Legal Forms of Transportations

1. For-Hire Transportation
a. Common Carriers
Common carriers must offer their transportation services to the public
without discrimination, meaning they must charge the same rates for the same
service to all customers.
b. Contract Carriers
Typical contracts are for movement of a specified cargo for a
negotiated and agreed-upon price.
c. Exempt Carriers
Carriers are classified as exempt if they transport certain exempt
products such as produce, livestock, coal, or newspapers. School buses, taxis
and ambulances are also examples of exempt carriers. The exempt status was
originally established to allow farmers to transport agricultural products on
public roads.
d. Private Carrier
Firms transporting their own products typically own and operate fleets
large enough to make the cost of transportation less than what it would be if
the firm hired a transportation provider. Flexibility and control of product
movements also play major roles in the ownership of a private carrier.

Modes of Transportation
1. Motor Carriers
Advantages:

 Most flexible mode of transportation.

 Has a low associated fixed and variable cost.
Disadvantages:

 Sensitive to weather and traffic problems.

 Classifications
a. Less-than-truckload (LTL)
LTL carriers move small packages or shipments that take up less than
one truckload. Shipping fees are higher per hundred weight (cwt) than TL
fees, since the carrier must consolidate many small shipments into one
truckload.
b. Truckload (TL)
c. General Freight Carriers
d. Specialized Carriers
2. Rail Carriers
Rail carriers compete most favorably when the distance is long, and the
shipments are heavy or bulky. Rail service is relatively slow and inflexible; however,
rail carriers are less expensive than air and motor carriers and can compete fairly well
on long hauls.
3. Air Carriers
Transporting goods by air is very expensive relative to other modes, but also
very fast, particularly for long distances.
4. Water Carriers
Shipping goods by water carrier is very inexpensive but also very slow and inflexible.
Water transportation as a percent of total for-hire logistics services has remained
steady at about 3 percent for the past 30 years. Like rail and air transportation, water
carriers are typically paired with motor carriers to enable door-to-door pick-up and
delivery service.
5. Pipeline Carriers
Pipeline carriers are very specialized with respect to the products they can carry;
however, once the initial investment of the pipeline is recovered, there is very little
additional maintenance cost, so long-term pipeline transportation tends to be very
inexpensive.
Transport Pricing
1. Cost-of-service pricing
Cost-of-service pricing varies based on volume and distance. As shipping
volume increases, the portion of fixed costs that are allocated to each shipment goes
down, allowing the carrier to reduce prices.
2. Value-of-Service Pricing
3. Negotiated Pricing
Shippers want carriers to use cost-of-service pricing, while carriers want to use
value-of-service pricing. To maintain an equitable partnership, prices are negotiated
such that they fall somewhere between these two levels, allowing carriers to cover
their fixed and variable costs and make a reasonable profit, and allowing shippers to
get the logistics services they want at a reasonable price.
Terms of Sale
In many cases, suppliers’ terms of sale affect transportation costs. When products are
purchased from a supplier, they may quote a price that includes transportation to the buyer’s
location. This is known as FOB destination pricing, or free-on-board to the shipment’s
destination. This also means that the supplier will be the legal owner of the product until it
safely reaches its destination. For high-value shipments, small shipments, or when the buyer
has little transportation expertise, FOB destination is typically preferred.
Rate Categories
Third-Party Logistics (3PL) Services
Most logistics service companies offer both transportation and warehousing
services, allowing firms to make better use of distribution alternatives such as

 transportation mode,
 storage location, and
 customs clearance
For small firms with no internal logistics expertise and large firms with many sizeable
and varied logistics needs, outsourcing logistics requirements to these 3PLs can help firms
get the services they require at reasonable prices.
3PL Supply Base Reduction
3PL supply base reduction should become an integral part of an effective logistics
management strategy particularly in markets characterized by numerous 3PL choices.
Mode and 3PL Selection
When attempting to minimize logistics costs and/or improve customer service along
the supply chain, firms must identify the most desirable transportation modes and 3PL
services available for the various markets they serve as well as for their inbound purchased
materials.
Firms use a mix of quantitative and qualitative factors to evaluate and select 3PLs and
there are several comparative methods available to aid in the decision process, the most
common of which is the weighted factor analysis.
In a number of surveys conducted, important selection factors were found to be:

 transit-time reliability,
 transportation rates,
 total transit time,
 willingness to negotiate rates and services,
 damage-free delivery frequency,
 financial stability,
 use of electronic data interchange, and
 willingness to expedite deliveries