
63 True/False questions
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Commodity Rates → are for a large quantity of product which moves between two locations on a regular basis
-Typical for most rail freight today -
Detention (motor) → -charge for holding a truck for more than a few hours before unloading
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Reactive approach → replace the 18 traditional freight classifications of the National Motor Freight Classification (NMFC) with five cube groupings
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Auditing → involves the shipper notifying carrier that it needs a specific shipment to move quickly and with no delays
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1. Economic Drivers: Liability → -Liability includes product characteristics that can result in damage
-Carriers must pay for liability insurance or accept financial responsibility -
Administrative Activities: Control → Control responsibilities include tracing, expediting and driver hours of service administration
-Tracing
-Expediting
-Tracking driver Hours of Service (HOS) -
4. Rates and Rating Mechanics → is based on the classification rating, shipment origin, and destination
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Documentation → Primary purpose of documentation is to protect all parties involved in the transaction
-Bill of Lading
-Freight Bill
-Shipment manifest -
Pricing Practices → Pricing practices have a direct impact on logistical operations
-Traditionally, logistics pricing was "BUNDLED" into the price for a product or service
-Trend has been to DE-BUNDLE these charges so they become separate and visible to the customer
-Focus is still on DELIVERING VALUE to the customer -
Demurrage (rail) → represents a carrier's method of charging for transportation services rendered
Can be prepaid or collect -
Freight Forwarders: → businesses that consolidate small shipments from various customers into bulk shipment for a common carrier to transport
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1. Economic Drivers: Market Factors → -Volume is important because vehicles are typically constrained more by cubic capacity than by weight loaded
-Cost per unit of weight declines as product density increases
-Higher density products allowed fixed transport costs to be spread over more weight -
Transit Services → can be negotiated if a shipper needs to use a combination of carriers
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-Joint costs have a significant impact on transportation charges because → -carrier quotations must include implied joint costs.
-Either a back-haul shipper must be found
-Or the joint cost must be covered by the original shipper from A to B and built into the quote. -
-Cube Rates → are the price in dollars and cents per hundredweight to move a specific product (i.e., class) between two locations
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1. Economic Drivers: Density → Weight is the second major factor for most transportation costs
-Cost per pound decreases as weight increases until the carrier vehicle is full
-Relationship starts again for the next vehicle load
-Small loads should be consolidated into larger loads to maximize scale economies -
Tracing → is procedure to locate lost or late shipments
i.e., tracking with RFID and GPS systems
Proof of delivery -
Freight-All-Kind (FAK) → rates allow a mixture of different products to be transported under a negotiated rating
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tapering principle → Pricing practices have a direct impact on logistical operations
-Traditionally, logistics pricing was "BUNDLED" into the price for a product or service
-Trend has been to DE-BUNDLE these charges so they become separate and visible to the customer
-Focus is still on DELIVERING VALUE to the customer -
Product storage services → -Demurrage (rail) charge for holding a railcar for more than 48 hours before unloading
-Detention (motor) charge for holding a truck for more than a few hours before unloading -
-Class Rates → can be negotiated if a shipper needs to use a combination of carriers
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An effective logistics strategy must recognize four interrelated topics → 1.) Economic Drivers
2.) Costing Methods
3.) Carrier Pricing Strategy
4.) Rates and Rating Mechanics -
-Density → refers to the ability of product to be placed in itself or collapsed for better stowability
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Exception Rates → replace the 18 traditional freight classifications of the National Motor Freight Classification (NMFC) with five cube groupings
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1. Economic Drivers: Distance → -Volume is important because vehicles are typically constrained more by cubic capacity than by weight loaded
-Cost per unit of weight declines as product density increases
-Higher density products allowed fixed transport costs to be spread over more weight -
3. Carrier Pricing: Net-Rate Pricing Strategy → -Net-rate is a simplified pricing format made possible by deregulation
-Established discounts and accessorial charges are rolled into one all-inclusive price
-Pricing is tailored to the individual customer's needs -
-Tracking driver Hours of Service (HOS → ) to comply with federal regulations
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3. Carrier Pricing: Combination Strategy → -Combination price is set at a value between cost-of-service minimum and value-of-service maximum
-Most carriers use some form of combination pricing
Common in highly volatile markets and changing competitive situations -
Joint Rates → replace the 18 traditional freight classifications of the National Motor Freight Classification (NMFC) with five cube groupings
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Key elements of operational management → -Equipment Scheduling and Yard Management
-Load Planning and Routing
-Advance Shipment Notification (ASN)
-Movement Administration
-Transportation Management System (TMS)
-An integral information technology solution to help oversee day-to-day activities -
Shippers can reduce their risk of liability by → -Liability includes product characteristics that can result in damage
-Carriers must pay for liability insurance or accept financial responsibility -
Administrative Activities: Auditing & Claims Administration → Auditing and claims administration is needed when services are not performed as promised
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Transportation Administration Activities → Operational Management
Consolidation
Negotiation
Control
Auditing and Claims Administration -
Special Rates and Services (continued) → -Diversion and re-consignment allows changing the destination and/or consignee prior to arrival at the original destination
-Split delivery is delivering portions of a shipment to multiple destinations -
2. Costing Methods: Fixed Costs → -Fixed costs must be paid even when the carrier is not operating its equipment
-Fixed costs are not influenced by shipment volume
-Includes vehicles, terminals, rights-of-way, information systems, and support equipment
-Must be covered by contribution above variable costs on a per shipment basis -
Special Rates and Services → -Diversion and re-consignment allows changing the destination and/or consignee prior to arrival at the original destination
-Split delivery is delivering portions of a shipment to multiple destinations -
1. Economic Drivers Influence Rates → Distance
Weight
Density
Stowability
Handling
Liability
Market -
Claims can be → -Loss and damage resulting from poor performance
-Overcharge/undercharge when amount billed is different from expected -
Shipment Manifest → lists the individual stops or consignees when multiple shipments are placed on a single vehicle
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Freight Bill → refers to the ability of product to be placed in itself or collapsed for better stowability
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Administrative Activities: Consolidation → -Seeking win-win agreements where both shippers and carriers share transportation consolidation and productivity gains
-Collaborative negotiation: Both parties seek the lowest total logistical cost consistent with the shipper's needed service level (i.e. delivery time) -
Special Rates and Servicess → include (see next few slides)
FAK rates, Joint rates, Transit services, Split delivery, etc. -
Shipper Associations and Agents → : groups of shippers who employ an agent to consolidate purchases and shipments for them
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-Classification → are the price in dollars and cents per hundredweight to move a specific product (i.e., class) between two locations
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Brokers: → is procedure to locate lost or late shipments
i.e., tracking with RFID and GPS systems
Proof of delivery -
2. Costing Methods: Variable Costs → -Variable costs change in a predictable, direct manner in relation to some level of activity
-Variable costs in transportation are only incurred if you operate the vehicle
-Transport rates must cover these at the very least!
-Generally measured per mile or per unit weight or both
e.g., per ton-miles transported -
Expediting → is checking freight bills to ensure accuracy
Pre-audit determines proper charges prior to payment
Post-audit does the same after payment
Pay particular attention to accessorial charges ! -
Bill of Lading (BOL) → is the basic document utilized in purchasing transport services
Serves as a receipt and documents products and quantities shipped
Specifies terms and conditions of carrier liability -
1. Economic Drivers: Stowability → -Liability includes product characteristics that can result in damage
-Carriers must pay for liability insurance or accept financial responsibility -
Nesting → refers to the ability of product to be placed in itself or collapsed for better stowability
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3. Carrier Pricing Strategies → -Combination price is set at a value between cost-of-service minimum and value-of-service maximum
-Most carriers use some form of combination pricing
Common in highly volatile markets and changing competitive situations -
1. Economic Drivers: Weight → Weight is the second major factor for most transportation costs
-Cost per pound decreases as weight increases until the carrier vehicle is full
-Relationship starts again for the next vehicle load
-Small loads should be consolidated into larger loads to maximize scale economies -
Administrative Activities: Negotiation → Control responsibilities include tracing, expediting and driver hours of service administration
-Tracing
-Expediting
-Tracking driver Hours of Service (HOS) -
3. Carrier Pricing: Cost-of-Service Strategy → -Value-of-service price is based on value as perceived by the shipper rather than the carrier
-Higher margins than cost-of-service pricing
-Depends on the value of the goods being shipped
-Used for high value goods or when no competition exists
e.g., 1980's FedEx overnight delivery -
-Rate Determination → is based on the classification rating, shipment origin, and destination
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2. Costing Methods: Common Costs → -Joint costs are unavoidably created by the decision to provide a particular service
-For example, when a carrier elects to haul a truckload from point A to point B, there is an implicit decision to incur a joint cost for the back-haul from point B back to point A. -
Pricing Fundamentals of F.O.B. pricing → Delivered pricing — the seller includes transportation in the product price
Single Zone delivered pricing
Buyer pays a single price regardless of where they are located
Example, USPS First class letters
Multiple Zone pricing
Seller charges different prices for different geographic areas
Parcel carriers use this
Base Point pricing
Final delivered price is determined by the product's list price plus transportation cost from a designated base point -
2. Costing Methods: Joint Costs → -Fixed costs must be paid even when the carrier is not operating its equipment
-Fixed costs are not influenced by shipment volume
-Includes vehicles, terminals, rights-of-way, information systems, and support equipment
-Must be covered by contribution above variable costs on a per shipment basis -
3. Carrier Pricing: Value-of-Service Strategy → -Combination price is set at a value between cost-of-service minimum and value-of-service maximum
-Most carriers use some form of combination pricing
Common in highly volatile markets and changing competitive situations -
4. Rates and Rating Mechanics → is based on the classification rating, shipment origin, and destination
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Pricing Fundamentals of Delivered Pricing → F.O.B (freight on board) pricing aka "free-on-board"
F.O.B. Origin — seller states price at point of origin, and agrees to load a carrier, but assumes no further responsibility. Buyer selects carrier and mode, pays transportation and assumes the risk for in-transit loss or damage
F.O.B. Destination — seller arranges for transportation and adds charges to the sales invoice. Title does not pass to the buyer until delivery is completed -
Proactive → is procedure to locate lost or late shipments
i.e., tracking with RFID and GPS systems
Proof of delivery -
1. Economic Drivers: Handling → -Volume is important because vehicles are typically constrained more by cubic capacity than by weight loaded
-Cost per unit of weight declines as product density increases
-Higher density products allowed fixed transport costs to be spread over more weight