TLMT600Wk5

5. An Overview of Transportation Management

The first section of the book provided a foundation for understanding the

domain in which transportation decisions are made and also previewed

some of the options available to shippers. We reviewed the various modes

of transportation, the economics of transportation operations, and the dif-

ferent forms of service. In this chapter, we synthesize the decisions that

shippers face in managing the transportation function in their businesses.

The decisions range from the strategic decisions associated with network

design, to the tactical considerations of how to best load a transportation

vehicle. Network design decisions crop up only infrequently when the dy-

namics of the business change, as with the pursuit of new markets or

when shipping volumes change among existing markets. On the other

hand, load preparation and routing decisions occur with each shipment.

This chapter reviews this range of decisions, with an emphasis on how

transportation interfaces with activities and decisions made in the do-

mains of logistics and supply chain management (SCM). Achieving inte-

gration among the various activities is essential for a high-performing

company and supply chain. A decision-making framework is introduced

to organize the flow of decisions from most strategic to tactical in nature.

Transportation Management Decision Making

In Chapter 1, “Transportation in Business and the Economy,” we estab-

lished the economic and strategic significance of transportation toward

the competitiveness and success of a company. Transportation is ordinar-

ily the largest single cost across all the logistics activities and thus rates

among the most important service dimensions for the company. Excellent

transportation service can portray the company as a reliable supplier.

Poor service suggests that the company is one to avoid.

In light of the vast array of decisions associated with transportation strat-

egy and operations, it is important to organize the decisions in some man-

ner. Figure 5-1 illustrates a decision flow that first concerns strategic de-

cisions, such as network and lane design, and then becomes more opera-

tional in nature. As the decision scope suggests, the more strategic deci-

sions tend to be macro, or large in scope, and affect many other decisions.

The micro decisions are not less significant, but they focus more on spe-

cific shipments. The next five sections of this chapter review these deci-

sion areas in detail.

Figure 5-1 Integrated transportation decision-making framework.

Network Design

The highest level of decision making and analysis in transportation man-

agement involves determining the locations for facilities in the network

design. The network consists of the shipper’s array of facilities, whether

manufacturing, distribution, or retail in nature. The facilities serve as the

company’s physical presence in the supply chain, linking the company to

suppliers (upstream) and customers (downstream). Many companies op-

erate multitier distribution channels as well, with the firm essentially

serving as its own sources of supply or points of use/consumption.

Transportation must be coordinated within these internal supply chains,

too. The essence of decision making at this high, strategic level is to

achieve the best possible connections that meet the service needs of the

focal company on the inbound side of the business and allow the com-

pany to successively serve customers downstream—and at the lowest

possible cost.

Some companies centralize their inventory, meaning that they hold in-

ventory in one or a few locations to serve a large market. This makes de-

termining where to position inventory easy. However, it does mean that

customers in far-flung regions might be disappointed if they have to wait

for deliveries. Imagine, for instance, that your company wants to serve

customers throughout South America. You elect to hold all your inventory

in one location, Sao Paulo, Brazil. Sao Paulo is the largest city on the conti-

nent and holds a central latitude for the South American market.

Customers in Sao Paulo and nearby Rio de Janeiro would agree that the

choice is a good one. However, customers in distant Bogotá, Colombia, or

Santiago, Chile, might think otherwise: They would face long order lead

times (the elapsed time from order placement to delivery). For this rea-

son, most businesses elect to stock inventory in several disparate loca-

tions to serve a large market such as South America.

The general premise of balancing service and cost has an extensive his-

tory. Many date the scientific approach to network design to the seminal

problem posed by Euler (1735), known as “Seven Bridges of Konigsberg.”

Even though Euler could not solve the problem of walking through the

town (present-day Kaliningrad, Russia) by crossing the seven bridges of

River Pregel/Pregola only once, he laid the foundation of using graph the-

ory to analyze transportation problems. During the twentieth century,

graph theory gave way to network analysis because of its systems

approach.

Transportation systems are considered spatial networks because of the

physical limitation of their designs. A transportation system often consists

of a node, which represents a location. The flow, or the amount of traffic

of a node, is often depicted by an arc that links the nodes.

Typology of Transport Networks

This section reviews different forms of transport networks:

Hub-and-spoke networks—Transportation networks that rely on a few

large nodes to direct and redistribute traffic to smaller nodes are often re-

ferred to as hub-and-spoke networks or a star network. At the very ex-

treme, an N node network can have N-1 links to connect every node with

a hub. Airlines, railroad, and freight companies use the hub-and-spoke

model to gain economies of scale in their operations. The hub-and-spoke

model allows for new nodes (spokes) to be created easily and connected

to the main hubs. The hubs aggregate the traffic of freight or passengers

from smaller nodes and tend to have high volume and high frequency of

traffic between the hubs. One of the biggest disadvantages is the creation

of a bottleneck, a single point of failure that can cripple the network. The

time required to move freight/passengers to their destination is higher

than in a point-to-point network. Airbus is taking advantage of the hub-

and-spoke model to fly passengers across the world by building the A380

and A350 models of planes.

Point-to-point networks—With point-to-point networks or mesh net-

works, each individual node is connected to every other individual node.

At a maximum, the number of links in an N network node is N(N-1)/2. In a

transportation network, only nodes that are efficient in terms of cost and

that carry substantial traffic connect to each other. For a long time,

Southwest Airlines connected routes on a point-to-point basis. The advan-

tages of this form of network are the elimination of a big central hub and

reduced travel time. A big disadvantage of this methodology is the de-

creased frequency of trips and the inability of very small nodes to con-

nect to a larger network. Boeing is relying on its 787 models of airplane to

connect point-to-point nodes. Figure 5-2 illustrates the differences in hub-

and-spoke and point-to point systems.

Figure 5-2 Hub-and-spoke system versus point-to-point system.

Distributed networks—The distributed network consists of nodes that

are connected based on prevailing demand and supply equilibrium. No

routes or schedules are fixed. Freight and passengers are taken from one

node to another based on the availability of demand and the ability of the

transport provider to generate revenues in excess of the costs. Sea and air

charters are excellent examples of distributed networks. The big disad-

vantage of a distributed network is the inability to predict accurate de-

mand in advance and, hence, plan for upgrading infrastructure at the

nodes.

Other ways of classifying networks include methods focused on the flow

of traffic:

Centripetal networks—These networks occur when the center of grav-

ity of different flows aggregates to a point. For example, the city of

Washington, D.C., has its center of gravity located near The Mall, where

tourists gather in large numbers and where the seat of the government

attracts employees and businesses. This tends to give the city a radial pat-

tern of flow, with smaller nodes feeding into the large center of gravity.

Centrifugal networks—The flows seen on a centrifugal network resem-

ble a grid pattern, with no specific node dominating the landscape. New

York is an example of a centrifugal network—no specific link dominates

the traffic, and the grid pattern prevents a build-up of traffic at any inter-

section. Figure 5-3 illustrates the differences in centripetal and centrifu-

gal networks.

Figure 5-3 Centrifugal network versus centripetal network.

The various models currently being used to solve transportation are de-

scribed next.

Optimization

When solving transportation problems specifically to allocate resources

between a set of origins and a set of destinations, optimization is com-

monly the preferred methodology. The objective of the model is often the

cost incurred in transporting the resources from each pair of origin-desti-

nation. The constraints are typically defined in terms of the capacities at

the origin, the destination, intermediary points, and the links. The main

advantage of using optimization techniques is the ability to evaluate all

possible routings before making the optimal choice. The disadvantage is

that the model needs to be as simple as possible to avoid tying up re-

sources of time and cost to solve the model. Also, not all constraints can

be modeled accurately.

Heuristics and Simulations

Transportation problems are often solved using “rules of thumb” or

heuristics. The most likely outcome is often modeled as a Monte Carlo

simulation to set up a base scenario. The data is then manipulated to look

at conditions of high or low traffic flows and the effect on time, money,

and congestion. The what-if scenarios generated by the simulation help

policy makers and planners anticipate any shortcomings in the network

and take corrective action. A big disadvantage of the methodology is the

danger of “garbage in, garbage out”: The integrity of the solution is only

as good as the efficacy of the rules used in generating the solution. Bad

data also tend to skew results in the wrong direction.

Regardless of the method employed, when optimization is achieved and

implemented, it becomes challenged immediately. Network analysis often

occurs in a single moment of time (although the analysis might require

several months to complete), and a design that was once optimal might

have shortcomings when it is implemented, given the dynamics of busi-

ness. Network designers often make an inherent assumption that what

has happened in the past will continue into the future, or they adapt their

forecasts to reflect anticipated volumes and shipping points. As noted,

many companies employ heuristics and simulations as supplemental

means of assessing alternative network designs. Yet without question, the

decisions of 1) how many facilities (nodes) to design into the logistics net-

work and 2) where to locate the facilities are among the most substantial

and critical a company can make. In real estate, it has long been believed

that the three most important components of success in that business are

location, location, location. The same can be said of SCM, for it not only

has service and cost implications for the business, but it also conveys an

important message to customers. Critical customers often require stock-

keeping locations near them, and the company’s own marketing and sales

organization backs up this assertion. Yet with each location come fixed

costs and the costs of operations.

With modern complexities, however, come solutions. Third-party logistics

companies (3PLs) offer a flexible solution to the network problem.

Today’s 3PLs are often willing to locate wherever a shipper requires for

as long as is necessary. In essence, leveraging the facilities of an out-

sourced party converts networks into flexworks. Shippers can more freely

enter and exit markets and use more or less space, as needed. These ar-

rangements also convert the company’s fixed costs of facilities into semi-

fixed and variable costs. The semifixed component is associated with the

guarantees that a 3PL might require to assume the risk of fixed costs

shifting from shipper to service provider. The 3PL would then likely

charge for the volume of freight serviced and the activities performed,

both on a variable basis.

Lane Analysis

After determining a network, attention turns to the flows among the facil-

ities, including flows from suppliers feeding the network, any intranet-

work moves, and flows outbound to customers. Here the network design

is put to the test. Again, the premise is to provide service that customers

demand at the lowest possible cost.

One way to lower costs is to utilize the vehicle capacity optimally to sup-

port the flows. Sending half-full (or less) vehicles into the market for de-

liveries is not an optimal use of transportation equipment. Similarly, car-

pooling or ride sharing is suggested for people commuting from nearby

homes to the same workplaces, to reduce the wastes of redundant travel;

it saves money and reduces congestion. The same idea applies to freight

transportation as well. Freight consolidation is the practice of combining

shipments for improved transportation utilization. Consolidation comes

in three forms:

Vehicle consolidation—Consolidating multiple customers’ orders with

stopoffs along the way for outbound deliveries, or consolidating multiple

suppliers’ shipments on the inbound side

Temporal consolidation—Advancing or delaying the shipment of an or-

der to allow for consolidation on either the inbound or outbound side of

the business

Inbound/outbound consolidation—Coordinating shipment receipt and

outbound delivery so that after an inbound shipment is unloaded, an out-

bound load can be sent on the same vehicle

Vehicle consolidation might involve converting multiple less-than-truck-

load (LTL) shipments into a single truckload shipment. The truckload car-

rier will charge its typical rate for the move from the origin to the fur-

thest destination. It will then charge for stopoffs and any out-of-route dis-

tance it must cover to accommodate the stops at the intermediate loca-

tions. The question is how the charge for the truckload with stopoffs will

compare to the sum of multiple LTL shipments. The timing and sequenc-

ing of deliveries must also be considered so that each shipment meets its

promised delivery.

Temporal consolidation can present opportunities when orders destined

for a single customer or multiple customers in a small region are placed

at different times, with distinct delivery dates/times. This typically results

in distinct shipments for each different order. However, it might be possi-

ble to combine the orders into a single shipment, even if it means advanc-

ing or delaying one or more orders to make this consolidation possible.

Clearly, the customer should be informed if the carrier entertains a

change in the delivery time to accommodate the consolidation.

Furthermore, the receiver should approve the prospective change.

Including the customer in the cost savings is one way to encourage the

customer to consider the joint shipment.

The challenge with these first two forms of consolidation is the difficulty

associated with scheduling multiple stops and ensuring that all customer

commitments can be met. Imagine, however, if there is a significant delay

at the first stop in a consolidated move. This delay is likely to put the re-

maining deliveries in peril of missing their delivery appointments.

Therefore, it is important not only to schedule the deliveries with preci-

sion, but also to reinforce discipline around the deliveries at the various

stops. Unfortunately, the timely turnaround of transportation assets at de-

livery points is often beyond the carrier’s direct control because the car-

rier is often at the mercy of the receiver to unload the freight, complete

the delivery, and send the driver to the next stop. With this in mind, ship-

pers must carefully consider the customers at the intermediate delivery

points that can jeopardize the deliveries to successive locations. Carriers

typically learn quickly where they can count on quick turns and where

they cannot. This suggests, however, that new delivery locations should

probably not factor into consolidated shipments until their reliability is

ensured.

Finally, inbound/outbound consolidation is most often found among

truckload, rail, and maritime (water) carriers. These carriers specialize in

making point-to-point deliveries. The significance of point-to-point deliv-

ery is that after a shipment is delivered to a customer, the carrier must of-

ten travel to another location to collect freight from another customer.

The greater the distance a vehicle must travel to claim the next load, the

more costs the carrier incurs. If a customer can send freight from the

same location that received a load from the carrier, the carrier will be in-

clined to offer a discount for providing revenues both coming to and go-

ing from the facility. The discounts might apply to the inbound or out-

bound load, or perhaps both loads. Truckload carriers, in particular, are

eager to offer discounts for shippers that offer inbound and outbound

loads in concert because they are the carriers most likely to incur empty

deadhead (nonrevenue) distance to the next shipper location. To achieve

such consolidations and discounts, the shipper must manage both the in-

bound and outbound flows. If a supplier arranges the company’s inbound

deliveries, coordination will be lacking—and so might incentives because

different parties are likely paying for the inbound and outbound freight.

Note that these three forms of consolidation are not mutually exclusive.

For instance, it is possible to design a series of inbound moves that em-

ploy vehicle and temporal consolidation at the same time, with

inbound/outbound consolidation occurring on the outbound trip.

To illustrate these forms of consolidation, examine Table 5-1. It lists sev-

eral inbound shipments to a facility in Columbus, Ohio, and an equal

number of outbound shipments from this same facility. The weight,

promised delivery date, and anticipated form of service are found with

each shipment. LTL refers to a shipment that weighs less than 8,000

pounds (in this example) and is expected to ship via LTL carriers.

Shipments of 8,000 pounds or more appear to be shipped via truckload

(TL) carriers. On the outbound side, some loads are also designated as 1-

D, meaning next-day service, and 2-D, meaning second-day delivery, for

time-critical deliveries. An understanding of the geography of the United

States is helpful in completing the exercise, just as it is essential to under-

stand the lanes over which any inbound shipment or outbound delivery

operates. With this understanding, one can explore possible ways to com-

bine shipments for consolidated volumes.

Table 5-1 Find the Opportunities for Consolidation

If we assume that a truck has capacity for up to 40,000 pounds of freight,

we can identify several prospects for consolidation. Figure 5-4 illustrates

some of the possibilities. Vehicle consolidation is possible with the in-

bound shipments from Kansas City, Missouri, and St. Louis, Missouri, be-

cause both are scheduled for delivery in Columbus on March 30. Note

that the St. Louis load is already designated as a truckload shipment,

given its weight of 14,000 pounds. However, the Kansas City shipment, at

6,000 pounds, is expected to travel by way of an LTL carrier. Instead, we

might consider arranging with a truckload carrier to collect the smaller

shipment in Kansas City and to travel east toward Columbus. When pass-

ing through St. Louis, the carrier could collect the 14,000-pound load and

then continue east to Columbus. The carrier would charge for the pickup

at the intermediate location (St. Louis), along with any out-of-route miles,

yet the cost of this combined shipment would likely be less than the com-

bined cost of the two independent shipments (the LTL shipment from

Kansas City and the TL shipment from St. Louis). In addition, the ship-

ment from Kansas City could occur faster via the truckload carrier be-

cause it would avoid the rehandling (loading/unloading/reloading) of

freight found in conventional LTL environments. This rehandling can

also cause damage because the risk of damage increases with each touch

placed on freight.

Figure 5-4 Examples of freight consolidation.

An opportunity for temporal consolidation arises with the outbound ship-

ments to Philadelphia, Pennsylvania, and Newark, New Jersey. The

Newark shipment is already designated for truckload delivery with its

10,000-pound load. Yet ample space remains to add the 125-pound ship-

ment to Philadelphia. This shipment was not anticipated to ship via 2-D

transit, but Philadelphia can be reached in 1-D from Columbus via stan-

dard truckload or LTL means. Companies often employ premium same-

day, 1-D, and 2-D services for small-volume shipments only to learn that

standard service would serve the purpose at a much lower cost. Such is

the case here: The Philadelphia shipment could “ride along” with the load

to Newark. As in the earlier vehicle consolidation example involving the

inbound loads from Kansas City and St. Louis, a single truckload truck

would be used for the Philadelphia and Newark shipments, with the

driver stopping in Philadelphia to drop off the small shipment. Again, a

stopoff fee and out-of-route distance fees would likely apply, so these

costs must be considered in the comparative analysis. Also, this delivery

might qualify as a temporal consolidation if it altered the original sched-

uled delivery times for either shipment. Both shipments have delivery

dates of March 30. However, to ensure that the larger shipment arrives in

Newark by March 30, it might be necessary to move the Philadelphia de-

livery date up to March 29, particularly if the Newark customer seeks de-

livery early on March 30. The adjustment of the delivery date would qual-

ify this combination as a temporal consolidation.

Inbound/outbound consolidation can occur if a truckload shipment

bound for Columbus can be turned around quickly upon arrival for an

outbound shipment that sends the truck and driver back in the direction

of the origin of the inbound shipment. Again, the premise in truckload is

to return the truck and driver back to the home terminal. Carriers re-

ward shippers that can provide revenue on these backhaul (return) trips.

Such appears to be the case with the March 27 inbound shipment from

Memphis, Tennessee. It should arrive in time for the truck to be unloaded

and then loaded with the outbound freight destined for Cincinnati, Ohio,

on March 29. Each shipment is scheduled to move truckload carriers. If

the customer were to schedule both shipments via the same carrier, the

carrier might reward the shipper with a discount on the inbound and out-

bound loads, particularly if the customer can make a commitment to find-

ing these opportunities on a regular basis. Note that the outbound ship-

ment does not return the truck and driver all the way back to Memphis,

but goes only partway, to Cincinnati. Yet even this short trip provides the

carrier with a convenient source of revenue. Furthermore, it gives the

carrier an opportunity to find freight in the Cincinnati area destined for

Memphis that would provide yet another revenue trip on the return. In

light of the uncertainty that carriers often face on backhauls, carriers

welcome convenient opportunities for earning revenue on these trips.

Figure 5-4 illustrates these three different forms of consolidation. Each

form of consolidation is designated by a different arrow in the figure.

Although not a consolidation, another opportunity for cost saving is

shown with the shipment from Columbus to Jacksonville, Florida. Here, a

70-pound shipment is scheduled for 1-D delivery. Yet if the inventory is

available on the current day (March 27), it can reach Jacksonville safely

by the delivery date (March 29) using standard delivery. This qualifies as

a class shift, changing the designation of the shipment from a premium

service arrangement to a standard service arrangement. It is not uncom-

mon for premium time-definite deliveries to cost 70 percent more than

standard service, thus encouraging companies to find these opportunities

to convert premium freight to reliable standard services.

As a final observation of the freight consolidation example, it is often pos-

sible to consolidate more than two shipments. Careful review of the ship-

ping data can reveal opportunities for several more consolidations, in-

cluding prospects for incorporating many different loads into a unified

inbound or outbound shipment. It is essential that freight consolidations

factor in 1) the timing of the loads, to ensure that the integrity of delivery

schedules remains intact, 2) the ability to allow different freights to share

capacity, and 3) the observation of weight and capacity limits. Hence,

freight consolidation is often conducted with the aid of information tech-

nologies, such as a transportation management system (TMS) and/or load-

planning software, by seasoned transportation professionals who can

make accurate calls on the viability of consolidation in light of the three

factors.

Consolidation is among the foremost considerations in lane analysis to

seek the desired service levels at the lowest possible costs. Routes can

1

change, however, with changes in supply and demand locations and vol-

umes shipped. As an example, Toyota devises regular routes for its in-

bound logistics service. The volumes and frequency are based on the pro-

duction volumes at Toyota plants. When production volumes increase,

the volume and/or frequency of supply must increase to support the ris-

ing production. Inversely, when production decreases, volumes and/or

frequency of inbound freight reduces in kind. As a standard practice, the

company and its third-party logistics providers review the inbound

routes and make adjustments about 16 times each year (about once every

three weeks). These adjustments can include the volumes collected at

each supplier site, the frequency of pickup, or the assignment of suppliers

to different routes. Good lane analysis allows a company to identify op-

portunities for improved service and cost reduction.

Mode and Carrier Selection

In the discussion of network design and lane analysis, implications for

mode and carrier selection started to appear. The mode and, ultimately,

the carrier the company commits to determine how it will accommodate

the shipping need. Figure 5-5 lists several criteria a company considers

when choosing a mode or carrier. The level of service in terms of ex-

pected transit time (speed) and consistency (reliability) factor signifi-

cantly into the decision, along with the associated cost. Increasingly, com-

panies are taking greater interest in factors such as security and qualita-

tive concerns of the carrier’s integrity and financial health. In an age of

supply chain risk management, the carriers that a firm selects serve as a

direct reflection of the hiring firm itself. Legal implications and societal

perception often hold the hiring company responsible for the decisions it

makes in this regard. For this reason, many shippers are electing to main-

tain or initiate private fleet operations, to maintain greater control over

operations. When outside companies are hired for service, the shipper

seeks assurances that it will regard the freight as if it were its own. The

shipper therefore evaluates not only the equipment and operating capa-

bilities of the prospective carrier, but also the commitment the shipper

brings to the job.

Figure 5-5 Common mode and carrier selection criteria.

The survey of different transportation modes in Chapter 2, “A Survey of

Transportation Modes,” acknowledged the relative strengths and weak-

nesses associated with each mode. The differences are not always so obvi-

ous, however. For instance, it should not be taken for granted that a ship-

ment traveling 1,200 miles (2,000 kilometers) in 24 hours must necessar-

ily travel by plane. A single truck driver might find this difficult to

achieve while observing hours-of-service (HOS) requirements for rest, but

a team of drivers working together could accomplish this feat. The provi-

sion of team drivers allows a crew of two drivers to share the driving du-

ties. When one driver operates the truck, the other rests. This allows a

truck to move virtually nonstop and greatly extends the reach by truck in

a 24-hour period. Trucking companies are actively recruiting individuals

to participate in team-driving arrangements. Married couples are some-

times regarded as good prospects for such arrangements, given the many

hours spent together on the road!

Another development that is gaining popularity, particularly among large

truck carriers, is the idea of relay networks. As in a track relay, in which

one runner carries the baton a prescribed distance and hands off the ba-

ton to the next runner, truck relays involve handing off freight to a differ-

ent driver. Truck drivers can ordinarily cover about 500 miles in a single

shift. With this understanding, the trucking companies designate handoff

locations approximately 500 miles apart. Figure 5-6 illustrates how one

such network might appear for a truckload carrier offering service across

the United States, from Baltimore, Maryland, to Ontario, California. The

carrier has relay points approximately 500 miles apart on the Interstate

70 corridor, a primary east–west route for truck traffic across the center

of the nation. One driver initiates the trip by collecting the freight in

Baltimore and heading east to the first relay point (Columbus, Ohio, 411

miles away). Upon arriving in Columbus, a “fresh” driver collects the

trailer and continues westward to St. Louis, Missouri, 417 miles away. The

relay itself might involve the second driver simply assuming the tractor

and trailer of the first driver or switching the trailer to a second tractor,

depending on whether the tractors are dedicated to individual drivers.

The second driver delivers the freight to the third relay point (Salina,

Kansas), where a similar handoff occurs. This pattern repeats until the re-

lay reaches the ultimate destination (Ontario, California). This process

can happen much quicker than scheduling a single driver for the entire

shipment, in light of the required rest breaks the driver must make. What

makes these relay networks particularly compelling today is that drivers

have more opportunity to get home more often. Traditionally, a driver

might make the cross-country trip out and back alone, requiring a week

or more. Under the relay provision, drivers ordinarily drive outbound

one day, then rest, and then return the following day (hopefully, with a

load to support a relay in the other direction). This affords the driver an

opportunity to be home approximately every other day, which is much

better than the tradition and seems to aid somewhat in recruiting new

drivers.

Figure 5-6 A cross-country relay network.

Under the scenarios of team drivers and relay networks, trucks can cover

distances much quicker than conventionally believed. In fact, it can be ar-

gued that truck carriers using these methods can compete effectively with

airplanes in providing fast, long-distance deliveries within market. The

same might be said of intermodal truck-rail-truck service that receives

high priority among the railroads. North American railroads have de-

vised certain corridors of their rail network that offer dedicated inter-

modal service, meaning that the trains move at faster speeds on the rail

and have faster transloading at the origin and destination rail terminals.

Under these arrangements, intermodal transportation is competing effec-

tively with longhaul trucking and even air transportation, in light of the

cost advantages of shipping by rail for the long-distance segment.

These examples speak of a “blurring among the modes,” in which modes

are effectively competing against one another for shares of the trans-

portation market. Therefore, we cannot necessarily assume that a ship-

ment should move by the same mode over time, as new service offerings

enter the market from competing modes. In fact, the two best options for

carrier selection might not reside within the same mode (truckload car-

rier A versus truckload carrier B). Instead, truckload carrier A and inter-

modal service provider C could be competing for the business. With this

2

in mind, it is not always wise to assume that a given load should always

move by way of the same mode.

To accommodate decision making that reviews the service offerings of

different carriers operating in different modes, Figure 5-7 illustrates a

method of simultaneously evaluating carriers’ offerings, regardless of the

mode or class in which they operate. In other words, instead of simply

evaluating truckload carriers for a specific mode, carriers in other modes

(such as rail, intermodal, air, or water) might be considered—so might

carriers operating in other mode classes (such as LTL or parcel). The dia-

gram suggests that, upon entering the customer service requirements for

a shipment, the characteristics of products being shipped (dry versus tem-

perature controlled, normal versus hazardous, ordinary versus high secu-

rity, and so on) and the cost constraints imposed on the shipment, a data-

base populated with the available options would be searched. The carrier

that offers the best option, regardless of mode, would be selected for ser-

vice. Alternatively, the method could be designed to present the five best

alternatives, allowing a decision maker to select among these options. As

new carriers enter the market or existing carriers alter their service ar-

rangements and pricing, these data can be entered into the system for the

most up-to-date collection of available service offerings. TMSes today can

provide the support for this level of decision making. Furthermore, carri-

ers can readily update their new offerings and prices to ensure an up-to-

date database. The shipper can also enter performance data to track the

carriers’ performance so that these past experiences can influence future

decisions regarding mode and carrier selection.

Figure 5-7 Simultaneous mode/class/carrier selection.

Service Negotiations

Negotiations on matters of transportation often occur at two different lev-

els. At the first level, the trading partners in the supply chain that sell and

buy goods from one another must determine which party will be respon-

sible for which aspects of the transportation component of the transac-

tion. At the second level, the party responsible for hiring a carrier (when

a private fleet is not used) will enter into negotiations with the carrier.

This section reviews these two levels of negotiation.

Shipper–Receiver Negotiations

When a seller and buyer engage in business, they negotiate not only on

matters of the products to be exchanged among the parties, but also on

the means by which that exchange will happen. Central to the exchange

process is the transportation of the goods. This determination is no small

matter; the party that assumes responsibility for the safe delivery of the

freight is accountable when something goes wrong, such as when the de-

livery is late or goods are lost or damaged. The seller and buyer must

therefore be very clear about who is responsible for the in-transit goods

and who will pay for the provision of transportation. These responsibili-

ties and provisions are spelled out in the terms of sale, or free on board

(FOB) terms.

Figure 5-8 illustrates the basic varieties of FOB terms. The first determi-

nation is associated with the decision of where the transaction between

the seller and buyer technically occurs. The FOB origin designates that

the sale of the goods between the two parties occurs at the seller’s ship-

ping dock. When the goods are loaded from the seller facility onto a trans-

portation vehicle at the origin shipping point, they then belong to the

buyer. Under such an arrangement, the buyer typically assumes the risk

of the goods at this point, including the selection of the carrier, the risks

associated with the goods when they are in transit, and payment to the

carrier for the transportation service. The FOB destination, on the other

hand, typically shifts these responsibilities and risks to the seller.

Figure 5-8 Delivery terms of sale.

Further distinction on who pays the carrier and bears responsibility for

the transit can be found in the payment terms of collect and prepaid. A

shipment with prepaid terms means that the seller pays for the freight

and incurs this cost, regardless of the FOB origin or destination determi-

nation. Inversely, collect terms mean that the buyer pays for the freight

and incurs this cost. So under FOB Origin, Collect terms, the buyer as-

sumes full responsibility, risks, and cost associated with the shipment.

Under FOB Origin, Prepaid terms, however, the transaction for the goods

occurs at the seller location; the buyer bears the risk of the freight, yet the

seller pays the carrier and assumes the cost of the transportation. Buyers

and sellers typically enter into FOB Origin, Collect (where the buyer as-

sumes full responsibility) or FOB Destination, Prepaid (where the seller

assumes full responsibility) to avoid the confounds between who selects

the carrier, pays for the service, and bears the risk associated with the

service. FOB Origin, Prepaid and FOB Destination, Collect remain viable

options, however.

A final twist on the FOB terms of delivery is found in the provisions of

Charged Back and Allowed. Charged Back is a provision that can be added

to the FOB Origin, Prepaid arrangement. In the absence of the Charged

Back provision, the seller pays for the freight. With Charged Back, the

seller still pays for the freight but invoices the buyer in the amount of this

service, or charges back for the arrangement. As for Allowed terms, this

provision permits the seller to deduct the cost of the transportation ser-

vice from the amount it pays the seller under FOB Destination, Collect

terms. Figure 5-8 helps to provide clarity on these important distinctions.

Shipper–Carrier Negotiations

In a free market environment, shippers and carriers are permitted to en-

ter into negotiations on the specific services to be provided, the assur-

ances and penalties that will be associated with the service, and the price

for the service. Chapter 3, “The Economics of Transportation,” re-

viewed the different pricing parameters for service and the ways in

which transportation rates are expressed. Here we incorporate the ser-

vice and relational aspects of the negotiation. We start by examining the

nature and expected duration of the relationship between the shipper

and the carrier. This manifests in whether the shipper enters into a con-

tractual relationship with the carrier or, instead, elects to engage on a

transactional basis. Whereas contractual arrangements outline the ser-

vice expectations, rates, and relational aspects of the business between

the two companies over several transactions that might span a year or

more, transactional arrangements focus on a single transaction between

the two firms. As expected, negotiations for a long-term arrangement typ-

ically involve more preparation and involved discussions, although one

cannot neglect the customer service implications or liability potential in

individual transactions.

Contract Versus Spot Rates

Shippers buy transportation services from carriers under contract and

spot rates. Contract rates involve agreed-upon prices for services between

a shipper and a carrier for a specified period of time, usually one year.

Spot rates are market prices offered for services on a specific transaction.

It is estimated that 80 percent of freight moves under contract in the

United States. Shippers choose to enter into contracts as a means of lock-

ing in prices for an extended time period, gaining the commitment of the

carrier to offer capacity and agreed-upon service levels. Contracts spell

out the commitment between the parties and often carry penalties for

noncompliance applicable to both parties in the transaction.

Large shippers seek aggressive price reductions over spot prices that are

offered to any prospective buyers. As in any industrial buying situation,

buyers with significant influence in the market can garner deeper dis-

counts based on their buying power. Transportation is not different in a

free market environment. Large shippers are also more likely to have pri-

vate fleets or to have the financial resources to devise private fleets. The

ability to leverage a private fleet in negotiations with carriers exerts addi-

tional downward pressure on prices. Conversely, small shippers lack the

buying power and influence in their negotiations with carriers. This sen-

timent has incited many small shippers to encourage re-regulation of

markets, in which prices are fixed for small and large shippers.

Agricultural shippers, in particular, have been impacted by losses of ser-

vice and rate increases for service that remains in low-density areas of

population. These shippers were protected in the United States in the

days of the Interstate Commerce Commission (ICC), as well as in the state

rate bureaus for intrastate transportation.

Contractual Provisions

When a shipper elects to hire one or more carriers on a contractual basis,

it can involve an extensive shopping experience. Firms sometimes engage

in request for proposal (RFP) events as a way to capture the ideas of

prospective service providers and their prices. An RFP usually involves

inviting select carriers to review the business of the hiring company, in-

cluding the existing supply chain operations, shipping lanes, and vol-

umes. Service providers are encouraged to devise solutions that best meet

the needs of the shipper. Conversely, some shippers issue requests for

quotes (RFQs), which spell out the specific service arrangements that the

company is seeking. Instead of looking for broad solutions, the hiring

company is seeking the best prices and commitments to perform specific

transportation and logistics services.

Under both RFP and RFQ arrangements, the competition is usually blind,

meaning that competitors are operating independently, without knowing

the provisions or pricing of competing bids. The competition often in-

volves two or more rounds as the shipper narrows the carrier(s) it will

hire for the service. Carriers are encouraged to “step up” their bids at

each iteration, elevating service performance and lowering price along

the way. Many large shippers engage in RFQ (and even RFP) events annu-

ally. Such frequency allows for adaptations to be made each year in the

service arrangement. It can also allow the carrier to adjust pricing—ei-

ther downward to reflect the benefit of learning the shipper’s business

and to reflect any economic deflation that might occur in the market, or

upward to reflect the realities of serving the customer or any inflationary

forces at work in the economy. For large projects, shippers and service

providers commonly enter into multiyear arrangements (three- or five-

year deals are common), with provisions built into the agreement to al-

low for adjustments in service and pricing as the respective parties allow.

The buying power of the customer often influences how much persuasion

it has in the market. Large firms are usually able to enjoy more competi-

tive prices and higher priority service in light of the large volumes they

ship and the account size they represent. Smaller shippers must therefore

appeal to carriers on different grounds. These might include the types of

products they ship (for example, easy to handle, well contained, nonhaz-

ardous), the lanes over which they operate (for example, presenting back-

haul opportunities), or the time of year in which they ship (for example,

shipping in off-peak seasons when carriers are in need of freight).

Another hard-to-quantify way of appealing to carriers is by being easy to

do business with. When companies conduct business, it ultimately in-

volves people working together across organizations. All businesses must

ensure profitability to survive in the long run, but there is much to be

said for organizations that take an interest in the success of a partnering

company. Small firms can sometimes appeal to carriers on this basis. This

can manifest in several different ways, such as providing ample time for

dispatches, performing loads and unloads promptly to minimize waiting,

treating the carrier’s employees (such as drivers) with respect, and pay-

ing freight invoices promptly. These seemingly minor courtesies can ele-

vate the status of shippers, large or small, in the eyes of carriers. It is of-

ten easier for smaller shippers to affect these kinds of attitudes and ac-

tions because of their smaller scope of operations and ability to instill cul-

ture among a more limited set of people.

When shippers and carriers agree to enter into negotiations, attention

turns to the specific services, terms, and prices. Among the service as-

pects considered are the speed, volume, frequency of shipments, and reli-

ability of service. Shippers will be concerned with the service provider’s

track record in these regards, seeking assurances that the carrier has the

capabilities and capacities to accommodate the need. Also of significant

importance is the assumption of liability, a clear understanding of the re-

sponsibilities of each party, and any limits to over, loss, and damage

(OS&D) claims. Shippers will also be concerned with the accommodation

of any special needs they might have, whether operational in nature (for

example, security or temperature control) or administrative (such as with

documentation requirements). When attention turns to the price for ser-

vice, focus is directed to the charges for basic line-haul transportation ser-

vices, as well as any surcharges and accessorial fees that might apply.

Finally, the length and nature of the contract is determined. For reasons

noted earlier, some shipper–carrier relations involve multiyear contracts.

This is particularly true when the shipper is seeking to devise a core car-

rier program. Such an arrangement identifies a select group of strategic

carriers that will receive a large share of the shipper’s volume. The idea is

to concentrate these volumes in the hands of fewer carriers, to enjoy

larger discounts in exchange for awarding higher volumes of freight to

these chosen carriers. The shipper also expects to receive higher priority

service from the core carriers. This is particularly valuable when capacity

is tight and shippers are competing for the interests of the carriers. The

risks of core carrier programs include the lost freedom of shopping for

lower prices in market, in light of the volume commitments made to the

carriers. Another risk is the prospect of misplacing trust in the hands of

carriers that cannot or choose not to fulfill the service obligations, or the

risk of a core carrier weakening operationally and financially over time,

with no ready substitutes in place. Core carrier programs can usually ac-

commodate these challenges, however, through careful selection and

monitoring of the carriers.

Other times, relationships might enter into annual contracts, or perhaps

project-specific agreements of shorter durations. When a shipper closes a

manufacturing plant or distribution center, for instance, it might contract

with a carrier or 3PL to move all the freight from the closed facility to an-

other location. Depending on the size of the facility and the volume of

goods housed there, such a transfer might take a few days or several

months. Along with the contract duration, the two parties will agree on

any special conditions that either party might impose on the relationship.

Adjustments in service, pricing, or payment terms might be among these

conditions. Finally, the two parties will agree on the terms of any early

termination of the contract that might be deemed necessary. The provi-

sion of having two parties enter into new business together can be a joy-

ous one (as in a new marriage), but the two parties must also determine

what would merit a dissolution of the arrangement and how any such

dissolution should be handled. Although it is impossible to imagine every

possible circumstance, the two parties should rely on their respective ex-

periences to outline service, economic, and relational grievances consid-

ered unacceptable in the arrangement. On a more positive note, the two

parties might also spell out the rewards that might accrue to the parties if

performance exceeds expectations. Such concerns are iterated in the next

section on service evaluation.

Service Evaluation

In any activity, business or otherwise, it is important to measure perfor-

mance. Several popular expressions underscore this premise: “If you

don’t keep score, you’re only practicing”; “What gets measured, gets man-

aged”; and “You get what you inspect, not what you expect.” These senti-

ments find application in the management of transportation services.

Measuring performance across the various aspects of the service arrange-

ment is required to ensure that the service is living up to expectations.

However, the challenge of identifying which measures to employ is criti-

cal because transportation is such a broad and encompassing business

activity.

The broad dimensions of performance to consider include safety, service

performance, cost, and relational performance. To the extent possible,

shippers should devise metrics that can be tracked on these various di-

mensions. To the extent that the metrics are quantitative and verifiable

(for example, on-time performance, damage rate, and price variation),

the shipper and carrier can better agree on quality of performance. Other

metrics tend to be more qualitative for service aspects, as with ease of do-

ing business. Complaints can be measured in terms of frequency, for ex-

ample, but the nature and severity of issues can be difficult to express in

numerical terms. That said, efforts should be made to express even these

qualitative concerns in simple, numerical means through subjective scal-

ing. However, even seemingly tangible metrics such as on-time delivery

percentage can be challenging when the metric lacks definition. In one

example, a customer claimed that a shipper was routinely delivering

product late to the customer’s distribution center. The shipper disagreed.

Eventually, the two parties agreed to watch a truck deliver the shipper’s

goods. It was discovered that the shipper considered the delivery com-

plete when the truck arrived in the receiving yard of the distribution cen-

ter. The customer, however, considered the delivery complete when the

truck was dispatched from the receiving yard and backed up to the dock

for unloading. This simple difference of interpretation resulted in very

different views of the shipper’s delivery performance. Clarity in the met-

rics is essential if they are to be used to manage the business.

To keep the measurement system manageable, it is imperative to priori-

tize the number of measurements used to assess performance. In other

words, less meaningful and significant measures need not factor signifi-

cantly into an evaluation. In fact, many companies should consider elimi-

nating metrics that are no longer valuable but that still require time to

collect and report. In some cases, the metrics can even be detrimental in

making properly informed decisions because they are distracting, invali-

dated, or misguided in light of new business priorities. Shippers and car-

riers alike are encouraged to question the measures they use and to adapt

the measurement system from time to time to reflect the changes occur-

ring in the business.

Figure 5-9 illustrates a sample scorecard that a shipper might use to eval-

uate the performance of a carrier. Such a scorecard is valuable not only

for internal purposes at the shipper, to evaluate the comparative perfor-

mance of different carriers, but also to communicate directly to the car-

rier. Scorecards of this nature are quite common in evaluating material

suppliers—increasingly so in evaluating service providers such as trans-

portation companies. A scorecard such as the one in Figure 5-9 might be

gathered monthly and shared with the carrier to communicate the per-

ceived service received.

Figure 5-9 Sample scorecard for carrier performance.

Note that the scorecard contains ten different performance criteria, and

the criteria have different weights attached (by having different maxi-

mum scores). Transit time consistency is the single most important crite-

rion in the example, signifying the importance for the shipper that the

carrier be very consistent in completing transit times against expected

time parameters. The carrier scores listed in the next column, then, refer

to a conversion of data and observations collected over the past month

regarding performance on each criterion. The next column provides a

succinct statement justifying the score that was issued. Furthermore, the

shipper might institute rules associated with the score. Perhaps scores be-

low 80 on the 100-point scale might justify a face-to-face meeting with the

carrier to determine ways to remedy the issues that are bringing down

the score. In the current example, it appears that the availability of equip-

ment and response to emergency situations are proving particularly trou-

blesome for the shipper, and root cause analysis might be necessary to

determine the reasons and remedies for these issues.

To the opposite effect, many shippers and carriers are embracing perfor-

mance-based logistics (PBL) programs that reward carriers for excellent

service. The rewards might include commitments of future business or fi-

nancial rewards. The U.S. Department of Defense is particularly active in

devising PBL relationships with its logistics service providers, and the

trend is growing. Beyond these formal arrangements, however, other

3

shippers find great value in simply recognizing carriers for excellent ser-

vice by way of Carrier of the Year awards. These can be low-cost ways of

acknowledging carriers for excellence that benefit the carriers in multi-

ple ways. For one, the carrier likely is in an improved position for future

business with the focal company. For another, the carrier can use the

award as an endorsement of valuable service, to gain new business. Any

such recognition should be based on the routine and discipline measure-

ment of the key carriers a shipper employs.

This discussion focuses on the shipper’s measurement of carrier perfor-

mance, but it is important to note that carriers should also evaluate the

performance of shippers. They need to ask, “Are our customers living up

to their expectations?” These expectations include several of the same di-

mensions outlined previously for carriers, including safety, ease of doing

business, and economics (payment). It is not uncommon today for carri-

ers to maintain scorecards of shipping customers and to critically evalu-

ate the performance of each key customer. Such evaluation is warranted

when shippers are vying for the attention of high-performing carriers, es-

pecially in a capacity-constrained market. Shippers under these circum-

stances who are seeking to be recognized as a “customer of choice” or a

“preferred customer” achieve priority when the supply of service is lim-

ited in some way.

Dock- and Movement-Level Decisions

The final level of decision making in transportation occurs with each

shipment. These decisions usually occur at the site of the work—at the

shipping and receiving docks—as well as in the distance that separates

the two. Here an intense focus on process is required, to examine what

work gets performed and how it is performed. It is critical to realize, too,

that all the planning and big ideas are executed at this level. The best

plans are worth little if the processes associated with execution are ill

equipped to handle them. For this reason, many companies are employ-

ing continuous improvement methods, such as lean and six sigma, in the

design of work processes. Lean emphasizes the elimination of waste, and

six sigma focuses on variation in processes. They are often employed to-

gether, for where there is variation in process, one will also find waste.

Hence, lean six sigma is finding good application in the operational and

administrative processes occurring in dock- and movement-level activi-

ties. Tools such as value stream mapping and process mapping can identify

and evaluate defects in work processes.

Instead of focusing on the minutia of how to process freight on the dock

or how to operate transportation equipment, we focus here on the infor-

mation required to make informed decisions in support of dock and

movement activity. From the use of routing guides that inform a shipping

clerk which carriers to consider on a particular lane, to in-route instruc-

tions for safely navigating a transportation vehicle to the rightful destina-

tion, information is vital for effective and efficient performance of work

at the operational level.

However, information is not the only vital element in the effective con-

duct of work at the operational level—hiring, development, and retention

of the workforce is also important. More than 80 percent of all logistics

activity occurs beyond the view of supervision. Virtually all transporta-

tion activity lacks direct supervision, although rapidly advancing tech-

nologies such as global positioning satellites and equipment-monitoring

devices are changing this tradition. Despite these advances, companies

must hire and develop people competent for the work on hand, train

them to do the work safely and successfully, and retain this essential tal-

ent for continuity. These general principles hold true for shippers and ser-

vice providers alike.

Although the operational aspects of transportation (shipping, transport-

ing, receiving) likely come to mind, effective transportation management

relies extensively on administrative activities that support the operations

as well. Certain administrative tasks that occur before, during, and after

any transportation movement require high levels of performance for any

transaction to ultimately be deemed successful. Much of this activity fo-

cuses on the accurate completion and sharing of transportation documen-

tation. Table 5-2 illustrates essential transportation support activities that

require documentation. Figure 5-10 shows a sample of the information

exchange present in a typical transportation transaction among a ship-

per, a carrier, and a receiver.

Table 5-2 Essential Transportation Support Activities

Figure 5-10 Typical information exchange in a transportation

transaction.

Transportation Documentation

Appropriate documentation is an extremely critical (and often over-

looked) aspect of transportation. Documentation needs vary based on the

nature of the shipment (for example, international versus domestic), na-

ture of the cargo (for example, normal versus hazmat versus perishable),

and trading partners (for example, exporting to and importing from some

countries require special documentation). This is why logisticians have a

saying: “Freight moves on a sea of paper!” Given the complexity of the

process, it comes as no surprise that both shippers and receivers must in-

sist on absolute clarity in documentation; any mismatch can be an ex-

treme source of frustration to both sellers and buyers.

Documentation time and resources usually account for anywhere be-

tween 5 and 10 percent of the total value of all shipments. (Several of

these documents can now be transmitted electronically, thereby reducing

the paperwork burden somewhat.) In this section, we cover several of the

documentation requirements of transportation (see Figure 5-11). We be-

gin with the documentation that is common to all forms of transport (do-

mestic and international) and then cover some specific documents that

are required in special cases.

Figure 5-11 Transportation documentation requirements.

Documents Common to Domestic and International Transportation

Some documents are common to domestic and international transporta-

tion and will be encountered regardless of whether the freight crosses in-

ternational borders:

1. Bill of lading (B/L or BOL)—This is possibly the single most important

document in logistics (both domestic and international). The bill of lading

is a shipping document that a freight carrier issues, acknowledging that

certain named goods have been received onboard as cargo for con-

veyance to a named place, for delivery to the consignee. (3PLs and freight

forwarders are also authorized to issue bills of lading, but freight brokers

are not.) Among other points, the bill of lading serves the following

purposes:

It is evidence of a contract of carriage between ocean freight carrier and

shipper.

It is a receipt for goods.

It is a document of title on shipped goods.

The bill of lading also contains the following information:

a. Name of the shipping company and its registration

b. Shipper’s name

c. Order and notify party

d. Description of goods

e. Gross/net/tare weight

f. Freight rate/measurements and weight of goods/total freight

Depending on the negotiations between the buyer and seller of goods, the

B/L can be created either as a negotiable or a non-negotiable instrument.

A negotiable bill of lading (also called order B/L) transfers ownership

rights of the named goods to anyone who has possession of the instru-

ment (B/L). Therefore, the negotiable B/L can basically be traded or sold

to someone in exchange for things of value (called factoring). A negotiable

B/L has the words “To Order” written on it, and the original is usually re-

quired to take delivery of the shipped goods. A non-negotiable B/L (also

called a straight B/L) cannot be traded and has no monetary value, except

that it also confers ownership of goods. As such, if goods are shipped un-

der a straight B/L, the original B/L is not needed to take possession of the

goods. When goods are shipped by way of air freight instead of ocean

freight, the bill of lading is called an airway bill.

2. Packing list—A packing list is a document that the shipper prepares,

listing the kinds and quantities of merchandise in a particular shipment.

It also has detailed information on the type, size, and weight of each con-

tainer in the shipment. A copy of the packing list is often attached to the

shipment in a waterproof envelope, and another copy is sent directly to

the consignee to assist in checking the shipment when received. It is also

called a bill of parcels. In international shipping, it is absolutely impera-

4

tive that the packing list match the commercial invoice (discussed later),

or the shipment can be delayed through Customs, perhaps for months.

3. Carrier freight bill (CFB)—The CFB is an invoice presented by the car-

rier to the shipper, the consignee, or a referenced third party as a de-

mand for payment for services rendered. Similar to the B/L, it is a stan-

dard document and shows the name of the carrier, the carrier’s reference

number/Standard Carrier Alpha Code (SCAC), the shipper’s name and ad-

dress, consignee’s name and address, a description of the goods, the rate,

freight terms, and the charges due.

4. Delivery receipt—The delivery receipt is a document issued by the

carrier that the consignee signs as proof of receipt of the shipment. It is

also known as a proof of delivery (POD) document. The carrier and the

consignee each retain a copy of the delivery receipt.

5. Declaration of dangerous goods (if needed)—A shipper’s declaration

of dangerous goods is a letter that describes the dangerous goods (haz-

ardous materials) and quantity shipped and provides key information to

communicate hazards present for safe transport and for mitigating spills

or leaks. The letter must also include this information:

a. Total quantity of the materials

b. Technical description for generic shipping names

c. Emergency phone number (that is answered 24/7 by a knowledgeable

person)

Documents Exclusive to International Transportation

A second (and more extensive) set of documents is almost exclusively re-

quired when freight crosses international borders. These documents are

in addition to the ones that we have already discussed:

1. Shipper’s Export Declaration (SED)/Automated Export System

(AES)—The SED filing is generally required by the U.S. Census Bureau for

U.S. exports when a single commodity’s value exceeds US $2,500, or when

a postal shipment’s value exceeds US $500. The SEDs must also be pre-

pared, regardless of value, for all shipments requiring an export license

or for shipments to embargoed countries (such as Zimbabwe, Cuba, Iraq,

Sudan, Syria, and North Korea). The SED is used for two purposes:

It serves as a census record of U.S. exports. The government generates

many reports using these statistics.

It serves as a regulatory document.

Earlier, a paper-based document had to be filed to comply with this re-

quirement, but a shipper can now file it electronically with the AES using

the AESDirect website (www.aesdirect.census.gov) of the U.S. Census

Bureau. After the export declaration is successfully filed and processed,

the shipper receives an Internal Transaction Number (ITN) to put on the

shipping documents, as confirmation for any government agent inspect-

ing the cargo before departure.

2. Export and import licenses (if needed)—Most export transactions do

not require specific approval in the form of licenses from the U.S. govern-

ment, but some do. It is typically up to the shipper to determine whether

the product requires a license and to research the end use of the product

—in other words, to perform “due diligence” regarding the transaction.

Exporters should learn which federal department or agency has jurisdic-

tion over the item they are planning to export so that they can find out

whether a license is required. Similarly, an import license is a document

that gives the buyer the permission to import goods into the country. In

general, there is no need for an import license for importing goods into

the United States. However, there are some restrictions on goods such as

alcohol, tobacco, firearms, animals, copyrighted materials, food, and arti-

facts. Note that many other countries do require the buyer to have a li-

cense to import goods into the country.

3. Commercial invoice—A commercial invoice is used when dutiable

goods are shipped internationally; it works as a sort of Customs declara-

tion. The invoice should be completed on the shipper’s company sta-

tionery, must contain the shipper’s complete company address and tele-

phone number, and must be signed by the shipper or its agent. An accu-

rate and complete description of goods is necessary for Customs pur-

poses. If the receiver/consignee is different from the importer/buyer, the

invoice should note that. Three copies of this document are usually cre-

ated: the original commercial invoice, one copy attached to the shipment

paperwork, and one copy attached to the actual shipment.

4. Certificate of origin (CO)—A CO is a document that states the country

where the shipped goods originated. Note that the term originate in a CO

does not mean the country the goods are shipped from, but rather the

country where the goods are actually made. In general, as long as more

than 50 percent of the value of the goods originates from a country, that

country is acceptable as the country of origin. The CO is useful for classi-

fying the goods in the Customs regulations of the importing country, thus

defining how much duty shall be paid. Moreover, it might also be impor-

tant for import quotas and for statistical purposes.

5. Consular invoice—In general, the term consularization refers to the

practice of getting any document approved by the consulate in another

country. Usually, consularized documents have a red seal or ribbon on

them to mark as such. A commercial invoice that has been consularized is

called a consular invoice. Consular invoices have been around for a long

time and were supposed to ease the flow of trade (by easing flow through

importing Customs), but their popularity is waning and several commodi-

ties no longer need to be consularized.

Two areas of transportation management require special consideration

and often additional training to gain expertise. These areas are the han-

dling of hazardous materials and international transportation, in light of

their inherent risks and level of expertise required to ensure safe, effi-

cient transit of goods. As noted, the accuracy of documentation associated

with all transportation is essential, but that is especially true for interna-

tional movements.

As with many activities in transportation and business in general, tech-

nology improves the ease and efficiency of information exchange.

Furthermore, information technology (IT) provides decision support as-

sistance to improve the speed and quality of decisions. Figure 5-12 illus-

trates some of the different ways information technologies can influence

and inform decisions ranging from very macro to micro in orientation. As

shown, IT can play a key role in all levels of the decision-making frame-

work, from informing strategic analyses, such as network design and

forming consolidated shipments, to making decisions at the shipping

dock, such as those related to load building and sequencing.

Figure 5-12 Technology support for transportation decision making.

Summary

The next chapter offers a more in-depth look at TMS and related tech-

nologies that help reduce the uncertainties and inform transportation de-

cision making.

Key takeaways from this chapter include:

Transportation management affects many different aspects of the focal

company, as well as its interactions with suppliers and customers.

Transportation must therefore be managed on an integrated, holistic ba-

sis with other functions.

Transportation management decisions should flow from the most strate-

gic level to the operational level, to ensure that the business priorities are

met in the most effective manner.

Strategic decisions guide operational actions, and operational capabili-

ties influence the strategies available to the company.

Decisions and actions taken at the operational level ultimately deter-

mine the effectiveness of a company’s transportation management.

It is essential that documentation supporting transportation activity be

accurate and timely, to ensure that the full value of operations is ren-

dered in delivery.

Endnotes

1. Students have identified more than 20 different forms of load consoli-

dation and class shifts in these shipping data. Granted, some consolida-

tions could have questionable implications for service, given the number

and timing of stops involved.

2. The limitation of truck transportation, of course, is its inability to travel

over water without the aid of intermodal or roll-on/roll-off support.

Hence, we limit this comparison to shipments within a single landmass

that do not involve an overseas component.

3. More justification is required than the few words used here merely for

illustration.

4. The negotiable/order bill of lading is rarely seen in domestic

transportation.