Transportation : The Backbone of Logistics

Freight Management

Rate Negotiation

Claim Administration

Transport Mode & Mix Decision

Route PlanningShipment Scheduling

Carrier Evaluation &

Selection

Documentation

• “The process of moving an item from point A to point B.”• “Safe, efficient, reliable, and sustainable movement of persons

and goods over time and space”.

• Transportation in Logistics: The operation of transportation determines the efficiency of moving products. The progress in techniques and management principles improves the moving load, delivery speed, service quality, operation costs, the usage of facilities and energy saving. Transportation takes a crucial part in the Logistics Operation. Therefore, transportation is the base of efficiency and economy in business logistics and expands other functions of logistics system

Transportation-Meaning and Definition

Transportation: An overview• Transportation is the most visible logistic operation

(approx 40-50 % of total Logistics cost)• A good indicator to measure the Economic, Social &

Commercial progress of a country.• Modes of Transportation can be categorized as Roadways,

Railways, Waterways, Airways, Pipelines & Ropeways.• It facilitates production by moving the various means of

production.• Serves to link the facilities of the firm which are

geographically distributed.• It directly and indirectly accelerate employment.

Roadways

• Benefits/ Advantages:– Door-to-door service– Flexibility– Reliability– Can reach remote locations– Speed

• Challenges:• Multi point octroi• Multi point police checks• Unauthorized local levy• Poor conditions of road• Mostly unorganized

Roadways

• National Highways=96,260 (approx. as of 2015)• State highway= 1,80,000 (approx)• Operating cost of truck=Rs. 25-30 per KM

(approx)

RAILWAYS• Good for Larger loads, long distance transportation.• Transport all types of goods-mostly the bulk items like Coal, Iron

ore, Cement, Fertilizers, Petroleum, Heavy Machineries, Raw materials, Finished products, live cattle etc.

• High fixed cost due to infrastructure of railway tracks etc• Variable cost reduces as compared to other modes• Slow speed due to consolidation of wagons• Monopoly Carrier • Route / service limitations can be over come by multimodal

transportation.

Railways• No of stations= (around) 7,112• Rail Network= (around) 115,000 KM(Track), 65,808 KM (Route)• Broad gauge (1,676 mm (5 ft 6 in)) lines= 105,000 Km• Meter Gauge (1,000 mm (3 ft 3 3⁄8 in))• Standard Gauge (1,435 mm (4 ft 8 1⁄2 in))• Narrow Gauge (762 mm (2 ft 6 in))

• No of Wagons=2,39,281 (approx.)

MODES OF TRANSPORTATION : AIRWAYS

• Fastest and less hazardous.• Fixed cost is little low than other • High variable cost due to fuel, maintenance, labour

USED FOR lightweight, high value and highly perishable items. urgent delivery critical maintenance passenger, cargo etc

DisadvantageOverall HIGH COSTWEATHER DISTURBANCELimited routs

Seaways

Used mostly for International trade. Types-Tankers, Dry bulk carriers, Container ships and

Special vessels India has around 55 shipping companies with 510

ships Major items are- crude oil and other petroleum

products, Iron ores, Coal, Food grains etc

MODES OF TRANSPORTATION

MODES OF TRANSPORTATION : Pipeline Utilized for fluids, sewages, gas, chemicals etcPrivately owned or hired

Advantage-• Available all the time• Lower variable or operating cost • Large quantities in a single continuous shipment• Protection provided by pipeline

Disadvantage-• Limited to routes• Limited with respect to commodities• Highest investment cost or fixed cost

MODES OF TRANSPORTATION

MULTIMODAL OR INTERMODAL:

• COMBINING OF 2 OR MORE MODES OF TRANSPORTATION

• SERVICES LINKING 2 NODAL LOCATIONS

• REASONS: LIMITED ACCESSIBILITY OF RAIL, WATER, PIPELINE & AIR MODES

• Eg. COMBINATION OF RAIL & ROAD MAY PROVIDE THE LONG DISTANCE ECONOMY OF RAIL & HIGH ACCESSIBILITY OF ROAD TOGATHER

• Eg. RAIL-WATER COMBINATION COULD YIELD THE SPEED & LOWER COST

• DISADVANTAGE : TRANSFER OF CARGO FROM ONE MODE TO ANOTHER BUT COULD BE SOLVED BY USE OF CONTAINERS

Cost Structure For Each Module:Mode Fixed Costs Variable Costs

Rail High- Equipments, Terminals , Tracks ,etc

Low

Road Low-Highway provided by government Medium-Fuel , Maintenance, etc

Water Medium-Ships and Equipment Low-As capacity is huge

Pipeline Highest-Right of the way , construction, Equipment for control station and Pumping capacity

Lowest-Insignificant labour costs

Air Low-Aircraft and cargo handling systems

High- Fuel, labour, Maintenance

Principles of Transportation

Principles of Transportation

Economy of Scale

Economy of Distance

PRINCIPLES OF TRANSPORATION1. Cost of transportation decrease with increasing loads &

increasing distance of transportation

Eg. 10 kg shipment cost will be less per kg. than 5 kg. shipment, because cost incurred in executing an order does not vary much with the size of the order with most cost components like order preparation, invoicing & collecting the shipment remaining fixed irrespective of shipment size.

Also transportation vehicles having larger holding capacity cost less than those with smaller

2) PRINCIPLES OF TRANSPORTATION DISTANCE

• Unit cost of transportation decreases with increasing distance in transportation

• Same load transported in one step across 1000 km cost less than transporting load in two steps of 500 km each across the same 1000 km because of double loading & unloading charges.

• The two principles state that transportation management decisions should aim to maximise size of load & distance of shipment in order to obtain cost benefits, taking care of customers requirements & satisfaction.

TRANSPORTATION TERMS

• Consignment (GOODS SHIPPED)

• Transportation mode (Form)

• Container (large box)

• Rights-of-way (legally permitted routes)

• Consignor (sender of goods shipment, seller)

• Consignee (receiver of goods shipment, buyer)

• Carrier (services of transporting goods)

• Public carrier (services to general public at non discriminatory pricing)

• Private carrier (services to own organisation)

TRANSPORTATION TERMS

• FRIGHT FORWARDERS (CONSOLIDATE SMALL SHIPMENTS INTO LARGE ONES– FORWARD TO COMMON DESTINATION)

• BILL OF LADING ( DOCUMENT REPRESENTING CONTRACT BETWEEN BUYER & SELLER, GIVES DETAILS TO SHIPER,RECEIPT OF GOODS & CONFERS RESPONSIBILITY TO CARRIER FOR TRANSRORTATION BY LEGAL TRANSFER OF OWNRSHIP)

• FREIGHT BILL (INVOICE OF THE CARRIER, MAY BE PREPAID OR ON TIME OF DELIVERY)

• Multimodal transport (also known as combined transport) is the transportation of goods under a single contract, but performed with at least two different means of transport; the carrier is liable (in a legal sense) for the entire carriage, even though it is performed by several different modes of transport (by rail, sea and road, for example)

Multimodal Transport

Intermodal combinations

SPECIFIC COMBINATIONPiggy Back : Piggyback transportation refers to the transportation of goods where one transportation unit is carried on the back of something else.Trailer-on-Flatcar (TOFC) “Piggybacking” :The goods are packed in trailers and hauled by tractors to the railway station. At the station, the trailers are moved onto railway flat cars and the transport tractors, which stay behind, be then disconnected. At destination, tractors again haul the trailers to the warehouses of the consignee.

• COFC (Container-On-Flatcar): This type of piggybacking facilitates multiple containers to be transported on a flat cars.

• Roadrailers: (For bi-modal transportation)

– These are specially designed trailers which can run on road as well as on rails.

SPECIFIC COMBINATIONFishy Back: It is a combination of road and water transport. Fishy back/ train ship/ containership are examples of the oldest mode of the intermodal transport. They utilize waterways, which are one of the least expensive methods for line- haul movement. The fishy back, concepts load a truck trailer, railcar, or container on to ship for transportation.

Birdy Back:It is a combination of road and airways and is generally used in International shipments Air- truck movements usually provide service and flexibility comparable to straight motor freight.

Intermodal (conti..)

Land Bridge (TranShip): A variant of this intermodal option is the “LAND BRIDGE” concept, which moves containers by a combination of sea and rail. The land bridge concept is based on the benefit of ocean and rail combination that utilize a single tariff, which is lower than the total cost of the separate rates. The-goods can be transported by water transferring the shipment to surface transport and again finish destination will be placed on a rail car and transported to Chennai from where it will again be loaded on a vessel for transferring to say port Blaire.

ROLL-ON ROLL-OFF (RO-RO)RORO means Roll-on/roll-off, where loaded trucks are

directly carried by railway wagons to their destination. Ships also act as a ferry for loaded trucks. The trucks Drives

onto the ship, the ship sails to the destination Port, and the trucks drives off the ship to deliver the goods.

TRANSPORTATION MANAGEMENT DECISIONS

It has two stage process

1) Mode of transportation selection:-

Based on factors affecting desired performance , the total logistics performance & cost incurred in it.Speed of transportation affects lead time of inventory, availability to firm, inventory carrying cost, stock out cost

2) The carrier …whether Common (Public) , Contract, exempt or Private:-

• Reliability or consistency of lead time affects inventory carrying cost & stock out cost

• Safety• Capability – ability to transport different products• Flexibility – door to door delivery• Capacity – amount that can be carried in one trip• Frequency

Relative Opening Characteristics by Transportation Modes:Operating

CharacteristicsRail Truck Water Pipeline Air Remarks

Speed 3 2 4 5 1 Air is the fastest

Availability 2 1 4 5 3 Road is the best since they can drive from origin to destination

Dependability 3 2 4 1 5 Pipeline ranks best-As the service is continuous and there is no stoppage due to traffic or congestion

Capability 2 3 1 5 4 Sea is the best-Can handle all types and size of cargo

Frequency 4 2 5 1 3 Pipeline is ranked best-As the movement is continuous

Composite Score 14 10 18 17 16 Lowest rank is the Best-

LEGAL GROUPING OF CARRIERS

• Common (Public)carrier :1) Most frequently employed legal category for transportation resources

2) Common carrier is a firm that transports for revenue at any time & at any place within jurisdiction

3) Required to published all rates charged for this service & should be similar for similar services.

4) Authorised to offer transport for hire upon receiving a certificate for public convenience & need.

LEGAL GROUPING OF CARRIERS

• CONTRACT CARRIER1) Authorised the transportation of specific items over

specified routes.

2) Arises from contractual arrangements between two parties i.e. the shipper & the carrier

3) Contract provides shipper with defined transportation service at agreeable price

4) Unlike common carrier they are not required to charged the same rate for equal service

LEGAL GROUPING OF CARRIERS

• EXEMPT CARRIER:

1) do not fall under the umbrella of direct regulation w.r.t. Pricing policies & operating rights

2) restricted to law of that state in which they are operated

3) transported commodities such as agriculture Products

4) exemptions may also be granted for specified areas such as within the city and commercial areas of the activity

LEGAL GROUPING OF CARRIERS

• PRIVATE CARRIER:

1) originally consisted of transportation resources that are controlled by the firm through ownership or lease.

2) permitted to use owner operators or others outside sources of vehicles & drivers

3) restricted in that the materials being shipped must be owned by the firm & the transportation of the materials must be incidental to the primary business of the firm

Transportation Costs• Transportation cost is the cost occurred during

transporting the freight from one place to another. The followings are the elements of transportation costs-

1. Tariff of transportation mode: It depends on-– Nature of the product– Distance to be covered– Quantity of the shipment– Transit time– En route handling needs– Trade relationship

Transportation Costs (Cont..)

2. Transit Time Cost:– Working Capital cost– Customer service cost

3. Obsolescence & Deterioration Cost:- Changes in physical feature of the products

resulting in value reduction, especially perishable items like Milk, Vegetables, Fruits, Fish, Egg etc.

3. Protective Packaging Cost-– To avoid breakage and pilferage– To avoid damage due to rain etc– It depends on the mode of transport or multi

modal needs4. Transit Insurance Cost-

-To cover the loss during transit5. Miscellaneous Cost-

- Toll tax, Local levy etc

Transportation Costs (Cont..)

• Nodal Network:- points or nodes are defined to enable

multi-stop pickup and delivery of consignments.

Hub & spoke Network: Hub and spoke network works like a hub

and spoke of a wheel. The hub acts like a central feeder point to the different distribution centers located across the geography.

Transportation networks

MILK RUN (concept for route planning)

• A milk run, in logistics, is a round trip that facilitates either distribution or collection.

• A milk run ensures that that minimum distance is travelled and the maximum demand is carried into the truck so as to meet both the demand requirement and effective transportation with least cost.

• This is applied where the load is scattered in many different places and in smaller units.

Transportation networks

• Direct shipment Network:– Different plant of suppliers to customers directly.

Supplier Customer

PLANT-A

PLANT-B

PLANT-C

Customer-1

Customer-2

Customer-3

• Direct Shipment With Milk Runs:– Collected from one or many en-route suppliers and delivered to

one or many en-route customers directly.

• Direct shipment via Distribution Centers:– Collected from one or many suppliers and delivered to customers

individually via distribution center.

• Shipment via Distribution Centers Using Milk Runs:– Collected from one or many suppliers and delivered to customers

using milk run concept via distribution center.

ContainerizationContainerization is a system of intermodal freight transport using intermodal containers (also called shipping containers and ISOcontainers) made of weathering steel.

The containers have standardized dimensions. They can be loaded and unloaded, stacked, transported efficiently over long distances, and transferred from one mode of transport to another—container ships, rail transport flatcars, and semi-trailer trucks—without being opened.

Containerization (Cont..)

• Container Dimension:– Length : 20Ft, 40Ft, 45 Ft– Width : 8Ft– Height: 8.6 Ft & 9.6Ft

– TEU (Twenty-foot Equivalent Unit):– It is a standard unit for describing a ship's cargo

carrying capacity, or a shipping terminal's cargo handling capacity. A standard twenty-foot (20x8x8.6 feet) container equals One TEU.

Benefits of Containerization

1.Secure the goods from damages like breakage & pilferage during transportation

2. Ease of Handling3. Lessen transit time due to fast loading, unloading,

checking etc.4. Less documentation5. Less Insurance cost due to low risk of loss.6. Improve overall efficiency in operation.7. It reduces overall transportation costs.8. Least requirement of protective packaging.

Types of containers• General purpose containers• Tank Containers• Refrigerated containers• High Cube containers• Ventilated Containers• Open-Top containers• Hard-Top containers• Flat containers• Platform containers

Challenges of Logistics

• Just in time requirement• High customer expectations• Uncertain demand• Vehicle breakdown• Customer line stoppage cost

Assignment Questions:

• Explain different modes of transportation with their benefits and limitations.

• What transport decisions should a manager take into consideration while selecting the transportation mode?

• Explain multimodal transportation.• Explain concept of containerization and its

benefits.