Chapter one

An over view of Transportation Management

1.1 Introduction
Transportation is defined as movement of fright, people and information from one place to another. In other
words, it is the means of conveyance or travel from one place to another. The important common element in
any definition of transportation is movement. Movement is changing of physical location of freight,
passenger or exchange of information. Products must move to the location where they are needed.
Transportation function divided in to passenger and freight transportation. Passenger transportation includes
private transportation such as automobile or air planes, and public transportation. Freight transportation is
the economic movement of commodities and products and the effect of such movement on the development
and advancement of business.
1.2 Role of Transportation
Transportation is a very visible element of logistics. Consumers are accustomed to seeing trucks and trains
transporting product or parked at business facilities. Few consumers fully understand just how dependent our
economic system is upon economical and dependable transportation. Transportation has the following roles:
1. Saves time: arrival of goods and services at right time.
2. Balance regional development: resource allocation and good communication
3. Create employment opportunities.eg, loading and unloading
4. Source of income for individuals and government/tax purpose
5. For success of war: for defended foreign aggression
6. For economic growth: as trade and investment and improved per capital of citizens.
7. Greater competition: Without a good transport system, the reach of the market is limited to areas
immediately surrounding the point of production. With an efficient transport system, the costs of
products in distant markets can be competitive with those of other products for sale in the same
markets.
8. Economies of scale: Wider markets can result in lower production costs. With a greater volume
supported by these markets, the producer could better utilize production facilities, from which
specialization of labour usually follows. Inexpensive transport also facilitates the separation of
markets and production sites. This provides a degree of freedom in selecting production sites such
that production can be located at places that offer cost advantages.
9. Reduced price: Inexpensive transport also contributes to reducing product prices because transport is
a component cost, along with production, selling, and other distribution costs, which make up the
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 product price. As transport becomes more efficient and product prices decrease, society can benefit
from having a higher standard of living by consuming more products.
Functional control of transportation
Modal selection:
Carrier selection:
• Private carrier: Private carriage is the firm’s own transportation.
 Not for-hire and not subject to Federal regulations.
 May not be the firm’s primary business but can charge a intracompany fee for transportation
services.
 Firms gain ultimate control over shipments and achieve maximum flexibility in moving
goods.
 Backhauls are usually empty.
 Requires a large capital investment.
 Requires management time and expertise.
• Public carrier: For-hire carrier that serves the general public at reasonable rates and without
discrimination.
 Stringent economic regulation designed to protect the public.
 Must transport all commodities offered.
 Commodities are limited to those that the carrier’s equipment will handle.
 Carrier is liable for damages to products carried.
 Exceptions to liability include acts of God, acts of the public enemy, acts of public authority,
acts of the shipper and defects inherent in the goods.
• Contract carrier: For-hire carrier that does not have to serve the general public.
 May serve one or a few shippers exclusively.
 May offer specialized equipment.
 Not subject to regulation on services;
 Other aspects of the carrier/shipper relationship are made a part of the contract between the
two parties.
• Exempt carrier: For-hire carrier exempt from economic regulation regarding rates and services.
 Limited entry controls; low rates.
 Usually haul agricultural products, but there are special rules as to what may be hauled by
each mode of transportation,
 Limited number of carriers restricts availability.
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1.2.1 Importance of transportation from purchasing and marketing point of view
The goals of logistics are concerned with the achievement of the “7Rs”, i.e., the ability to deliver the right
amount of the right product at the right time in the right condition to the right place with the right
information to satisfy the right customer fully (Lai and Cheng 2009). Logistics adds value to products by
creating utility, which is concerned with the value or usefulness that an item or service has in fulfilling a
want or need.
 Importance of transportation From purchasing point of view
Transportation plays as vital linkages throughout a firm’s inbound and outbound distribution channels. There
are 3 major transportation linkages:
a. Between a firm and its supplier
b. Between a firm and its manufactures
c. Firms with multiple production and warehouse facilities.
 Importance of transportation from marketing point of view:
- Transportation is important in market development, expansion and completion.
- The movement of products from where they are produce to the consumption center is by
transportation.
- Transportation is important to achieve a competitive advantage by helping satisfying customer
needs faster and at low cost.
A. Production economies
Production economies are realized when a large volume of the same type of commodities is produced at one
time at one location. The result is a lower cost per unit because of: set up costs can be spread over more
units, specialized equipment can be used, and tasks can be made routine. Thus as more units are produced,
the cost per unit goes down. Production economies are not endless. At some level the cost per unit stops
going down and begins to increase as production is expanded beyond the most economical level.
B. Geographic specialization
Geographic specialization capitalizes on the fact that one region or one area has an advantage over other
areas for some reasons unlike production economies.
1.3 Transport Functionality
Transportation enterprises provide two major services: product movement and product storage.
A. Product Movement

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Whether in the form of materials, components, work-in-process, or finished goods, the basic value provided
by transportation is to move inventory to the next stage of the business process. The primary transportation
value proposition is product movement up and down the supply chain. The performance of transportation is
vital to procurement, manufacturing, and market distribution. Transportation also plays a key role in the
performance of reverse logistics. Without reliable transportation, most commercial activity could not
function.
B. Product Storage
A less visible aspect of transportation is product storage. While a product is in a transportation vehicle, it is
being stored. Transport vehicles can also be used for product storage at shipment origin or destination, but
they are comparatively expensive storage facilities. Since the main value proposition of transportation is
movement, a vehicle committed to storage is not otherwise available for transport. A trade-off exists
between using a transportation vehicle versus temporarily placing products in a warehouse.
If the inventory involved is scheduled to move within a few days to a different location, the cost of
unloading, warehousing, and reloading the product may exceed the temporary charge of using the
transportation vehicle for storage. Another form of temporary product storage is diversion. Diversion occurs
when a shipment destination is changed while product is in transit. For example, the destination of a product
initially shipped Mekele may be changed to Gondar while in transit. Traditionally, the telephone was used to
implement diversion strategies. Today, satellite communication between enterprise headquarters and
vehicles allows more efficient diversion. While diversion is primarily used to improve logistical
responsiveness, it also impacts transit storage. So although costly, product storage in transportation vehicles
may be justified from a total cost or performance perspective when loading or unloading costs, capacity
constraints, and ability to extend lead times are considered.

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1.4 Transport Principles
There are two fundamental economic principles that impact transportation efficiency: economy of scale and
economy of distance.
A. Economy of scale
In transportation is the cost per unit of weight decrease as the size of a shipment increases. For example,
truckload shipments that utilize an entire vehicle's capacity have lower cost per pound than smaller
shipments that utilize a limited portion of vehicle capacity. It is also generally true that larger capacity
transportation vehicles such as rail and water are less costly per unit of weight than smaller capacity vehicles
such as trucks and air. Transportation economies of scale exist because fixed cost associated with moving a
load is allocated over the increased weight. Fixed costs include administration related to scheduling, cost of
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equipment, time to position vehicles for loading or unloading, and invoicing. Such costs are considered fixed
because they do not vary with shipment size. In other words, it costs as much to administer a 100 pound
shipment as one weighing 1000 pounds.
B. Economy of distance
It refers to decreased transportation cost per unit of weight as distance increases. For example, a shipment of
800 miles will cost less to perform than two shipments of the same weight each moving 400 miles.
Transportation economy of distance is often referred to as the tapering principle. The rationale for distance
economies is similar to economies of scale. Specifically, longer distances allow fixed cost to be spread over
more miles, resulting in lower per mile charges. These scaling principles are important when evaluating
transportation alternatives. The goal from a transportation perspective is to maximize the size of the load and
the distance being shipped while still meeting customer service expectations.
1.5 Transport Participants
The transportation environment impacts the range of decisions that can be implemented in a logistical
system. Unlike most commercial transactions, transportation decisions are influenced by six parties: (1)
shipper; (2) destination party, traditionally called the consignee; (3) carriers and agents; (4) government; (5)
Internet; and (6) the public.
1. Shipper and Consignee
The shipper and consignee have a common interest in moving goods from origin to destination within a
given time at the lowest cost. Services related to transportation include specified pickup and delivery times,
predictable transit time, and zero loss and damage as well as accurate and timely exchange of information
and invoicing.
2. Carrier Agents
The carrier, a business that performs a transportation service, desires to maximize its revenue for movement
while minimizing associated costs. As a service business, carriers want to charge their customers the highest
rate possible while minimizing labour, fuel, and vehicle costs required to completing the movement. To
achieve this objective, the carrier seeks to coordinate pickup and delivery times in an effort to group or
consolidate many different shippers' freight into movements that achieve economy of scale and distance.
Brokers and freight forwarders are transport agents that facilitate carrier and customer matching.
3. Government
The government has a vested interest in transportation because of the critical importance of reliable service
to economic and social well-being. Government desires a stable and efficient transportation environment to
support economic growth.

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A stable and efficient transportation environment requires that carriers provide essential services at
reasonable cost. Because of the direct impact of transportation on economic success, governments have
traditionally been more involved in the practices of carriers than in most other commercial enterprises.
Government traditionally regulated carriers by restricting markets they could service and regulating prices
they could charge. Governments also promote carrier development by supporting research and providing
right-of-way such as roadways and airports. In some countries government maintains absolute control over
markets, services, and rates. Such control allows government to have a major influence on the economic
success of regions, industries, or firms.
4. Internet
A recent development in the transportation industry is a wide assortment of internet based services. The
primary advantage of Internet-based communication is the ability of carriers to share real time information
with customers and suppliers. In addition to direct Internet communication between businesses engaged in
logistical operations, a wide variety of Web-based enterprises have been launched in recent years. Such Web
based enterprises typically provide two types of marketplaces. The first is a marketplace to exchange
information for matching carrier freight capacity with available shipments. These Web-based services may
also provide a marketplace to facilitate transactions.
Beyond freight matching a second form of Internet-based information exchange relates to the purchase of
fuel, equipment, parts, and supplies. Information exchange operating over the Internet provides carriers the
opportunity to aggregate their purchasing and identify opportunities across a wide range of potential
vendors.
Finally, the use of the Internet as a communications backbone is rapidly changing the nature of
transportation operations. The availability of real time information is improving shipment visibility to the
point where tracing and tracking are no longer a challenge. In addition to real time visibility, the internet can
be used to share information concerning scheduling and capacity planning.
5. Public
The final transportation system participant, the public, is concerned with transportation accessibility,
expense, and effectiveness as well as environmental and safety standards. The public indirectly creates
transportation demand by purchasing goods. While minimizing transportation cost is important to
consumers, concerns also involve environmental impact and safety. The effect of air pollution and oil
spillage is a significant transportation-related social issue. The cost of environmental impact and safety is
ultimately paid by consumers.
The formation of transportation policy is complex due to interaction between these six parties. Such
complexity results in frequent conflict between shippers, consignees, and carriers. The concern to protect
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public interest served as the historical justification for government involvement in economic and social
regulation.
Indirect and Special Carriers
Small-Package Carriers
 Evolved to carry small, irregular shipments
 Fast service, premium rate
Consolidators and Freight Forwarders
 Consolidates many small shipments
 Saves shippers by using CL or TL rates
Shippers Associations
 Acts as a consolidator for members
 Object is also to get lower rates
Brokers
 Acts as an intermediary
 Often used to provide backhauls for private carriers
1.6 Evolution of transportation

1.6.1 Ancient Transportation

The first form of transport was, of course, Shanks pony (the human foot!). However, people eventually
learned to use animals for transport. Donkeys and horses were probably domesticated between 4,000 and
3,000 BC (obviously the exact date is not known). Camels were domesticated slightly later between 3,000
and 2,000 BC.

Meanwhile about 3,500 BC the wheel was invented in what is now Iraq. At first wheels were made of solid
pieces of wood lashed together to form a circle but after 2,000 BC they were made with spokes.

The earliest boats were dug out canoes. People lit a fire on a big log then put it out and dug out the burned
wood.

About 3,100 BC the Egyptians invented the sailing boat. They were made of bundles of papyrus reeds tied
together. They had simple square sails made of sheets of papyrus or later of linen. However, the sail could
only be used when sailing in one direction. When travelling against the wind the boat had to be rowed.
About 2,700 BC the Egyptians began using wooden ships for trade by sea. Early ships were steered by a
long oar.
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Roman Transportation

The Romans are famous for the network of roads they built across the Empire. Roman legionaries built them
so the Roman army could march from one part of the empire to another quickly. Rich people traveled by
horse or on long journeys by covered wagon. Sometimes they were carried in litters (seats between two long
poles). Transport by water was also important to the Romans. They built large merchant ships called cortia,
which could carry up to 1,000 tons of cargo.

Roman ships had a single main mast, which carried a rectangular sail, although some ships also had small
sails at the bow and stern. Roman ships did not have rudders. Instead, they were steered by oars. The
Romans also built lighthouses to aid shipping.

1.6.2 Transportation in the middle Ages

After the fall of Rome transport became more primitive. Roads in Europe returned to being simple dirt
tracks, which turned to mud in the winter. In the middle Ages, rich people sometimes traveled in covered
wagons. They must have been very uncomfortable as they did not have suspension and the roads were
bumpy and rutted. Others traveled on a box between two poles. Two horses, one in front and one behind
carried it. They were trained to walk at the same pace.

However at sea a number of useful inventions were made. By the 12th century, Europeans had learned to use
a compass. Also in the 12th century, Europeans invented the rudder. (The Chinese independently invented it
centuries before). Rudders made ships much easier to steer. Furthermore, Medieval shipbuilding became far
more advanced and by the 15th-century ships were made with 3 masts.

1.6.3 Transportation in the 16th Century

In Tudor times transport was still slow and uncomfortable. Roads were still just dirt tracks. Men were
supposed, by law, to spend a number of days repairing the local roads but it is unlikely they did much good!
People traveled by horse. You could either ride your own or you could hire a horse. In Tudor times you
would be lucky if you could travel 50 or 60 kilometers a day. It normally took a week to travel from London
to Plymouth. However rich people deliberately traveled slowly. They felt it was undignified to hurry and
they took their time.

Goods were sometimes transported by packhorse (horses with bags on their sides). Also, carriers with
covered wagons carried goods and sometimes passengers. However when possible people preferred to
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transport goods by water. All around England, there was a 'coastal trade'. Goods from one part of the
country, such as coal, were taken by sea to other parts.

1.6.4 Transportation in the 17th Century

Transport and communications improved in the 17th century. In 1600 the royal posts were exclusively used
to carry the king's correspondence. However in 1635, to raise money, Charles I allowed members of the
public to pay his messengers to carry letters. This was the start of the royal mail.

From the middle of the 17th century stagecoaches ran regularly between the major towns. However they
were very expensive and they must have been very uncomfortable without springs on rough roads. There
was also the danger of highwaymen. In 1663 the first Turnpike roads opened. You had to pay to use them.
Meanwhile in towns wealthy people were carried in sedan chairs.

1.6.5 Transportation in the 18th Century

Transport was greatly improved during the 18th century. Groups of rich men formed turnpike trusts. Acts of
Parliament gave them the right to improve and maintain certain roads. Travelers had to pay tolls to use them.
The first turnpikes were created as early as 1663 but they became far more common in the 18th century.

Transporting goods was also made much easier by digging canals. In the early 18th century goods were
often transported by packhorse. Moving heavy goods was very expensive. However, in 1759 the Duke of
Bridgewater decided to build a canal to bring coal from his estate at Worsley to Manchester. He employed
an engineer called James Brindley. When it was completed the Bridgewater canal halved the price of coal in
Manchester. Many more canals were dug in the late 18th century and the early 19th century. They played a
major role in the industrial revolution by making it cheaper to transport goods.

Meanwhile in France the Montgolfier brothers invented the hot air balloon in 1783. The hydrogen balloon
was also invented in 1783. In 1785 two men, Jean-Pierre Blanchard and John Jeffries flew over the English
Channel in a hydrogen balloon.

It's debatable which man invented the lifeboat. Lionel Lukin invented an unsinkable boat in 1785. But the
first purpose built lifeboat was built in South Shields, England in 1789 by Henry Great head.

1.6.6 Transportation in the 19th Century

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In the mid19th century transport was revolutionized by railways. They made travel much faster. (They also
removed the danger of highwaymen). The Stockton and Darlington railway opened in 1825. However the
first major railway was from Liverpool to Manchester. It opened in 1830. In the 1840s there was a huge
boom in building railways and most towns in Britain were connected. In the late 19th century many branch
lines were built connecting many villages.

The first underground railway in Britain was built in London in 1863. The carriages were pulled by steam
trains. The first electric underground trains began running in London in 1890. The Central Line opened in
1900. The Bakerloo Line and the Piccadilly Line both opened in 1906. Meanwhile, the Paris Metro opened
in 1900. From 1829 horse drawn omnibuses began running in London. They soon followed in other towns.
In the 1860s and 1870s horse drawn trams began running in many towns. Karl Benz and Gottlieb Daimler
made the first cars in 1885 and 1886. The motorbike was patented in 1885. Also in the 1880s, the safety
bicycle was invented and cycling soon became a popular hobby.

1.6.7 Transportation in the 20th Century

Transportation greatly improved during the 20th century. Although the first cars appeared at the end of the
19th century after the First World War they became cheaper and more common. However in 1940 only
about one in 10 families in Britain owned a car. They increased in number after World War II. By 1959 32%
of households owned a car. Yet cars only became really common in the 1960s. By the 1970s the majority of
families owned one.

In 1903 a speed limit of 20 MPH was introduced in Britain. It was abolished in 1930. However, in 1934 a
speed limit of 30 MPH in built-up areas was introduced. The first electric traffic lights were invented in the
USA in 1914. In Britain, the first electric traffic lights were installed in 1928. Insurance for motorists was
made compulsory in 1931. The first Highway Code was published in 1931. A driving test was introduced in
1934. Also in 1934, Percy Shaw invented the cat's eye. Meanwhile, in Britain, the AA was formed in 1905.

The parking meter was invented by an American called Carlton Magee. The first ones were installed in the
USA in 1935. The first ones in Britain were installed in 1958. Then in 1959, a Swede named Nils Bohlin
developed the three-point seat belt. In 1983 wearing a seat belt was made compulsory in Britain. Wheel
clamps were introduced to Britain in 1983 and speed cameras in 1992.

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Meanwhile in Britain in 1936 Belisha Beacons were introduced to make road crossing safer. The first zebra
crossing was introduced in 1949. In Britain Lollipop men and women followed in 1953. The modern pelican
crossing was introduced in 1969.

In 1931 an American called Rolla N. Harger invented the first breathalyzer. It was first used in Indianapolis
USA in 1939. In Britain, double yellow lines at the sides of the roads meaning no parking were introduced in
1958.

Meanwhile in the late 19th century horse-drawn trams ran in many towns in Britain. At the beginning of the
20th century, they were electrified. However, in most towns trams were phased out in the 1930s. They gave
way to buses, either motor buses or trolleybuses, which ran on overhead wires. The trolleybuses, in turn,
were phased out in the 1950s. Ironically at the end of the 20th century, some cities re-introduced light
railways.

In the mid-20th century there was a large network of branch railways in Britain. However, in 1963 a minister
called Dr. Beeching closed many of them. Christopher Cockerell patented the hovercraft in 1955, in 1959 a
hovercraft crossed the English Channel. The first hovercraft passenger service began in 1962.

Meanwhile a completely new form of transport began. In 1919 planes began carrying passengers between
London and Paris. (The first plane flight in Britain was made in 1908). The first passenger jet service began
in 1952. However in the early 20th century flight was a luxury few people could afford. Furthermore only a
small minority could afford foreign travel. Foreign holidays only became common in the 1960s. The Boeing
747, the first 'Jumbo jet' was introduced in 1970 and The Channel Tunnel opened in 1994.

1.6.8 Transportation in the 21st Century

The next step in transport will probably be commercial suborbital space flight. At the moment it is still in the
future and at first it will inevitably be very expensive but it will eventually become cheap enough for
ordinary people to afford.

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 Chapter Two
2.1 Types of Transportation (mode of transport)
The freight transportation structure consists of the rights-of-way, vehicles, and carriers that operate within
five basic transportation modes. A mode identifies a basic transportation method or form.
The mode of transport describes the type of transport used. There are basically five different options – rail,
road, water, air and pipeline. Each mode has different characteristics, and the best in any particular
circumstances depends on the type of goods to be moved, locations, distance, value and a whole range of
other things.

A. Rail
Rail transport is most commonly used for heavy and bulky loads over long land journeys.
Trains can maintain a consistent, reasonably high speed, and can link with other modes to carry containers
and bulk freight.
The capability to efficiently transport large tonnage over long distances is the main reason rail continues to
handle significant intercity tonnage. Rail operations have high fixed costs because of expensive equipment,
right-of-way and tracks, Switching yards, and terminals. However, rail enjoys relatively low variable
operating costs. The development of diesel power reduced the rail' variable cost per ton-mile, and
electrification is providing further reductions. Modified labour agreements have reduced human resource
requirements, resulting in variable cost reductions.
As a result of deregulation and focused business development, rail traffic has shifted from transporting a
broad range of commodities to specific freight. Core railroad tonnage comes from raw material-extractive
industries located a considerable distance from improved waterways and items such as automobiles, farm
equipment, and machinery. The rail fixed-variable cost structure offers competitive advantages for long-haul
moves. Railroads became more responsive to specific customer needs by emphasizing bulk industries and
heavy manufacturing, as contrasted to standardized boxcar service.
To provide improved service to major customers, progressive rail have concentrated on the development of
specialized equipment, such as enclosed tri level automobile railcars, cushioned appliance railcars, unit
trains, articulated cars, and double stack container flatcars. These technologies are being applied by the
railroads to reduce weight, increase carrying capacity, and facilitate interchange faster and less expensive to
operate than traditional trains since it can be routed direct and nonstop from origin to destination. Rail is that
the unit transport cost is low, so it can be used to move large volumes of relatively low-priced materials,
such as coal and minerals. For this reason, rail transport is more common in the earlier, upstream, parts of
the supply chain. You are more likely to see organisations using rail for inbound raw materials than
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outbound finished goods. All train services have to be timetabled in advance, so that they can all fit onto the
same track. This leaves little flexibility for last minute or emergency deliveries. A more obvious concern is
that trains can only travel along specified routes between fixed terminals, and cannot stop at intermediary
points. Most customers are some distance away from these terminals, so they have to transfer goods by road
at both ends of the journey. These transfers add time, and they can leave rail as a fairly slow alternative. It is
more useful for long distances, but is inefficient for short journeys. Example; In the UK the average journey
length by rail is 180 kilometres, compared with 95 kilometres by road.
Advantages:
1. Dependable:
The greatest advantage of the railway transport is that it is the most dependable mode of transport as it is the
least affected by weather conditions such as rains, fog etc. compared to other modes of transport.

2. Better Organized:
The rail transport is better organized than any other form of transport. It has fixed routes and schedules. Its
service is more certain, uniform and regular as compared to other modes of transport.

3. High Speed over Long Distances:

Its speed over long distances is more than any other mode of transport, except airways. Thus, it is the best
choice for long distance traffic.

4. Suitable for Bulky and Heavy Goods:

Railway transport is economical, quicker and best suited for carrying heavy and bulky goods over long
distances.

5. Cheaper Transport:
It is a cheaper mode of transport as compared to other modes of transport. Most of the working expenses of
railways are in the nature of fixed costs. Every increase in the railway traffic is followed by a decrease in the
average cost. Rail transport is economical in the use of labor also as one driver and one guard are sufficient
to carry much more load than the motor transport.

6. Safety:
Railway is the safest form of transport. The chances of accidents and breakdowns of railways are minimum
as compared to other modes of transport. Moreover, the traffic can be protected from the exposure to sun,
rains, snow etc.

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7. Larger Capacity:
The carrying capacity of the railways is extremely large. Moreover, its capacity is elastic which can easily be
increased by adding more wagons.

8. Public Welfare:
It is the largest public undertaking in the country. Railways perform many public utility services. Their
charges are based on ‘charge what the traffic can bear’ principle which helps the poor. In fact, it is national
necessity.

9. Administrative Facilities of Government:

Railways provide administrative facilities to the Government. The defense forces and the public servants
drive their mobility primarily from the railways.

10. Employment Opportunities:
The railways provide greater employment opportunities for both skilled and unskilled labour. Over 16 lakh
persons are depending upon railways for their livelihood.

Disadvantages:
1. Huge Capital Outlay:
The railway requires is large investment of capital. The cost of construction, maintenance and overhead
expenses are very high as compared to other modes of transport. Moreover, the investments are specific and
immobile. In case the traffic is not sufficient, the investments may mean wastage of huge resources.

2. Lack of Flexibility:
Another disadvantage of railway transport is its inflexibility. Its routes and timings cannot be adjusted to
individual requirements.

3. Lack of Door to Door Service:

Rail transport cannot provide door to door service as it is tied to a particular track. Intermediate loading or
unloading involves greater cost, more wear and tear and wastage of time.

The time and cost of terminal operations are a great disadvantage of rail transport.

4. Monopoly:

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As railways require huge capital outlay, they may give rise to monopolies and work against public interest at
large. Even if controlled and managed by the government, lack of competition may breed inefficiency and
high costs.

5. Unsuitable for Short Distance and Small Loads:

Railway transport is unsuitable and uneconomical for short distance and small traffic of goods.

6. Booking Formalities:
It involves much time and labor in booking and taking delivery of goods through railways as compared to
motor transport.

7. No Rural Service:
Because of huge capital requirements and traffic, railways cannot be operated economically in rural areas.
Thus, large rural areas have no railway service even today. This causes much inconvenience to the people
living in rural areas.

8. Under-utilized Capacity:
The railway must have full load for its ideal and economic operation. As it has a very large carrying
capacity, under- utilization of its capacity, in most of the regions, is a great financial problem and loss to the
economy.

9. Centralized Administration:

Being the public utility service railways have monopoly position and as such there is centralized
administration. Local authorities fail to meet the personal requirements of the people as compared to
roadways.

B. Road
Road is the most widely used mode of transport and is used at least somewhere in almost all supply chains.
Its main benefit is flexibility, being able to visit almost any location. Although the maximum speed on roads
is limited, this ability to give a door-to-door service avoids transfers to other modes and can give a shorter
overall journey time. Road transport has the advantage of being able to use extensive road networks. Unlike
rail, these already exist, so users do not have to build and maintain their own tracks. Also, vehicles do not
have to keep to such rigid timetables, so they can go on journeys at short notice and with little planning.
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In contrast to rail, where each operator is likely to have a (near) monopoly over some route, road transport is
characterised by a large number of carriers working in the same areas.
In the USA, for example, there are 40,000 public carriers and 600,000 private fleets. With so many operators
competition is likely to be more intense and pricing more flexible. There is a huge number of different types
of road vehicle. Many of these are specialised, and designed for specific purposes, and there are different
regulations in different countries.
Depending on conditions, road transport can normally carry loads up to, say, 20–30 tonnes. The European
Union has a gross limit of 42 tonnes and different limits apply in other areas. In exceptional circumstances,
very large loads can be carried, such as the loads of a thousand tonnes that are moved for oil companies in
the Arctic. However, weight and size limits mean that road transport is more often used for smaller loads.
These become relatively expensive, so road transport is generally used for shorter distances. Although it is a
very simplistic view, you are more likely to see road transport used for delivering finished goods than bulky
raw materials. Another problem is that Lorries are particularly vulnerable to congestion and traffic delays.
Advantages of Road Transport
 Less Capital Investment
As compared to other modes of transport such as railway and air transport, road transport required less
capital investment. Generally, roads are constructed by the government. For the use of these roads, small
revenue is charged by the government. As compared to railway and air transport, the cost of constructing,
operating and maintaining roads is quite cheaper.
 Service For Rural Areas
For carrying goods and people to and from rural areas which are not usually served by rail, air or water
transport, this popular mode of transport is the most suited. The exchange of goods is made possible only
through road transport.
 Fast Delivery
One of the outstanding Advantages of Road Transport is that it provides the facility of fast delivery. The
goods are exchanged and delivered quite quickly. There are no worries of slow delivery.
 Best for Short Distances
In this form of transport, goods can be loaded into a road vehicle directly and then transported straight to the
place of the destination. Road transport is more economic and quicker for carrying goods and people from
one place to another.
 Warehouse to Warehouse Service

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One of the most important advantages of the road transport is that it provides the facility of warehouse to
warehouse or door to door service. This service by road transport reduces the expenses of cartage, loading
and unloading.
 Flexibility
Due to its flexible services, road transport has a great advantage over the other modes of transport. Without
any inconvenience, the routes and timings can be adjusted and can be easily changed according to individual
requirements.
 Less Packing Cost
In comparison of other modes of transport, the process of packing is less complicated in road transport.
Goods transported in this mode of transport require less packing. Sometimes, there is no packing in several
cases.
 Act as feeder to other modes of Transport
The movement and exchanging of goods begins and ends by making use of roads. Roads and motor are
considered as a feeder to the other modes of transport such as railway and air transport.
Disadvantages of Road Transport
 Limited Speed:
As compared to some other modes of transport, road has comparatively slow and limited speed. Its slow
speed is one of the smallest disadvantages of road transport.  
 Accidents:
In road transport, the chances of accidents and breakdowns increase. Thus, it is not considered safe for
several kinds of purposes.  
 Not suitable for Bulky Traffic:
Road transport is one of the modes of transport that is unsuitable for bulky goods. It is very dangerous to
carry heavy and bulky goods by using roads. For transportation of the bulky goods, it is not very suitable.
 Costly for Long Distances:
This mode of transport is unsuitable for carrying cheap and bulky goods over a long distance. Road transport
is one of the costly modes of transport if travelling over large distances and this is one of the most
disappointing facts about road transportation.
 Less Organized:
As compared to the other mode of transport, road transport is the one which is less organized as it is usually
irregular. It is also very undependable.  
 Unstable rates of charges:

18
The rates charged for this mode of transportation are usually unstable. In comparison of other modes of
transport, the rates charged by the road transportation are unequal.
 Not reliable
Road transport is considered as one of the unreliable modes of transport as it is not very reliable as compared
to rail transport. It greatly depends on nature. During some seasons such as rainy or flood season, this mode
of transport becomes unsafe and unfit.
 Pollution
In road transport, pollution is caused by vehicles which are injurious to human health. The vehicles are one
of the major causes of air pollution in the world.

C. Water
Both rail and road transport has the obvious limitation of only being used on land. Most supply chains use
shipping to cross the oceans at some point, and over 90% of world trade is moved by sea. You can see the
importance of shipping to a country like the UK, where 95% of freight arrives or leaves by ship, shipping is
the fifth largest service sector exporter, the City of London insures 25% of the world’s marine risk, the
marine and repair business is one of the largest in Europe, there are 300 ports around the coast, and the
surrounding waters are among the busiest in the world.
The main drawback with water transport is, of course, its inflexibility in being limited to appropriate ports.
Journeys from suppliers and to customers inevitably need a change of mode, even if they are close to ports.
The other problem with shipping is that it is relatively slow, and needs time to consolidate loads and transfer
them at ports. However, such transfers can be made efficient, and then coastal shipping can compete with
road transport, even for relatively short distances.
Advantages:
1. Less Maintenance Cost:
Maintenance cost in rail and road transport is quite high but maintenance cost of water transport is quite less.

2. Cheap:
The transport channel is quite cheap as compared rail and road Transport.

3. Useful for Bulky Goods:

Heavy and bulky goods can be transported easily at little cost through water transport.

4. Useful During Natural Calamities:

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During natural calamities like flood and rains, when rail and road transport is disrupted, relief operations can
be operated through water transport.

5. Helpful in Defense:
Development of shipping is essential for the defense of the country also. It is also called second line of
defense.

6. Important for Foreign Trade:

Water transport plays important role in foreign trade. India’s foreign trade is mainly dependent on water
transport.

Disadvantages of Water Transport:

The following are the disadvantages of water transport:
1. Slow Speed:
It is a slow means of transport. Failure of monsoon results into fall in the water level of rivers making
navigation difficult.

2. More Risky:
Water transport is more risky as compared to other means because there is always danger of sinking ships or
boats.

D. Air
Because of its low unit costs, water transport is the most common mode for international transport.
Sometimes, though, its slow speed is unacceptable. If, for example, you run a factory in Argentina and a
critical machine breaks down, you do not want the spare part to be put on the next scheduled ship from
Japan, which will arrive in four weeks time. In such circumstances the alternative is air transport. Airlines
carry a significant amount of freight, for products where speed of delivery is more important than the cost. In
practice, this limits airfreight to fairly small amounts of expensive materials.
There are all sorts of facilities located around major airports for moving materials from sources onto the
right planes, and then away from planes and out to customers. Unfortunately, these transfers again take time,
and can reduce the benefits of air travel.
They have a combination of high fixed costs (aeroplanes are expensive to buy) and high variable costs (due
to fuel, landing fees, staff, and so on). It is expensive to keep planes flying, and there is no real way of

20
reducing these costs. Competition can also be fierce, putting a limit on the amount they can charge, and this
frequently sends new airlines into bankruptcy.
Air transport has the following characteristics:
1. Unbroken Journey: Air transport provides unbroken journey over land and sea. It is the fastest and
quickest means of transport.
2. Rapidity: Air transport had the highest speed among all the modes of transport.
3. Expensive: Air transport is the most expensive means of transport. There is huge investment in
purchasing aero planes and constructing of aerodromes.
4. Special Preparations: Air transport requires special preparation like wheelers links, meteorological
stations, flood lights, searchlights etc.
Advantages

1. High Speed: The supreme advantage of air transport is its high speed. It is the fastest mode of transport
and thus it is the most suitable mean where time is an important factor.
2. Comfortable and Quick Services: It provides a regular, comfortable, efficient and quick service.
3. No Investment in Construction of Track: It does not require huge capital investment in the construction
and maintenance of surface track.
4. No Physical Barriers: It follows the shortest and direct route as seas, mountains or forests do not come in
the way of air transport.
5. Easy Access: Air transport can be used to carry goods and people to the areas which are not accessible by
other means of transport.
6. Emergency Services: It can operate even when all other means of transport cannot be operated due to the
floods or other natural calamities. Thus, at that time, it is the only mode of transport which can be employed
to do the relief work and provide the essential commodities of life.
7. Quick Clearance: In air transport, custom formalities can be very quickly complied with and thus it
avoids delay in obtaining clearance.
8. Most Suitable for Carrying Light Goods of High Value: It is most suitable for carrying goods of
perishable nature which require quick delivery and light goods of high value such as diamonds, bullion etc.
over long distances.
9. National Defense: Air transport plays a very important role in the defense of a country. Modern wars
have been fought mainly by airplanes. It has upper hand in destroying the enemy in a very short period of
time. It also supports over wings of defense of a country.

10. Space Exploration: Air transport has helped the world in the exploration of space.
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Disadvantages:
In spite of many advantages, air transport has the following limitations:
1. Very Costly: It is the costliest means of transport. The fares of air transport are so high that it is beyond
the reach of the common man.
2. Small Carrying Capacity: Its carrying capacity is very small and hence it is not suitable to carry cheap
and bulky goods.
3. Uncertain and Unreliable: Air transport is uncertain and unreliable as it is controlled to a great extent by
weather conditions. Unfavorable weather such as fog, snow or heavy rain etc. may cause cancellation of
scheduled flights and suspension of air service.
4. Breakdowns and Accidents: The chances of breakdowns and accidents are high as compared to other
modes of transport. Hence, it involves comparatively greater risk.
5. Large Investment: It requires a large amount of capital investment in the construction and maintenance
of airplanes. Further, very trained and skilled persons are required for operating air service.
6. Specialized Skill: Air transport requires a specialized skill and high degree of training for its operation.
7. Unsuitable for Cheap and Bulky Goods:
Air transport is unsuitable for carrying cheap, bulky and heavy goods because of its limited capacity and
high cost.

8. Legal Restrictions: There are many legal restrictions imposed by various countries in the interest of their
own national unity and peace.

E. Pipeline
The main uses of pipelines are oil and gas together with the utilities of water and sewage. They can also be
used for a few other types of product such as pulverised coal in oil. Pipelines have the advantage of moving
large quantities over long distances. Unfortunately, they have the disadvantages of being slow (typically
moving at less than 10 km per hour), inflexible (only transporting between fixed points), and only carrying
large volumes of certain types of fluid. In addition, there is the huge initial investment of building dedicated
pipelines.
Despite this initial investment, pipelines are the cheapest way of moving liquids particularly oil and gas over
long distances. Local networks can add flexibility by delivering to a wide range of locations (such as
supplies of water and gas to homes).
Advantages pipelines

1. Reduction in cost of transportation is very significant.

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2. Supply through pipelines is very reliable. It is free from obstacles in road and rail transport.

3. In case of underground pipelines, the land in which pipeline is laid can still be used for agricultural use.

4. It ensures supply in remote areas where road ways are not very good, also it provides safe and secure
supply for defense needs.

Disadvantages pipe lines

1. Unlike roads no separate land acquisition is done for pipelines, sometimes it is laid sidewise along the
road. Which is not very convenient if it is passing through dense populated areas. Also there is always a risk
of damaging pipeline because of road repair and other activities containing excavation.

2. Illegal pilferage and wastage due to leak is a problem in pipelines.

3. Like other big linear structures patrolling and maintenance of pipelines is a huge task.

4. In case of chemicals and petroleum pipelines any leak can cause accident.

5. In case of petroleum and minerals pipelines, as the pipeline is laid in private owned lands also,
compensation is decided by P&MP act 1962. Which contains many points, which are obsolete and not
feasible in modern time. Causing problems to both land owners and companies laying pipelines.

2.2 Choice of mode

 Speed refers to elapsed movement time.
 Availability refers to the ability of a mode to service any given pair of locations
 Dependability refers to potential variance from expected or published delivery schedules
 Capability is the ability of a mode to handle any transport equipment, such as load size.
 Frequency relates to the quantity of scheduled movements.
Sometimes the choice of transport mode seems obvious: if you want to move heavy items between two
points you will use shipping. For land journeys, many organisations seem happy to put materials on Lorries
without much thought for the alternatives. In practice, the choice of mode depends on a variety of factors.
Perhaps the main ones are the nature of materials to move, the volume and distance. Other factors include:
 Value of materials, as expensive items raise inventory costs and encourage faster modes
 importance, as even low-value items that would hold up operations need fast, reliable
 Transport. transit times, as operations that have to respond quickly to changes cannot wait for
critical supplies using slow transport
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  Reliability, with consistent delivery often being more important than transit time
 Cost and flexibility to negotiate rates
 Reputation and stability of carrier
 Security, loss and damage
 Schedules and frequency of delivery
 Special facilities available.
Many other factors may be important for a final decision. Organisations that routinely use the cheapest mode
may be performing badly by some of the other measures. Remember that transport costs are often a
relatively small part of overall costs, and it can be worth paying more to get a rapid and reliable delivery.
One of the early studies of logistics by Lewis et al. Showed that air freight can actually save money. It
moves materials through the supply chain so quickly that organisations need fewer warehouses for
distribution to customers by paying more for transport they can reduce overall costs.

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25
 2.3 MULTIMODAL TRANSPORT
We have seen some factors that affect the choice of transport mode, but organisations do not have to use the
same mode for an entire journey. Their best option is often to divide the journey into stages and use the best
mode for each stage. This does, of course, depend on factors like the length of the journey, the relative costs
and the penalty of moving between modes. But if you move materials from Saudi Arabia to Ethiopia you
might start by putting the goods on a truck, transferring them to rail for the journey across Saudi to Yemen
then onto a ship to Djibouti, then back onto rail to cross Ethiopia, and then truck for local delivery. Journeys
that use several modes of transport are called intermodal.
Multimodal transport has been defined by different writers and organizations. Generally it is the carriage of
goods by at least two different modes of transport on the basis of a multimodal transport contract from a
place in one country at which the goods are taken in charge by a multimodal transport operator to a place
designed for delivery situated in different country.
Multimodal transport operator (MTO) is any person who concludes a multimodal transport contract and
assumes responsibility for the performance there of as a carrier. In multimodal transport, one transport
document; one rate and through liability are used. It provides the user with a single point of responsibility
and greater cost transparency. Ultimate aim of multimodal is to make the movement of goods from seller to
buyer more efficient through faster transit at reduced costs.
The aim of intermodal transport is to combine the benefits of several separate modes, but avoid the
disadvantages of each; perhaps combining the low cost of shipping with the flexibility of road, or getting the
speed of air with the cost of road. The main problem is that each transfer between modes causes delays and
adds costs for extra handling. You can experience this effect when you transfer between a bus and train, or
between a car and ferry. Intermodal transport only works if this transfer can be done efficiently.
At the heart of intermodal transport are the systems for transferring materials between modes. The aim is to
give a virtually seamless journey, and the best way of achieving this is to use modular or unitised loads. In
effect, all materials are put into standard containers, and the equipment is arranged to move these containers.
The basic container is a metal box 20-feet long. This size has become somewhat restricting, and it is often
replaced by a 40-foot box. Putting materials into these boxes eliminates the need to handle items
individually, and the whole container goes from source to destination.
In particular, transferring materials between modes has changed from a labour-intensive operation to a
capital-intensive one. Huge container ports and terminals have been built around the world to move
containers efficiently and with minimum delay from one type of transport to another, or from one carrier to
another.
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In the late 1960s ships spent about 60% of their time laid up in port for loading and unloading. Largely due
to containerisation, this has reduced dramatically, and ships can turn around in a few hours. Technically,
coordinated or intermodal transportation could be arranged among all the basic modes barring pipelines as
shown in the following figure.

Piggy Back: is known as inter modal system, which is an outcome of the coordination between railways &
roadways. It also called “tailor- on- flat car” (TOFC) or “container-on- flat-car” (COFC).this system
involves picking up goods in a trailer or container by truck delivering it to rail removing the truck tailor &
loading it on a flat car of road for a long distance by rail,& bat the destination , detaching the tailor from
rail, reattaching it to truck which makes the final delivery.
Fishy back: coordination of road & water modes of transport.
The goods containing boxes are loaded on the trailer which will be further loaded on a ship.
At the destination, it will be unloaded from the ship & reloaded on truck for final delivery. It is used widely
in the case of export & import freight cargo.
Transship: Coordination effort of rail way & waterways again it functions in the same pattern
Air –Truck (bendy-back):- refers to exchange of goods containers/boxes between Air &Road carriers.
2.3 Containerization
Container : is a large standard size metal box into which cargo is packed for shipment abroad specially
configured ocean going containership & designed to be moved with common handling equipment enabling
high speed inter modal transport in economically large unit between ships, rail roads, truck chassis & barges
using a minimum of labor except pipeline.
2.3.1 Advantages of containerization
 Standard transport product :-its dimension are an ISO standard

27
  Flexibility of usage:-it can transport a wide variety of goods ranging from raw materials,
manufacturing goods, etc.
 Cost: relatively took bulk, container transportation reduces transport costs, about 20 times less than
bulk transport. The main factor is its flexibility &speed. Similar to other transportation modes
containers shipping is benefiting from economies of scale with large containerships.
 Speed: - transshipment operations are minimum & rapid.
 Warehousing - has limited risks by its structure resistant to stocks & weather conditions. Simpler &
less expensive packaging, advantage of conferring a stocking capacity on ships, trains & on the
ground. The container is consequently warehouse.
 Security: - the contents of the containers are unknown to shippers as it can only be opened at the
origin, at customs & at the destination. Spoilage & losses are considerably reduced.
2.3.2 Draw Backs of Containerization
1. Consumption of space: - containers of 25,000tons require a minimum of 12 hectares of unloading space
2. Infrastructure costs: - such as giant cranes, warehousing facilities inland road & rail access, represent
important investment for port authorities & load centers & so cannot participate efficiently to
international trade.
3. Empty travel:- many empty containers are thus being moved back to production area. Either full or
empty container5s take the same amount space on a truck, railcar, a ship or storage yard & takes the
same amount of time to be transshipped. As a result, multi modal transport & container leasing
companies lose some substantial amount of time & money in handling empty containers. This cost is
reflected in container shipping rates. The alternation of goods is used to counter this problem.
4. Illicit trade:- by its confidential character, the container is common instrument used in the illicit trade of
drug & weapons as well as for illegal immigration, terrorism is also another concern in containerization,
electric scanning systems are being implemented to remotely inspect the contents of containers at major
gateways.

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 Chapter Three
Transportation and Freight management
Transportation and freight management may be defined as the planning, organizing, implementing, and
controlling of transportation services and freight movements to achieve organizational objectives.
3.1 Selection of transport carrier
In decision of transport firms needs to recognize that the lowest carriers does not necessarily guarantee that
this carrier will result in the lowest landed cost- transportation supply chain relationship. Various modes of
transport should be considered to choose a carrier(s) within in the selected mode, and carefully examine the
service capabilities of the selected carrier as services can vary between carriers-carriers selection decision. A
transport or logistics manager is required to take into consideration the following factors while selecting
transportation mode/carrier.
1. The strength and weaknesses of the company in terms of marketing, financial and production resources.
If any volume of freight is moved, some damages will be incurred, resulting in claims against the carrier.
Should the carrier get in to financial difficulty, or even become insolvent, collection on claims becomes a
problem. Therefore, the buyer should avoid those carriers that are on the margin financially.
2. The prevailing market characteristics including the competitive scenario, geographical and territory
structure
3. Product feature and suitability to various modes of transportation such as height ,size ,shape, etc .for
example, bulk liquid require railroad tank car, pipeline
E.g. concerning size small shipment trucks & other road carriers
4. Quantity to be transported each time
5. Distance to be covered
6. Total transportation cost of various mode of transportation
The buyer should select the mode, carrier, and routing that will provide for the safe movement of goods,
within the required time, at lowest total transport cost. This requires a thorough knowledge of freight
classifications and tariffs.
7. Carrier performance in terms of speed ,availability, reliability, safety, claim settlement procedures
and logistical service capacities
3.2 Transport and Supply chain management
SCM is an external integration of integrated functions of the firm with its channel member, venders and all
third party logistic service providers who contributes in the follow of goods and information from the point
of inception to the point of consumption with efficiency.

29
SCM is the flows of materials, information, and finances as they move to whole sellers to retailers, to
customers as an integrated ways. It involves coordinating and integrating these flows in and among
companies. Therefore, the scope of supply chain management usually bounded on:
The supply side by your supplier’s of suppliers
The customer side by your customers of customer
When integration extended to outside parties such as supplier and customers it forms supply chain
management .This integration assured if there is efficient transportation.
Thus, in success of any logistical system and coordinated and efficient supply chain performance,
transportation plays the following strategic role:
1. it ensures speedy and timely physical movement of goods from point of inception to point of
consumption
2. it creates core competency by preventing stock out and customer annoyance
3. it provides protective storage during transit
4. it ensures cost efficient and better customer services
Tracking system: Is assuring the exact position of shipment in terms of times and distance from its place of
usage. Transportation control consists in monitoring the route movements of the transport units, monitoring
traffic conditions and delays, and registering and evaluating disturbances. Transport controlling of external
transport systems is usually managed via a control center that controls, monitors, and coordinates transports
in dependency on actual conditions and contingencies. Today, drivers can communicate with central control
via mobile data terminals, cellular phones, and personal digital assistants. The wireless Internet allows for
the use of small handheld devices for interfacing with central control and accessing traffic and weather
information. Some vehicles are also equipped with satellite navigation systems, such as global-positioning
system (GPS) receivers, that compute the location of vehicles in real-time and allow tracking by central
control.
3.3 Routing Identification
Routing is the design of transportation network. This network created, when different points or lines linked
together in to a structure. Such networks by carrying flows of goods, people, information or anything else
that is moved from one place give rise the benefits of transportation system.
Good identification of routing:
 Reduce transportation costs
 Improve customer services
 Minimize time or distance
 Increase accessibility
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 3.4 Transport network
The term network refers to the framework of routes within a system of locations, identified as nodes. A route
is a single link between two nodes that are part of a larger network that can refer to tangible routes such as
roads and rails, or less tangible routes such as air and sea corridors.
The setting of networks is the outcome of various strategies, such as providing access and mobility to a
region, reinforcing a specific trade corridor or technological developments making a specific mode and its
network more advantageous over others. A transport network denotes either a permanent track (e.g. roads,
rail and canals) or a scheduled service (e.g. airline, public transit, train).
Transport networks are better understood by the usage level (e.g. number of passengers, tons, vehicles,
capacity) than by their sole topology based on a binary state (i.e. presence or absence of links). Inequalities
between locations can often be measured by the quantity of links between nodes and the related revenues
generated by traffic flows. Many locations within a network have higher accessibility, which is often related
to better opportunities. However, economic integration processes tend to change inequalities between
regions, mainly through a reorientation of the structure and flows within transportation networks at the
transnational level. The efficiency of a network can be measured through graph theory and network
Analysis.
Graph theory depends on the concept of representing networks as a graph or matrix. The underlying basics
of this science assumes that transport networks can be represented by directed graph with nodes and links
where the nodes represent junctions while links indicate homogeneous road section between nodes. Several
network based indicators measures have been developed to analyze transport network based on structural
efficiency, connectivity, cyclic property of the network.
These methods rest on the principle that the efficiency of a network depends partially on the lay-out of nodes
and links. Obviously some network structures have a higher degree of accessibility than others, but careful
consideration must be given to the basic relationship between the revenue and costs of specific transport
networks.
There are three types of physical spaces on which transport networks are set and where each represents a
specific mode of territorial occupation:
 Clearly defined and delimited. The space occupied by the transport network is strictly reserved for its
exclusive usage and can be identified on a map. Ownership can also be clearly established. Major
examples include road, canal and railway networks.
 Vaguely defined and delimited. The space of these networks may be shared with other modes and is
not the object of any particular ownership, only of rights of way. Examples include air and maritime
transportation networks.
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 Without definition. The space has no tangible meaning, except for the distance it imposes. Little control
and ownership are possible, but agreements must be reached for common usage. Examples are radio,
television and cellular networks, which rely on specific wave frequencies granted by regulatory agencies.
Networks provide a level of transport service which is related to their costs. An optimal network would be a
network servicing all possible locations but such a service would have high capital and operational costs.
Transport infrastructures are established over discontinuous networks since many were not built at the same
time, by the same entity or with the same technology. Therefore, operational networks rarely service all parts
of the territory directly. Some compromise must often be found among a set of alternatives considering a
variety of route combinations and level of service.

 Node. Any location that has access to a transportation network.

 Link. Physical transport infrastructures that enable to connect two nodes.
 Flow. The amount of traffic that circulates on a link between two nodes and the amount of traffic
going through a node.
 Hub / Interface. A node that is handling a substantial amount of traffic and which acts as
compulsory passage for various flows. An intermodal function is often performed at hubs. Many
economic and transport activities as generally located at hubs, including distribution, warehousing,
finance and retailing.
 Feeder. A node that is linked to a hub. It organizes the direction of flows along a corridor and can be
considered as consolidation and distribution point.

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  Corridor. A sequence of nodes and links supporting modal flows of freight, people or information.
A network is a set of nodes (locations) linked by links (arcs between places), for all nodes to be linked, n-1
links are necessary. The graph is the symbolic representation of a network.

3.4.1 Design options for a transportation network

A. Direct shipment network
With the direct shipment network option, all shipments come directly from each supplier to each buyer
location, as shown in figure 1. With a direct shipment network, the routing of each shipment is specified and
the supply chain manger only needs to decide on the quantity to ship and the mode of transportation to use.
The major advantage of a direct shipment transportation network is the elimination of intermediate
warehouses and its simplicity of operation and coordination. The decision made for one shipment does not
influence others. The transportation time from supplier to buyer location is short because each shipment goes
direct.
A direct shipment network is justified if demand at buyer locations is large enough that optimal
replenishment lot sizes are close to a TL from each supplier to each location. With small buyer locations,
however, a direct shipment network tends to have high costs.
Suppliers Buyer locations

Figure 1 direct shipment network

B. Direct shipping with milk runs

A milk run is a route on which a truck either delivers product from a single supplier to multiple retailers or
goes from multiple suppliers to a single buyer location, as shown figure 2. In direct shipping with milk runs,
a supplier deliver directly to multiple buyer locations on a truck or a truck picks up deliveries destined for
the same buyer location from many suppliers.
Direct shipping provides the benefit of eliminating intermediate warehouse, whereas milk runs lower
transportation cost by consolidating shipments to multiple locations on a single truck. For example, the
replenishment lot size for each buyer location may be small and require LTL shipping if sent directly, the
use of milk runs allows deliveries to multiple locations to be consolidated on a single truck, resulting in
33
better utilization of the truck and somewhat lower costs. If very frequent small deliveries are needed on a
regular basis and either a set of suppliers or a set of retailers is in geographic proximity, the use of milk runs
can significantly reduce transportation costs.

Suppliers Buyer locations Suppliers Buyer locations

Figure 2 milk runs from multiple suppliers or to multiple buyer location

C. All shipment via central distribution center
Under this option, suppliers do not send shipments directly to buyer locations. The buyer divides locations
by geographic region and a DC is built for each region. Suppliers send their shipments to the DC and the DC
then forwards appropriate shipments to each buyer locations, as shown in figure 3.
The DC is an extra layer between suppliers and buyer locations and can play two different roles. One is to
store inventory and the other is to serve as a transfer location.
Suppliers Buyer Locations

DC

34
 Figure 3 all shipment via DC
D. Shipping via DC Using Milk Runs
As sown in figure 4, milk runs can be used from a DC if lot sizes to be delivered to each buyer location are
small. Milk runs reduce transportation costs by consolidating small shipments
Suppliers Buyer locations

DC

Figure 4 milk runs from distribution center (DC)

3.4.2 Network evaluation indicators

Evaluation of transport system should be based on defined development objectives of the city. Evaluating
criterion is set depending on the goal of development each city. Criteria and indicators may differ
significantly depending on many factors such as city type, regional transportation vision, or travel behavior
even between modes.
Mobility
Transport networks are intended to move people and goods to where they need to go quickly and affordably.
The movement of people and goods is affected by cost and the safety of travel. Mobility is the ability to
move people and goods. Increasing the efficiency and effectiveness of transport network will increase
mobility. In developing countries with low infrastructure both cost of travel and safety are major factors
affecting mobility.
Equity
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Equity refers to the distribution of resources (transport network) and if the distribution is considered
appropriate. In transport equity is a diversified concept and the analysis may be difficult because there are
various ways to categorize people, number of resources to consider and various measuring these resources.
Accessibility
Accessibility is one of the important characteristics of urban transport and it shows the relationship between
transport and land use. One important function of the road network is to provide linkage and open access to
major centers, by giving connectivity to all economic centers, sub city headquarters and national and
international entry points like airport and fright hubs. By providing good connectivity the road network will
contribute the economic growth, increase accessibility and people mobility.
Transport infrastructure availability
One of the important factors affecting the performance of the transport network is the availability of
adequate transport infrastructure. Transport infrastructures include road length, road width, public transport
hubs and even road furniture and these factors affect the accessibility of transport system.
3.5 Transport Regulation and deregulation
Deregulation is the act or process of removing or reducing state regulations. It is therefore opposite of
regulation, which refers to the process of the government regulating certain activities. The stated rational for
deregulation is often that fewer and simpler regulations will lead to a raised level of competitive, therefore
higher productivity, more efficiency and lower prices overall. For example, in America Transportation was
the first target of deregulation, under President Jimmy Carter (1977-1981), congress enacted a series of laws
that removed most of the regulatory shield around aviation, trucking, and railroads. Companies were allowed
to compete by utilizing any air, road, or rail route they chose, while more freely setting the rates for their
services.
Government transport regulation falls in to two categories: economic and social regulation. Economic
regulation exists in the form of price controls to protect the consumer from price gouging. Social regulation
exists to protect the public as in the case of safer work places and a clean environment.
A. Economic regulation
To provide dependable transportation service and to foster economic development, both federal and state
governments have actively utilized economic regulation:
 The prevention of monopolists
 Development of fair competition
 Development of financial performance of the transportation to provide dependable transportation
service.
Economic regulation generally implemented by controlling entry, rates, and services.
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 I. Entry and Exit Regulation: this regulation controls carrier entry and exist as well as the market served
in order to:
 Reduce the cutthroat competitive characteristics in larger markets and ensuring viable services
levels for smaller market.
 Limits a carrier’s ability to leave a market if this would results in a substantial reduction in
service
II. Rate Regulation: Under this regulation, specific consideration include Rate making, Rate changes and
Rate subsidiaries
Rate Making: refers to the practice of setting rates. Single line rates are the rates between origin and
destination offered by single carrier. Joint rate is a single rate between origin and destination offered by
multiple carriers.
Rate Changes: are the practices required to increases or decrease rate prior to deregulation. Carriers are not
allowed to change rates unless they could justify the necessity to do so. Temporary rate changes such as
those resulting from increases in fuel prices may be implemented.
Rate subsidies: refers to the practice of assisting or subsidizing one segment of carrier operation by allowing
higher rate on a different segment. It has been argued that the high cost of providing service in small markets
has been subsidized by the rate charged in the relatively lower cost than major market. Subsidies have been
allowed historically when governments desired to promote or develop a market segment.
III. Services: this concerns the services provided by the carrier prior to deregulation, service offerings were
relatively consistent across carriers and included product transport, loading and unloading loss about
shipment status and invoicing. After deregulation, shippers and consignees sought carriers that could
provide more quality services while possibly negotiations restructure other responsibilities like
liability and loading practices.
B. Social /Safety Regulation
I. Safety of transportation
 Quality and durability of the roads, railways, airport etc.
 Technical capability of the modes
II. Safety of the people due to externalities such as:
 Pollution of air ,water and damage
 Petroleum combustion
 Hazardous materials
 Traffic congestion(overcrowding)
 Noise disturbance
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3.6 Transport Economics
Transport economics and pricing are concerned with the factors and characteristics that determine transport
costs and rates. To develop an effective logistics strategy and to successfully negotiate transport agreements,
it is necessary to understand the economy of industries.
Firstly, we will discuss the factors that influence transport economics. Then, secondly, the cost structures
and finally, the rate structure that form the foundation for actual customer charges.
3.6.1 Economic factors
Transport economies are influenced by several factors. While not direct components of transport rate tables,
each factor is considered when developing rates. The specific factors are:
 Distance: distance has a major influence on transportation costs since it directly contributes to variable
costs, such as labor, fuel, and maintenance. First, the cost curve does not begin at the origin because
there are fixed costs associated with shipment pickup and delivery regardless of distance. Second, the
cost curve increases at a decreasing rate as a function of distance (tapering principle), which results from
the fact that longer movements tend to have a higher percentage of intercity rather than urban miles.
Intercity miles are less expensive since more distance is covered with the same fuel and labor expense as
a result of higher speeds and also because frequent intermediate stops typical of urban miles add
additional loading and unloading costs.
 Volume: the second factor is load volume. Like many other logistics activities, transportation economies
of scale exist for most movements. Transport cost per unit of weight decreases as load volume increases.
This occurs because the fixed costs of pickup and delivery as well as administrative costs can be spread
over additional volume.
 Density: since vehicle labor and fuel expenses are not dramatically influenced by weight, higher density
products allow relatively fixed transport costs to be spread across additional weight. As a result, these
products are assessed lower transport costs per unit of weight. In general, logistics managers attempt to
increase product density so that more can be loaded in a trailer to better utilize capacity. Increased
packaging density allows more units of product to be loaded in to the fixed cube of the vehicle. At a
certain point, no additional benefits can be achieved through increased density because the vehicle is
fully loaded.
 Handling: Special handling equipment may be required for loading or unloading of trucks, railcars or
ships. Furthermore, the handling cost is also affected by the manner in which products physically
grouped together (e.g. taped, boxed or palletized), for transport and storage.
 Liability: liability includes different product characteristics that primarily affect risk of damage and the
resulting incidence of claims. Specific product considerations are:
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  susceptibility to damage
 property damage to freight
 perishability
 susceptibility to theft
 susceptibility to spontaneous combustion or explosion; and
 value per pound
Carriers must either have insurance to protect against possible claims or accept responsibility for any
damage. Shippers can reduce their risk, and ultimately the transport cost, by improved protective packaging
or by reducing susceptibility to loss or damage.
Market factors: Finally, market factors, such as lane volume and balance, influence transportation cost. A
transport lane refers to movements between origin and destination points. Since transportation vehicles and
drivers must return to their origin, either they must find a load to bring back (“back-haul”) or the vehicle is
returned empty (“deadhead”). When deadhead movements occur, labor, fuel, and maintenance costs must be
charged against the original “front-haul” move. Thus, the ideal situation is for “balanced” moves where
volume is equal in both directions. However, this is rarely the case because of demand imbalances in
manufacturing and consumption locations. Demand directionally and seasonality result in transport rates that
change with direction and season. Logistics system design must take this factor in to account and add back-
haul movement where possible.
3.6.2 Transport costs
The role of transport is to increase the capacity to organize and to reduce the cost of movement. All agents
(e.g. individuals, enterprises institutions, states, etc) have to negotiate the transfer of goods, people,
information and capital because supplies, distribution systems, tariffs, salaries, locations, marketing
techniques as well as fuel costs are in constant opposition and thus requires their transfer management.
Transport costs are a monetary measure of what the transport provider must pay to produce transportation
services. They depend on a variety of conditions related to geography, infrastructure, administrative barriers,
and on how passengers and freight are carried.
Transportation costs are classified in to a combination of categories;
Variable costs: are those costs those changes in a predictable, direct manner in relation to some level of
activity during a time period. Variable costs can be avoided only by not operating the vehicle. Aside from
exceptional circumstances, transport rates must at least cover variable costs. The variable category includes
direct carrier costs associated with movement of each load. These expenses are generally measured as a cost
per mile or per unit of weight. Typically cost components in this category include labor, fuel, and
maintenance.
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Fixed costs: Fixed costs are those costs that do not change in the short run and must be covered even if the
company closed down (e.g., during a holiday or a strike). The fixed category includes carrier costs not
directly influenced by shipment volume. For transportation firms, fixed components include terminals, right-
of-way, information systems, and vehicles.
Joint costs: Joint costs are unavoidable expenses created by the decision to provide a particular service. For
example, when a carrier elects to haul a truckload from point A to point B, there is an implicit decision to
incur a joint cost for the back –haul from point B to point A. either the joint cost must be covered by the
original shipper from A to B or a back-haul shipper must be found. Joint costs have significant impact on
transportation charges because carrier quotations must include implied joint costs based on considerations
regarding an appropriate backhaul shipper and/or back-haul charges against the original shipper.
Components of transport costs
Friction costs: distance is the most basic component of transport costs. The more it is difficult to trade space
for a cost, the more the friction of space is important. The friction of space can be expressed in terms of
length, time, economic costs or the amount of energy used. It varies greatly according to the type of
transportation mode involved and the impacts of technological innovation.
Transaction costs: costs required for gathering information, negotiating, and enforcing contracts and
transactions, often referred as the cost of doing business.
3.6.3 Pricing strategy
1. cost-of-service strategy
The cost of service strategy is a “build-up” approach where the carrier establishes a rate based on the cost of
providing the service plus a profit margin. For example, if the cost of providing a transportation service is
200 birr and the profit mark-up is 10%, the carrier would charge the shipper 220 birr. The cost of service
approach, which represents the base or minimum transportation charge, is a pricing approach for low-value
goods or in highly competitive situations.
2. Value-of-service strategy
Value of service is an alternative strategy that charges a rate based on perceived shipper value rather than the
cost of actually providing the service. For example, a shipper perceives transporting 1000 kg of electronic
equipment as more critical or valuable than 1000 kg of coal since the equipment is worth substantially more
than the coal. As such, a shipper is probably willing to pay more to transport it. Carriers tend to utilized
value-of service pricing for high-value goods or when limited competition exists.
3. Combination strategy
The combination strategy establishes the transport price at some intermediate level between the cost-of-
service minimum and the value-of-service maximum. In standard practice, most transportation firms use
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such a middle value. Logistics managers must understand the range of prices and the alternatives strategies
so that they can negotiate appropriately.

CHAPTER FOUR
Freight classification
4.1 Introduction

Fright classification refers to the grouping of thousands of commodities in to a limited number of classes for
rate making. The classification takes in to consideration the characteristics of the product or commodity that
will influence the cost of handling or transport. Product with similar density, stow ability, handling and
value characteristics are grouping together in to a class there by reducing the wide range of possible ratings
to a manageable size.
The intent of the class rate system is to simplify the process for pricing freight with inherently different
freight characteristics. Rather than have a unique price for each and every commodity, articles with similar
freight characteristics are assigned to common freight ‘classes’. There are 18 different classes identified by a
numeric value. They range from a low of class 50 to a high of class 500. The logic is, the lower the class the
lower the price. The governing publication for the class rate system is the National Motor Freight
Classification, which is reissued annually. The NMFC publication is provided by SMC under an exclusive
agreement with the American Trucking Associations (ATA) and the National Motor Freight Traffic
Association, Inc. (NMFTA).
Low-value freight that is easy to handle, unlikely to damage and dense will receive lower class ratings than
expensive, light, bulky freight which is highly susceptible to damage.
In addition to the class rating assigned to an article, carrier pricing is driven by shipment weight as well. The
rule is the higher the weight, the lower the cost per pound. This is merely the simple economic principle of
economies of scale.
4.1.2 Transport classification rates
1. Class rates
In transportation terminology, the price in birr or dollar per hundred weight to move a specific product
between two locations is referred to as the rate. The rate is listed on pricing sheets or computer files known
as tariffs. The rating is the product’s classification placement which is used to determine the freight rate
2. Commodity rate

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When a large quantity of a product moves between two locations on regular bases, it is common practice for
carriers to publish a commodity rate. Commodity rates are special or specific rates published without
regarding to classification. The terms and conditions of a commodity rate are usually in a contract between
the carrier and the shipper.
3. Exception Rate
Many reasons account for this. For example, a truck class rate between two points may be considerably
lower than the rail class rate. If the railroad wants to remain competitive for this traffic, a rate adjustment has
to make. If the railroads establish a commodity rate for the shipment, it will be lower than the rail class rate.
Whenever such a circumstance occurs for a particular movement or shipment, the carriers may publish an
exception rate, which is expected (removed) from the regular classification system. Exception rates may
apply to one commodity or to several commodities, to one or to all carriers
4. Special rates and services
A number of special rates and services are available for logistical operations:
A. Freight-All-Kinds (FAK) Rates: a mixture of different products is transported under a generic
rating. Rather than determine the classification and applicable rate of each product, an average
rate is applied for the total shipment.
B. Local rates: When a commodity moves under the tariff of a single carrier it is referred to as a
local rate. That means, the shipment probability will remain on that rail road until it is
delivered. The rate charge is a single carrier’s rate
C. Joint rates: Not all freight originates and terminates with a same carrier, so the shipment must
interchange along the way. The transportation charge for a shipment along the lines of two or
more carries.
D. Proportional rates: In some cases no published rate may exist from origin to destination or
from origin to midpoint, but rate may exist from mid-point to ultimate consignee. Thus, there
must be some way to determine the rate from origin to actual destination.
E. Combination rates: rates in that two or more rates may be combined when no published single-
line or joint rate exists between two locations. If there is no joint rate from X (origin) to Y
(destination), the separate rate for the shipment must be combined. That is the rate from X to M
(the place between X&Y) must be added to the rate from M to Y. It is a total freight that it
results of combining two or more separate rates.
F. Transit services: transit services permit a shipment to be stopped at an intermediate point
between its initial origin and final destination for unloading, storage, and/or processing. The
shipment is then reloaded for delivery to the final destination.
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 G. Diversion and re-consignment: for a variety of reasons, a shipper or consignee may desire to
change route, destination or even consignee once a shipment is in transit. This flexibility can be
extremely important, particularly with regard to the transportation of food and other perishable
products where markets quickly change. Diversion consists of changing the destination of a
shipment prior to its arrival at the original destination. Re-consignment is a change in consignee
prior to delivery.
H. Split delivery: is desired when portion of shipments of a shipment need to be delivered to
different facilities. Under specified tariff conditions, pickup and delivery can be extended to
points beyond the initial destination. The payment is typically structured to reflect a rate as if
the shipment were going to the farthest destination. In additions, there is a charge for each
delivery stop-off.
I. Demurrage and Detention: are charges assessed for retaining freight cars or truck trailers
beyond specified loading or unloading time. The term demurrage is used by railroads for
holding a railcar beyond forty eight hours before unloading the shipment. Motor carriers use the
term detention to cover similar delays. In the case of motor carriers, the permitted time is
specified in the tariff and is normally limited to few hours.
J. Accessorial services: in addition to basic transportation, motor and rail carriers offer a wide
variety of special or ancillary services that can aid in planning logistical operations.
4.2 Documentation in freight shipments

The transport document is issued by the “Carrier” whether a shipping line, airline, trucking company or
railroad. They come in various forms and each serves several, but not necessarily all of the following
functions:

1. Receipt for the goods, evidencing loading, dispatch, or taking in charge and indicating the general
condition of the goods received.

2. A contract for carriage between the shipper and the carrier

3. An invoice from the carrier for charges.

4. A negotiable document exchangeable for money, allowing goods to be sold in transit.

5. A document of title representing ownership of the goods, which will only be released by the shipping
company against presentation of a signed original document.

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Documentation is important for the shipment of an item overseas. There are a number of documents that the
freight forwarder needs to prepare for the shipment that requires specialist knowledge.

 Bill of Lading (BOL) – The BOL is a contract between the owner of the goods and the carrier. There
are two types of BOL; firstly a straight bill of lading which is nonnegotiable and secondly, a
negotiable or shipper's order bill of lading. The negotiable BOL can be bought, sold, or traded while
the goods are in transit. The customer will usually need an original as proof of ownership to take
possession of the goods.
 Commercial Invoice – The invoice is the bill for the goods from the seller to the buyer. It can be
used to determine the true value of goods when assessing the amount of customs duty.

 Certificate of Origin (COO) – The COO is a signed statement which identifies the origin of the
export item.

 Inspection Certificate – This document may be required by the customer to certify the goods have
been inspected or tested and the quality of the goods is acceptable.

 Export License – This license is a government document that authorizes the export of goods in
specific quantities to a specific destination.

 Shipper's Export Declaration (SED) – The SED is used for export statistics. It is prepared via the
US Postal Service (USPS) when the shipment is greater than $500.

 Export Packing List – This is a detailed packing list that itemizes each item in the shipment, what
type of packaging container was used, gross weight, and package measurements.

The three most common basic types of documents in domestic transportation of freight are the bill of
lading, the freight bill, and the freight claim. International transport has these and many more.

1. Bill of Lading

It is a legal contract between the shipper and the carrier for the movement of the designated freight with
reasonable dispatch to specified destination and without damage.

The Bill of Lading is ought to contain the name of the consignor (shipper); the name of the consignee
(receiver); the name of the master of the ship; the name of the ship and the voyage number; the place of
departure (Port of loading) and destination (Port of discharge); the price of the freight; the date of loading;
the marks and numbers of the things shipped.
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The bill of lading is the most important document that is used in transporting goods. The legal definition of a
bill of lading is a contract for the carriage of goods and a document of title to them. It provides any and all
information that the carrier will need to transport the items. It contains the shipment origin and the contract
terms for the transportation and is required by a carrier before the shipment is taken.

The bill of lading should include the name and address of the consignor and consignee, and often it will have
the routing instructions for the carrier. It will contain a description of the goods to be transported, the
quantity for each of the commodities, and the commodity class and rate.

1. The bill of lading will contain the terms of contact for the movement of goods by a common carrier.
This is the contract between the shipper and the carrier to transport the goods on the bill of la
Common Carrier Liability – the carrier is liable for loss and damage of the goods being transported,
except if the goods were improperly packed by the shipper or if the goods themselves would be liable
to normal loss like through evaporation. The carrier is not liable for acts of God, public enemy or
public authority.
2. Delay in Transit – the carrier cannot be held liable if the loss or damage is due to a delay in the
transportation of the goods.

3. Freight Not Accepted – if the goods are not accepted within the time allocated, the carrier can store
the goods at a cost to the owner.

4. Extraordinary Value – the carrier is not liable and does not have to carry items of extraordinary value
that are not on the rated in the published classifications or tariffs unless a special agreement with the
shipper has been negotiated.

5. Explosives – the carrier has to be given full written disclosure when they are shipping dangerous
material, otherwise they are not liable for any losses.

6. Recourse – the carrier cannot make additional charges to the shipper after making a delivery.

7. Substitute Bill of Lading – if the bill of lading is a substitute or exchange for another bill of lading
then the current bill of lading has to include all the clauses from previous documents.

8. Alterations – the carrier must note any changes or additions to ensure that they can be enforceable.

9. Claims – this clause specifies the details on how to file a claim against the shipper and the time
period after delivery in which the claim will be accepted.

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Bill of lading of two characteristics that is negotiable & non-negotiable bill of lading these are:

A. "Straight" (non-negotiable) bill of lading provides for delivery to the person whose name appears
on it. It must be marked "non-negotiable." Only the person named can claim the goods upon arrival.
This type of bill is usually used for goods shipped on an open-account payment basis when the
exporter is not concerned about the importer receiving the goods without payment.
Straight bill of lading contrasted with the order bill of lading, is a nonnegotiable legal document.
Under straight bill of lading, the goods are consigned only to the specific person noted in the
document this bill cannot be traded or sold.
B. "Shipper’s order" (negotiable) bill of lading is used when you want to impose conditions on
delivery of the goods, such as acceptance of a draft. This type of bill of lading works well when
payment has been secured by a letter of credit because you can make sure that the terms of the L/C
are met before the goods are released.

Most Bills Of Lading is negotiable since it can serve as a document of ownership that allows ownership to
the goods to be transferred by endorsement and delivery of the bill of lading. The Ethiopian Shipping Lines
issues 3 (three) original set of Bill of Lading and the bearer of all the three Bills is understood to be the
owner of the cargo mentioned in the bills

Presentation of a Bill of Lading to the Bank

In Ethiopia, a letter of credit usually allows for 21 days for document presentation counted from the date of
loading. The shipper must pay the bills within the maximum days of credit presentation, but on the collect
bases, the carrier extends the payment due date by the length of the transit time

Clean Bill of Lading

It declares that the goods have been received in an appropriate condition, without the presence of defects and
is issued by the product carrier. In Ethiopia, one of the conditions stipulated in the letter of credit is that the
Bill of Lading has to be clean to release the payment to the shipper – Clean on Board Bill of Lading.

A "clean bill of lading" is issued when the shipment is received in good order. If there is any damage or a
shortage of product is found, a clean bill of lading will not be issued.

An "on-board bill of lading" is issued when the cargo has been placed aboard the named vessel. It is
signed and certified by the master of the vessel. For a letter of credit transaction, this bill of lading is
required in order for you (the exporter) to get paid.
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Unclean Bill of Lading

It is a bill containing reservations as to the good order and condition of the goods or the packaging or both.
Examples: "bags torn," "drums leaking,'' and "one case damaged".

Ocean Bill of Lading and Airway Bill

Depending upon how fast you want to get cargo to your customer and how much he or she is willing to
spend, you might ship by ocean or air. Accordingly, there are two types of bills of lading, the ocean bill of
lading, and the airway bill.

An ocean bill of lading serves both as a receipt for the cargo and as a contract for transportation between you
(the exporter) and the carrier. It also symbolizes ownership; accordingly, if in negotiable form, it can be
bought, sold, or traded while the goods are in transit.

Airway bills serve functions similar to those of ocean bills of lading, but they are only issued in non-
negotiable form. This means that you and your bank have less protection because you lose title to the goods
once shipment commences. Be sure to check with your logistics expert if you are shipping hazardous goods.
Special forms are required.

We will be covering ocean bills of lading in detail because ocean freight is the most economical and
therefore the most frequently used method of export shipment. You must prepare and submit a Shipper's
Letter of Instructions form to your freight forwarder so that they can issue an accurate bill of lading. This
form indicates if the transaction is being made against a letter of credit, whether insurance is required, and
where to send documents, etc. Once you've finalized terms of payment with your customer, you will be able
to furnish these facts to your freight forwarder. Most bills of lading are issued with three originals and
several copies. There are numerous different types of ocean bill of lading, but you will find that the
following are the most commonly used:

2. Freight Bill

The bill of lading ordinarily does not contain information about the freight charges, though some altered
forms do include these charges. More frequently, the charges appear on a separate document, called freight
bill. The fright bill (an invoice of carrier charges) contains, in addition to freight charges, much of the same
information as a bill of lading, such as shipment origin and destination, quantity shipped, product, and the
persons involved. The fright charge may prepay by the shipper or billed collect from the consignee. The

47
freight bill is the carriers invoice to the shipper for all the charges that the carrier has incurred. The carrier’s
freight bill will include the details of the shipment, the items being shipped, the consignee, the origin and
destination, as well as total weight and total charges.

Some carriers can ask for prepayment from the shipper if the value of the items being shipped is less than the
total expected freight charges. If the charges are not prepaid then the carrier can present a freight bill on
collect. This implies that the carrier will present the freight bill on the day of delivery.

There are several types of freight charges. Writing down the wrong type of freight charge on a bill of lading
can cost you a great deal of money.

1.  Collect
The consignee (the person or company who receives the freight shipment) pays all freight charges.

2.  Prepay and Add

The shipper pays for freight and then charges the customer. This is a good option when the shipper and
carrier (Provide for-hire truck transportation to the general public) have a relationship and therefore good
rates.

3.  Third Party

A third party pays all freight charges rather than the shipper or consignee

4.  Cash on Delivery (COD)

Carrier collects payment at the time of delivery and then forwards to shipper. The carrier charges for this
service.

5.  FOB Origin

Freight becomes the responsibility of the consignees at the shippers dock. The consignee pays freight
charges collect.

6.  FOB Origin, Freight Prepaid

Freight becomes the responsibility of the consignees at the shippers dock. The shipper pays all freight
charges.

7.  FOB Origin, Freight Prepaid and Charged Back

The freight becomes the responsibility of the consignee at the shippers dock. The shipper pays all freight
charges and then invoices the consignee for the freight charges.

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8.  FOB Destination
The title for goods passes at the consignee's dock and the shipper pays all freight charges. The freight is
shipped prepaid.

9.  FOB Destination, Freight Collect

The title for goods passes at the consignee dock and the consignee pays all freight charges.

10.  FOB Destination, Freight Collect and Allowed

The title for goods passes at the consignee dock and the consignee pays the carrier's freight charges and then
deducts the freight charges from the sellers invoice for the goods.

3. Loss and Damage Claims

Cargo loses and damage has been the bone of the transportation industry since the invention of the wheel.
For example, in 1986 North American rail road paid about $ 143 million in damage claims. Since
deregulation, the volume of claims has dropped, not because of better handling but because, during the
negotiation process, the shipper agreed to hold the carrier loss liable for claims in return for lower
transportation charges, the transportation deregulation reduced carrier liability.

The carrier’s liability varies depending on the service provided and the contractual terms between the
shipper and carrier. The carrier liable for the total or partial loss of the goods and for damage thereto
occurring between the time when he takes over the goods and the time when he takes over the goods and the
time of delivery, as well as for any delay in delivery. Bill of lading specifically defines the limits of carrier
responsibility. The carriers are not liable for loss, damage, or delay because of: the wrongful act or neglect
of the claimant, by the instructions of the claimant given otherwise than as the result of a wrongful act or
neglect on the part of the carrier, by inherent vice of the goods or through force majeure.

Some important aspects in loss and damage claims

1. Determination of freight clam damages: one of the most difficult aspects of claims work is
determining the exact value amount of the damage, the law indicates that the common carrier is
responsible for the full actual loss sustained by the shipper or consignee.

2. Concealed loss and damage: it is defined as damage that is not discovered until a package is opened.
Another difficult area for shippers and carriers alike involves concealed loss or damage. If shipments
arrive in obviously damaged condition (Unconcealed loss or damage), the consignee either refuses
the goods or makes a notion of the damage on the delivery receipt. However concealed-loss-and-

49
 damage situations are more difficult to determine. Often, the exterior package does not appear to be
damaged or tampered with: the damage is within the package only when the consignee opens the
package is the damage of loss discovered. different writers appreciated carriers are reluctant to pay
all concealed-loss-and-damage claims for two reasons:

A. If the package comes through the shipment with no exterior damage, then there is a strong
possibility that the product was improperly protected within the package. If this is the
case, the carrier is expected from liability as improper packaging is a fault of the shippers.

B. The possibility that the consignee’s employees broke or stole the products.

3. Freight claim prevention: Another important aspect of the traffic manager’s job is to see that the
freight is packaged handled, and transported in such a way that loss and damage claims won’t occur.

4. Freight claim arbitration: if the shipper and carrier cannot satisfactory resolve a claim, the shipper’s
only recourse is to start a legal action against the carrier in the appropriate state or federal court.

Shipper’s responsibilities
To prevent loss and/or damage of your freight, the following factors must be considered when a product, its
packaging, and its package markings are designed:
1. Warehousing conditions
2. Weather
3. Road Conditions
4. The number, size, and shape of other shipments travelling with it
5. Special loading and/or handling requirements
6. Unloading and delivery of freight
As the shipper, you must be responsible for:
1. Proper packaging
2. Proper markings on the packaging
3. Proper description on the shipping documentation

All existing tariff and shipping regulations related to your product must be followed. Minimum packaging
requirements are outlined in the following two publications:
1. National Motor Freight Classification
2. Transporting Dangerous Goods by Truck

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Consignee’s responsibilities
As the consignee, you MUST identify and document any cargo loss and/or freight damage carefully and
thoroughly. There are two types of loss or damage:
1. Visible or noted loss or damage
2. Concealed loss or damage
Visible loss or damage
Visible loss or damage is apparent at the time of delivery. Noted means that a detailed description of the loss
or damage was recorded on the delivery slip and/or bill of lading and the consignee’s copy of the delivery
slip and/or bill of lading at the time of delivery. Damage noted on a packing slip will not be considered for
the purpose of a claim. At the time of delivery, you must:
1. Check each handling unit for visible signs of damage
2. Open any shipment that shows signs of loss or damage while the driver is still present
3. Examine the contents with the driver
4. Record and exact, detailed of the results of the examination on both the delivery slip and/or bill of lading
and the consignee’s copy of the delivery slip and/or bill of lading.

General terms such as box damaged or subject to inspection will not be considered as valid descriptions of
damaged goods. A detailed description must be written on the delivery slip and/or bill of lading. Examples
of detailed descriptions of damage could include “door handle broken off”, “bottom drawer has dent
possibly from forklift” or “cabinet has crack on left side at front of unit”. The delivering driver must sign the
delivery slip and/or bill of lading as well as the consignee’s copy of the delivery slip and/or bill of lading at
the time of delivery after the inspection has been completed.
NOTE: If you discover damage after delivery and the delivery slip and/or bill of lading has a vague notation
or no notation (ie: is signed clear), you may find it more difficult to obtain prompt and satisfactory
settlement of your claim
Shortages:
At the time of delivery, the consignee must:
1. Check the labels on all handling units to be certain that they belong to you
2. Check for shortages as goods are being unloaded
3. Count the actual number of handling units
If possible, make a written tally record when a large number of items are being received or the shipment
contains a number of different items. Keep the shipment together until unloading is completed in case a
recount is necessary. If there is a shortage, describe this shortage in exact terms on both the delivery slip
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and/or bill of lading as well as the consignee’s copy of the delivery slip and/or bill of lading. Again, a
packing slip is not sufficient to note shortage of goods.
Failure to call for an inspection
Failure to follow the above procedure could result in the carrier to refuse to accept any liability.
BURDEN OF PROOF
In a concealed damage claim, the burden of proof falls on the shipper and/or consignee. The shipper and/or
consignee must prove that the damage was caused other parties that handled the goods.
Additional factors in a concealed damage claim
The following factors are also considered in a concealed damage claim:
1. Retention and condition of the original containers
2. Adequacy of packaging
3. Movement before pickup and/or after delivery
4. Nature of the goods being shipped

Overcharges

A Clam against a carrier for overcharges result from some form of miss billing. A number of reasons for
miss billing have been cited, some of these are:

 Application of incorrect classification

 Failure to use correct rates

 Use of incorrect distance factors or basing points

 Simple arithmetic errors

 Carrier misrouting of joint line shipments

 Duplicate collection of freight charges

 Errors in determining item weights, and

 Differences in the interpretation of rules and tariffs.

Normal bill auditing may detect these errors before payment is made, and another corrected freight bill
may be issued.

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