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Transportation is the largest expenditure in logistics.

Its manager is responsible for moving inventory


throughout a firm's supply chain to customers. Many traffic managers elect to use a combination of
private and purchased transportation services. In addition to transportation, many providers also offer a
wide variety of value-added services such as product sorting, sequencing, modification, and just in-tune
or guaranteed delivery. Precise product delivery helps a firm reduce inventory, storage, and materials
handling. Unless transportation is managed in an effective and efficient manner, procurement,
manufacturing and customer relationship management will not meet expectations.

TRANSPORT FUNCTIONALITY AND PARTICIPANTS

Functionality

Transportation provides two major logistical services: product movement and product storage.
Two significant logistical services are provided by transport: product motion and product storage.

Product Movement

Whether in the form of products, components, work-in


process or finished products, the fundamental value of transport is to transfer inventory across the supp
ly chain to specific locations. Transportation efficiency is essential for the management of procurement,
production and client relations. Transport also plays a key role in reverse logistics efficiency. Most
business activity could not work without reliable transportation. Transportation consumes resources in
terms of time, money and the environment.
Transportation has a restrictive component because inventory is usually inaccessible throughout the tra
nsportation process. Inventory captive in the transportation system is called in-transit inventory.
Naturally, executives strive to minimize in-
transit inventory when designing logistical systems. Advances in IT have considerably enhanced access t
o in-transit inventory and shipment arrival status by giving appropriate place and delivery times.

Transportation utilizes economic resources as well. Transportation costs are the result of driver labor, fu
el, vehicle maintenance, machinery capital, and administration. Furthermore, loss and harm to the prod
uct can result in important expenses.

Transportation has a direct and indirect impact on the environmental resources. Transportation is one
of the biggest gas and oil consumers in the U.S. economy in direct terms. Although as a consequence of
more fuel-efficient cars, the amount of fuel and oil consumption has increased, overall consumption
remains high. Indirectly, transportation impacts the environment through congestion, air pollution, and
noise pollution.
Product Storage

Provision of product storage is a less visible aspect of transportation. When a product is in a


transportation vehicle, it is being stored.
Transport vehicles may also be used at the origin or destination of the shipment for temporary product s
torage.
If the inventory involved is scheduled to be shipped within a couple of days, the cost of unloading, storin
g and reloading the product may exceed the temporary cost of using a vehicle for storage.

Another transportation service with consequences for storage is diversion. Diversion happens when the
location of the initial delivery is altered after shipping a item. For example, when shipping from Chicago
to Los Angeles, the destination of the product may be changed to Seattle during transit. Although costly,
when charging or unloading expenses, capability limitations and the ability to stretch lead times are
taken into account, item retention in rail cars may be justified from a complete price or efficiency
viewpoint.

PARTICIPANTS

Transportation decisions are influenced by six parties: (1) shipper, sometimes referred to as consignor;
(2) destination party, commonly called the consignee; (3) carriers and agents; (4) government; (5)
Internet; (6) the public. Figure 8.1 illustrates the relationship among the parties. To understand the
complexity of the transportation environment it is useful to review the role and perspective of each
party.

Shipper and Consignee


Shipper and consignee have a common interest in finishing a sale or purchase transactions.
Successful operations involve that products be moved from source to target at the smallest price within
a given moment. Pick-up and shipping time, travel time, loss and harm, invoicing and precise prompt
exchange of data are issues related to transportation that needs to be resolved.

Carrier and Agents

The carrier is a transportation service carrier. As a service business, to achieve efficient operatio
ns, carriers want to charge their customer for a group of shippers. Brokers and freight forwarders are ag
ents of transport facilitating carriers and customer matching.

Government

The government has a vested interest in transportation because of the critical importance or
reliable service to economic and social well-being. Government desires a stable and efficient
transportation environment to support economic growth.

Internet

A latest transportation industry growth is a broad range of Internet-based facilities. The main
benefit of Internet-based communication is the capacity of operators to exchange data with clients and
suppliers in real-time. Web-based enterprises typically provide two-types of marketplaces. The first is a
marketplace to exchange data with accessible deliveries to match carrier freight ability. The exchange of
information gives suppliers the chance to aggregate their purchases and recognize possibilities across a
broad spectrum of prospective suppliers.

Public

The final transportation system participant, the public, is concerned with availability, cost and
efficiency of education as well as preservation of the environment, safety and security. By buying
products, the public indirectly generates demand for transport. While it is essential for customers to
minimize travel costs, issues also include effect on the environment and safety.
Air pollution and oil spillage are important social issues related to transportation. Consumers eventually
pay the price of environmental effect and security. Transportation policy formation is complex because
of interaction between these six participants. This complexity often leads to conflicts between shippers,
consignees and carriers. Protecting the public interest was the historic basis for the involvement of
government in economic and social regulation.

From Regulation to a Free Market System

Because transportation has a major impact on both domestic and international commerce,
government has historically taken a special interest in both controlling and promoting transport
development. Following the passage of the Act to Regulate Interstate Commerce on February 4, 1887,
the federal government became active in protecting the public interest. The act established the
Interstate Commerce Commission (ICC) which had broad regulatory power regarding transportation. For
almost 100 years the federal and state governments determined who could provide transportation
services and price they could charge for their services. Widespread desire for deregulation in trucking
and railroads became official with the passage of the Motor Carrier Act of 1980 (MC 80) and the
Staggers Rail Act. While the ICC retained the right to protect the public against discriminatory practices
and predatory pricing, individual carriers were given the right to price their services.
On October 14, 1980, the railroad industry was deregulated by enactment of the Stagers Rail Act. The
dominant philosophy of the act was to provide railroad management with the freedom necessary to
revitalize the industry. In that respect, the most significant provision of the Staggers Act was increased
pricing freedom. In addition to price flexibility, railroad management was given liberalized authority to
proceed with abandonment of unprofitable rail service. The act also provided the framework for a
liberalized attitude toward mergers and increased the ability of railroads to be involved in motor carrier
service.
The authority of the ICC to regulate transportation was further modified by the passage of the Trucking
Industry Regulatory Reform Act of 1994. This act eliminated the need for motor carriers to file rates with
the ICC. Effective January 1 1996, the ICC was abolished by the passage of the ICC Termination Act of
1995. This act further deregulated transportation and established a three-person Surface Transportation
Board (STB) within the Department of Transportation (DOT) to administer remaining economic
regulation issues across the industry.
The arrival of the new millennium delivered some significant changes to transportation industry. The
Electronic Signatures in Global and National Commerce Act of 2,000 gave Electronic documents signed
by digital signature the same legal status as paper documents. The most significant changes were in
response to terrorism and the heightened transportation security of the United States following 9/11.
The USA PATRIOT Act increased inspection at ports, regulated airport screening, and heightened security
at land-based border crossings. This act resulted in widespread implementation of voluntary initiatives
between U.S. CUSTOMS and private industry known as Customs-Trade Partnership against Terrorism (C-
TPAT).
Other legislation in the new millennium has been the result of globalization. The continued Dumping
and Subsidy Act of 2,000, known as Byrd Amendment, was passed in response to artificial underpricing
and dumping of foreign goods in U.S. markets.
Another example of the impact of globalization on regulation is recent efforts to reframe the Jones Act.
The Jones Act mandates that only United States built-ships operating under a U.S. flag and with a U.S.
crew can ship goods directly from a U.S. port to another U.S. port. Opponents of this law argued that the
Jones Act unfairly limited global competition in U.S. domestic shipping. Since passage of the Staggers
Act, matters related to rail regulation have been administered by the United States Surface
Transportation Board.
In the motor carrier industry, the Department of Justice recently ruled that the “Reliance Network”,
which consists of seven regional less-than-truckload carriers who in combination offer nationwide
service, could collaborate in establishing a network-wide rate for all-less-than-truckload (LTL) shipments
and could collaborate in the solicitation of freight shipments.
TRANSPORTATION MANAGEMENT

Transportation management includes a broad range of duties in planning, implementation and


administration. As an essential aspect of their information technology approach, companies are
increasingly implementing Transportation Management Systems (TMS). A TMS generally defines and
evaluates transport policies and tactics proactively to determine the best method for shipping products.
As illustrated in table 8.10, this includes the capability to select transport models, plan loads,
consolidate shipments, route vehicles, and efficiently use transportation capacity. The fundamental
deliverables of a TMS are reduced cost and the increased ability to provide on-time delivery.

The generalized functionality of a TMS can be described in terms of five capabilities: (1) operational
management, (2) consolidation, (3) negotiation, (4) control, and (5) auditing and claims administration.

Operational Management
Key components of a TMS from an operational view are machinery scheduling and yard management, lo
ad planning, routing and advanced shipment notification (ASN), and movement administration.

Equipment Scheduling and Yard Management

One major responsibility of the traffic department is equipment scheduling and yard
management. A serious and costly operational bottleneck can result from transportation equipment
waiting to be loaded or unloaded. Proper yard management requires careful load planning, equipment
utilization, and driver scheduling.
Closely related to equipment scheduling is the arrangement of delivery and pickup appointments. To
avoid extensive waiting time and improve equipment utilization, it is important to preschedule dock
positions or slots. Increasingly, the effective scheduling of equipment is the key to implementing time-
based logistical arrangements. For example, cross-dock arrangements are totally dependent on precise
scheduling of equipment arrival and departure.

Load Planning

How loads are planned directly impacts transportation efficiency. In the case of trucks, weight and cube
capacity are limited. If multiple shipments are loaded on a single trailer, the planning of a trailer's load
sequence must consider the physical characteristics of the product and the size of individual shipments
as well as the delivery sequence.
Routing and Advanced Shipment Notification (ASN)

An important part of achieving transportation efficiency is shipment routing. From an administrative


viewpoint, the traffic department is responsible for assuring that routing is performed in an efficient
manner while meeting key customer service requirements. While the specifics of ASN documents vary,
their primary purpose is to allow adequate time to plan arrival, arrange delivery appointments, and plan
to redeploy the shipment’s content. How deliveries are planned must take into consideration special
requirements of customers in terms of time, location, and special unloading services.

Movement Administration

Traffic managers have the basic responsibility of administering the performance of for-hire and private
transportation. Effective administration requires continuous carrier performance measurement and
evaluation. Effective administration requires carrier selection, integration, and evaluation.
A basic responsibility of the traffic department is to select carriers to perform for-hire transport. Even
those with commitment to private fleets regularly require the supplemented services of common,
contract, and specialized carriers to complete transportation requirements.

Consolidation

At several different points throughout this text the importance of freight consolidation is discussed. The
fact that freight costs are directly related to size of shipment and length of haul places a premium upon
a freight consolidation. In terms made famous by the late President Truman, the buck stops here,
meaning traffic management is the business function responsible for achieving freight consolidation.
The traditional approach to freight consolidation was to combine LTL or parcel shipment moving to a
general location. The transportation savings in moving a single consolidated shipment versus multiple
individual, small shipments were typically sufficient to pay for necessary handling and local delivery
while achieving significant total cost reduction.
The shift to response-based logistics has introduced new challenges regarding consolidation. Not only
does the increase in small shipments result in higher transportation cost, it also translates to more
handling and dock congestion.
To control transportation cost when a time-based strategy is used, managerial attention must be
directed to the development of ingenious ways to achieve of transportation consolidation. To plan
freight consolidation, it is necessary to have reliable information concerning inventory status. From an
operational viewpoint, freight consolidation techniques are grouped as reactive and proactive. Each
type of consolidation is important to achieving transportation efficiency.
Reactive Consolidation
A reactive approach to consolidation does not attempt to influence the composition and timing
of transportation movements. The consolidation effort reacts to shipments as they come and seeks to
combine individual orders into larger shipments for line-haul movement. Perhaps the most visible
example of effective reactive line-haul is United Parcel Service’s nightly sortation and consolidation of
package freight for intercity movement.
From an operational viewpoint, there are three ways to achieve effective reactive consolidation: (1)
market area, (2) scheduled delivery, and (3) pooled delivery.
The most basic method of consolidation is to combine small shipments going to different
customers within a geographical market area. Rather, the overall quantity of shipments to a market area
provides the consolidation basis. Second, firms may elect to hold consolidated shipments for scheduled
delivery on specific days to given destination markets. Third, consolidation of small shipments may be
achieved by utilizing services of third-party logistics firm to pool delivery.
A strategy of holding shipments to specific markets for delivery on selected days each week is referred
to as scheduled area delivery. The scheduled delivery plan is normally communicated to customers in a
way that highlights the mutual benefits of consolidation. The shipping firm commits to the customer
that all orders received prior to a specified cutoff time will be guaranteed for delivery on the scheduled
day.
Participation in pooled delivery typically means that a freight forwarder, public warehouse, or
transportation company arranges consolidation for multiple shipper’s serving the same geographical
market area. Integrated service providers that arrange pooled consolidation services typically have
standing delivery appointments at high-volume delivery destinations. It is common, under such
arrangements, for the consolidation company to also perform value-added service such as sorting,
sequencing, or segregation of inbound freight to accommodate customer requirements.

Proactive Consolidation

While reactive efforts to develop transportation consolidations have been successful, two forces
are driving a more proactive approach. First, the impact of response-based logistical systems is creating
a larger number of small shipments. Second, proactive consolidation reflects the desire for shippers,
carriers, and consignees, to participate in consolidation savings.
An important step toward achieving proactive consolidation is preorder planning of quantity and timing
to facilitate consolidated freight movement. Buyer participation in order creation can greatly facilitate
proactive freight consolidation.
Significant freight consolidation opportunities also may exist if nonrelated firms can be coordinated.
Commonly referred to as multivendor consolidation, the general idea of grouping different shippers’
freight has always been integral to line-haul operations of LTL carriers. The new initiative is jointly
planning warehousing and order processing across different companies to facilitate such consolidation.
Creating such multivendor consolidation is a value added service offered by a growing number of ISPs.