven on and off the ship without the use of cranes

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