by Transportation is one of the most visible elements of logistics operations. As consumers, we are accustomed to seeing trucks and trains moving products or parked at a distribution facility. While this experience provides a good visual understanding of transportation elements, it does not allow the necessary depth of knowledge to understand transportation’s role in logistics operations. This section establishes that foundation by reviewing functionality provided by transportation and the underlying principles of transport operation.
There are two fundamental principles guiding transportation management and operations. They are economy of scale and economy of distance.
Economy of scale
It refers to the characteristic that transportation cost per unit of weight decreases when the size of the shipment increases. It is common knowledge that larger the capacity of the transport vehicle more goods can be transported at a time which will decrease the cost per unit of transport. If smaller is the capacity of the transport vehicle then to transport a large amount of goods, more trips will have to be made which will increase the cost per unit of transport. E.g.: Rail or water transport is less expensive in case of bulk transport than smaller capacity vehicles like motor or air.
A transportation economy of scale exists because fixed expenses such as administrative costs, invoicing costs, equipment costs associated with moving goods and materials get spread over the entire weight of the load. This will help to decrease cost per unit of the goods transported.
E.g.: Suppose the cost to administer a shipment is Rs. 10.00. Then for a 10 Kgs shipment the cost of transporting per unit of the product becomes Re.1.00, while for a 1,000 Kgs shipment the cost of transporting per unit of the product Re.0.01. Thus, it can be said that an economy of scale exists for the 1000 Kgs shipment.
Economy of distance
It refers to the characteristic that transportation cost per unit of distance decreases as distance increases. Transportation economy of distance is also referred to as a tapering principle since rates or charges taper (decrease) with distance. The rationale of economies of distance is similar to that for economies of scale. Longer distances allow the fixed expenses to be spread over more miles, resulting in lower overall per mile charge.
These principles are important considerations when evaluating alternative transportation strategies or operating practices. The objective is to maximize the size of the load and the distance that is shipped while still meeting customer service expectations.
Participants
There are five main stakeholders involved in the transportation decisions: the shipper, the receiver, carriers and agents, the government and the consumer. It is clear that the policies will be formed around these five factors, which are often complex and tend to result in conflict.
Depending on the incoterms trade terms used, the payee could be the consignor, the consignee or the consumer in different situations. To understand the complexity of the transportation environment, it is helpful to be aware of the role and perspective for each party
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The shipper (consignor)
All transportation process begins with a company transferring its goods from a warehouse to another place such as distributors, customers or even another warehouse. The consignor is the sender of a shipment in a contract of transport. They are also called the Shipper, who wants to have their goods moved as quickly and safely as possible. This could be done by the shipper themselves through their in-house fleet or by a 3PL company. Either way, both the shipper and the recipient would want a completed sale or purchase transaction. A successful transaction is considered when all the goods are transported at the lowest cost and in the fastest time, from origin to the correct destination. Apart from that, other issues related to transportation including pickup and delivery time, loss and damage should also be taken care of.
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The recipient (consignee)
The consignee or the recipient is the receiver of a shipment of freight. As mentioned above, the consignee wants transportation that is low-cost, reliable and capable of delivery in the shortest time possible. On different occasions, the ownership of goods and products can be temporarily assumed by the for-hire transportation company until they are finally delivered to the consignee.
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Carrier and agents
A carrier is a company providing air ,sea or land transportation services while an agent is considered one who acts on behalf of another in dealing with a third party. For companies, the most familiar agents are sales and purchasing agents. In a transportation decisions, the carriers are responsible for actually moving the goods and products. Unlike the shipper and the recipient, carriers want to receive the highest rate possible for services, while keeping labor, fuel and vehicle costs as minimal as they can.
There are many different types of carriers, including common and contract carriers; local, regional or national carriers as well as local or for-hire one. While large carriers can have more capacity and provide better equipment, smaller players provide a better, more personalized service and flexibility to their shippers. It’s important to consider your business needs, destination, freight volume, and type when choosing a freight carrier to work with.
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The government
It is clear that all governments have had a deep interest and involvement in transportation. For example, in America, the government involved through their regulation and oversight of transportation. When some strict regulations were reduced, the country’s transportation was moved to a greater competition and more operational freedoms.
The reason for the involvement of the government is behind the importance of reliable service to economic and social well-being. Transportation directly impacts economic success, the governments therefore desire a stable and efficient transportation environment. Even with the deregulated environment, transportation professionals need to be mindful of local, regional and national government regulations wherever business takes them.
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The public
The last participant in the transportation industry is the public, which includes individual consumers as well as businesses. In general, the public expects and depends on accessible transportation, affordable and competitive rates, security as well as safety.
The public indirectly creates transportation demand by purchasing goods. While minimizing transportation costs is important to all consumers, concerns also include environmental impact and safety, since it is ultimately paid by consumers.
