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Packaging

Packaging is done to make handling and transporting cost effective. It protects the product in
transit and handling. Packing is expected to facilitate lifting and moving by providing easy
access to forks or hooks. Packing is also expected to display universal symbols and other
instructions for handling. Eg. Pallets and containers, wooden boxes, wrapping etc.

Importance:

Packaging is an important function in logistics ensuring not only protecting materials and
goods in the logistics process to ensure maintenance of the right condition until delivery, but
also facilitating the other logistics functions of transportation, storage and handling.
Packaging also enables communication regarding the contained materials or products. It also
helps in improving the appeal of the product to the customer.

Types of packaging: consumer packaging and industrial packaging

Consumer packaging - There is no focus on logistics. Importance is given to marketing

appeal and packaging the finished product. Packaging is designed for consumer convenience
and appeal, marketing consideration and display. The main emphasis is in marketing. The
marketing manager is more concerned with the consumer packaging because it provides
information important in selling the product in motivating the customer t buy the product or
giving the product maximum visibility when it competes with others on retail shelfs.

Industrial packaging focuses on the handling convenience and protection during

transportation, material handling and storage. This packaging protects the goods that a
company will move and store in the warehouse and also permits the company the effective
use of transportation vehicle place. It also have to provide information and handling ease.
Industrial packaging is performed at various stages. The first stage is packaging for the
product itself. For example soft drinks are packed in cans. The next stage involves packaging
these products into larger cartons for enabling quantity handling. The carton is reffered as

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Master cartons. The next step of packaging involves unitization. In this case the master carton
is consolidated into a single large unit to facilitate handling, transportation, storage and
protection. The next is containerization, here the unit loads are placed in rigid containers for
protection and handling facilitation. This enables efficiency in transport.
Functions of packaging [how packaging helps reducing overall costs and value addition]
1. Protection: Protection from damage, contamination, physical effects and environmental
conditions. Packaging design and material utilized is a balancing of economic consideration
and adequate protection. The higher the value of product the more protection it deserves and
more expensive the packaging. Packaged product can be damaged during transportation,
handling and storage due to vibration, piercing, crushing, temperature, humidity etc.
packaging provides a protection against all this adds and makes the product available to the
consumer in the right condition.
2. Utility: packaging the product in the form of master cartons, unit loads and containers
promotes handling, transportation and storage efficiencies by speeding up handling higher
quantities to be transported, more quantity storage in the same space and faster retrieval from
storage. Packaging facilitates securing and stacking during transportation, storage and
handling
3. Facilitating handling & using: fruit juices in tetra packs, handling and consumption by
users
4. Facilitating storage & reuse: ink cartridges for printers, floppies, CDs, reusable
corrugated boxes, bottles and refill packs
5. Grouping goods into convenient unit for distribution: mangos in boxes, milk bags in
crates, cola bottles in crates.
6. Communication:
a] Content identification - what does this contain? Product, manufacturer, universal code etc.
with high visibility
b] Tracking: bar codes and scanners
c] Handling instructions: fragile, which side up? Temperature restrictions, environment
concerns, potential dangers etc

Packaging Materials
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Many different exterior packaging materials are available to the logistics manager. At one
time the use of harder material such as wood or metal containers was widespread. But these
added considerable to shipping weight, which increased transport costs since transportation
companies’ bills customer for total weight including packaging.

In recent years, companies have tended to use softer packaging materials. Corrugated
materials have become more popular, particularly with respect to exterior package.
Cushioning materials are used to cushion the product inside the box. Cushioning materials
protect the box from shock, vibration and surface damage during handling. Cushioning
material includes shrink wrap, air bubble cushioning, cellulose wadding, corrugated paper and
plastics. Plastic material utilized is expanded polystyrene, polyurethane, foam in place and
polyethylene.

While selecting packaging materials, companies today must consider environmental

protection. Packaging waste is also a concern. One way to reduce this waste is to reduce the
overall packaging a company uses. Another way is to recycle the packaging material in such a
way that there is no harm to the environment.

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Transportation

Transportation is the most visible of all functions of logistics and high contributor to logistics
cost. We can see trucks, containers and wagon loads of material being moved from place to place
as an activity directly associated with trade and business. We should also appreciate that this is
an activity that adds highest amount of cost to the activity of making inputs and outputs available
to consumers. Transportation function moves the products to meet customer expectations at
minimum cost.
Functions of Transportation

Product Movement
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Whether the product is in the form of materials, components, assemblies, work-in-process, or

finished goods, transportation is necessary to move it to the next stage of the manufacturing process
or physically closer to the ultimate consumer. A primary transportation function is product
movement up and down the value chain. Since transportation utilizes temporal (time) , financial,
and environmental resources, it is important that items be moved only when it truly enhances the
product value.

The major objective is to move product from an origin location to a prescribed destination while
minimizing temporal, financial and environmental resource costs. Loss and damage expenses must
also be minimized.

Product Storage:

A less common transportation function is temporary storage. Vehicles make rather expensive
storage facilities. However, if the in-transit product requires storage but will be moved again shortly
(e.g. in a few days), the cost of unloading and reloading the product in a warehouse may exceed the
per-daily charge of storage in the transportation vehicle.
One method involves loading on the vehicle and then having it take from an indirect route to its
destination. This is desirable when the origin or destination warehouse has limited storage
capacity.
A second method to achieve temporary product storage is diversion. This occurs when an
original shipment destination is changed while the delivery is in transit.
Principles:
There are 2 fundamental principles guiding transportation management:
1] Economy of scale
2] Economy of distance.
Economy of scale refers to the characteristic that transportation cost per unit of weight decreases
when the size of the shipment increases.
E.g. truckload shipments cost less per pound than less-than-truckload shipments. It is also
generally true that larger capacity transportation vehicles such as rail or water are less expensive
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per unit of weight than smaller capacity vehicles like motor or air. Transportation economies of
scale exist because fixed expenses associated with moving a load can be spread over the load’s
weight. The fixed expenses include administrative costs of taking the order; time to position the
vehicle for loading or unloading, invoicing and equipment cost
Economy of distance refers to the characteristic that transportation cost per unit of distance
decreases as distance increases. These principles are important considerations when evaluating
alternative transportation strategies or operating practices. The objective is to maximize the size
of the load and the distance that is shipped while still meeting customer service expectations.
Participants in transportation Decisions:
Following parties have very important roles to play in transportation environment. Parties to a
transportation decision are those who have a stake in the transportation. They are
1. Shipper: shipper is a party who wants to transport the goods to his customer in a business
transaction
2. Consignee is the party to whom the goods are sent
3. Carrier is the service provider who carries the consignment from shipper to consignee.
4. Government has a role to play as they are keenly interested in transportation and have a
stake in it. Transportation makes business happen which is fundamental to the economy of
any society. Economic prosperity to the society is the objective of the government.
Government also collects tax on the transaction.
5. General public is another party who has a large stake in the transaction involving
transportation. Public want goods produced at different parts of not only country but also
world. Their demand cannot be met without transportation.
Elements of transportation infrastructure
1. Terminal facilities - well maintained loading unloading facilities, space for movement of
vehicles, platforms, railway yards
2. Vehicles- trucks, ships or wagons depending on the mode. Their size, shape & speed
3. Right of way- passage to move on. Rails, roads, airways, limitations on speed, weight,
height etc. If we use this particular passage.
4. Prime movers – the powerhouses moving the vehicle of transport shortage of which
seriously affect transportation. Shortage of good locomotives impairs the utility of
railway as a mode of transport.

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5. Carrier organizations – are the transportation service providers in business.

Transportation is their core business. Good service provides a vital fillip to business and
trade. Railways, roadways, airlines, shipping lines are service providers.
Transport Cost element
Impact of transportation mode on other costs associated with transportation
1. Movement costs: cost of power to drive the vehicle of transport depends on the mode
selected
2. Inventory costs: It is quite clear that inventory holding costs are temporal costs and are
directly proportional to the transit time. Longer the inventory is in transit larger are the
costs. Transit capital remains blocked during transit time and unavailable for use. Mode
of transport determines the transit time and thereby influences these costs
3. Obsolescence: Specially, when the transit time is quite large the inventory can become
redundant when it arrives at the point of use. We know that in the changed environment,
product life cycles are shrinking and hence this cost becomes highly relevant. Other
situations are product deterioration time & expiration date of the product.
4. Packaging: These costs are mode dependent as bad road condition needs robust
packaging and smooth transit does not need such packaging. This will also depend on
handling system.
5. Insurance: This cost obviously proportional to risk of damage and loss in transit as this
is the liability of carrier.
6. Breakage: This depends on smoothness of transit and handling system associated with
the mode.
7. Pilferage: This cost can be eliminated by switching to options like container transport
8. Customer Service Costs: Shortage of product when demanded by the customer leads to
customer dissatisfaction and thereby loss of sale for the company. So customer service
should be raised to be able to meet customer expectations. When we try to raise customer
service level costs are incurred. Conventionally, companies stockpile to raise service
level. But the current thinking is to increase response time to customer need rather than
increase the stock, as costs of inventory are well understood. This is done by improving
information flow to anticipate demand and reduce transit time by changing to faster
mode of transport. The second method is cheaper than the conventional. But rise in

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customer service beyond a certain level does not result into increased revenue. In other
words it is only cost and not value.
What is transportation mode?
Mode of transport identifies transportation method or form. The vehicle used indicates all other
parameters of the mode. If ship is the vehicle used, then we know that it is associated with other
parameters of transport like water, ports etc. There are several options available now for moving
goods and services from one place to another. These modes have emerged over a period of time
representing changes in technology and contemporary business environment. Science &
Technology have played major role in development of these modes and relevant infrastructure.
March of bullock cart mode to mode of aviation is the contribution of Science & Technology to
logistics performance. Mode selection is an important decision in transportation strategy as it has
an impact on cost transportation. Rail, Road, Water, Pipeline & Air are well known modes of
transport extensively used in logistics. Various important features of these modes like
transportation time are discussed elsewhere in these notes.
Rail Net Work
Railways is fully owned and operated by the government in India. Railways transports a
significant amount of domestic freight. Railways haul high density low valued freight over long
distance at rates lower thab trucking and air, but higher than water and pipeline. Product hauled
includes coal, stone, sand ,metal, grain and automobiles. Their primary competitor includes
domestic water carriers for large bulk products and motor products for higher valued goods. . As
a result rail net work is facing very stiff competition there.
Rail net work needs a high capital investment due to right of way, switching yards, terminals but
it operates with low running costs. To capitalize on this basic advantage railways focus on
specific products rather than on broad range.
Road Transport
Road transport forms an essential part of any transport activity, whether rail, sea or air. It is
essential as a supplementary and complementary mode of transport to complete movement by
other modes of transport. Eg. From one terminal i.e. the railway station the goods have to be
carried to the destination like an area by road.
Road transport offers certain advantages like

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➢ Door to door service to customers which neither rail nor neither sea nor air transport can
offer.
➢ On per unit basis, the cost of making a road is 1/6th that of laying a railway line.
➢ Capital investment in case of railways is much less then railways designed to carry
equivalent quantum of traffic.
➢ Road transport provides employment to six million persons

Following are the features;

➢ High flexibility and speed: this is the strength of roadways. No other mode can connect
any given pair shipper consignee as roadways. Neither any other mode can handle the
variety as roadways do. As there is no need for shunting and waiting for as in railways
road transport reaches the goods to the consignee very fast.
➢ Ultimate mode of transport: irrespective of the mode chosen ultimately the consignment
reaches the doorsteps of the customer by road
➢ Low capital cost as compared to railways: railways obviously need huge amount of
capital for setting up the infrastructure in view of the need of rails for movement.
➢ This feature along with flexibilityforms the formidable strength of this mode.

➢ Operating costs are higher: due to fuel requirement and higher labour requirement. This
feature makes roadways ideal for small shipments over short distances.
➢ Occasional fuel shortages: as the fuel is not available in full measure in the country
internally scarcity is experienced once in a while
➢ Disputes with government: on account of conflicting interests between the parties to
transportation decision. We have experience transportation contractors or carriers going
on strikes to project their problems with the government.
➢ Vehicle availability: limited availability trucks pose a constraint to this business. Now as
more and more truck manufactures have come into business this difficulty is likely to be
short lived.
➢ Maintenance and spares costs and availability of service facilities: as the road network is
quite extended and reaches deep in the rural India non-availability of such services is a
problem.

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➢ Octroi: is a long-standing grouse of carriers. Octroi posts are notorious for delays and
harassment of carriers
➢ Old Motor Vehicles Act: the legislation that controls movement of vehicles on the roads is
an important law for this business. There is a feeling that this law is now outdated and
new legislation should made to tackle the challenge of current business environment
➢ Bad and unsafe road conditions: pathetic condition of our roads a major stumbling block
for business which causes delays, accidents and damage.
➢ Restrictive permits: carriers resent restrictive regime of permits and licenses imposed by
the government all over the country.

Water transport
This mode is the link between countries separated by water. Business is known to have existed
between far off lands for a long time in the past. Main advantage of water transportation is its
capacity to move extremely large shipments at a very low cost. Inland water Transport is not
used to its full potential in India although we have used mechanized Inland Water Transport
[IWT] since early 1800. Lack of policy, lack of clarity in thinking receding water levels in rivers
and tough competition offered by other modes of transport appear to be the hurdles. Main
features of water transport are the following.
➢ Low capital costs and low operating costs
➢ Low speed
➢ Capacity to carry huge bulk
➢ Limitation due to availability of harbor
➢ Maneuverability is low due to size
➢ Deep-water ships designed for ocean and lakes are limited to deep-water ports
➢ Shallow water vessels like diesel towed barges are flexible but are limited by their range
of operations and speed
Pipelines

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What is transported in a pipeline? Generally liquids like oils, crude, petroleum products are
transported in a pipeline. In India pipelines are extensively used for transporting crude and
petroleum products. More than 5,000 km of pipeline exists in India for crude and petroleum
products. In addition to the products above slurries, gases, vapors and solids in powder form are
also transported in pipelines.
Slurries - coal slurry, iron ore, lime, huge quantity of water etc are transported through pipeline.
In India pipeline is used for transporting iron ore.
Gases and vapors - natural gas, LPG, in India LPG pipeline is in existence.
Pulverized dry bulk material - cement by hydraulic suspension
Main features of this mode of transport
➢ Reliable all weather means of transport
➢ Low energy consumption
➢ Pipeline being underground space occupation is minimal
➢ Pipeline operates all the time except when it is shut down for maintenance
➢ No empty container or wagon to be brought back
➢ Highest fixed costs, due to right of way and laying of pipeline, and lowest operating costs
[not labor intensive].
➢ Not flexible by nature. Pipe lines are stationary
➢ Physical state of the commodity to be transported is a limitation.
➢ This mode of transport can release capacity of other modes for transport for essential
commodities
Rope ways
Used for transporting materials in hilly and otherwise inaccessible area. Fruits produced in hilly
area are brought to the low land for further transportation to consumption centers. This mode is
good when gradients are steep as road or rail would take a very long route to negotiate the
gradient. Rope way causes minimum ecological imbalance. Rope way connects point of supply
and demand by shortest route.
Air transport
Generally, this transport mode is used in emergency rather than in normal times.
➢ Speed of transport is highest
➢ Fixed costs are lower than rail or road or pipe line. But operating costs are highest
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➢ Air transport brings distant markets closer - perishables market in gulf countries
➢ Overcomes the hassle and cost of setting up depots and service centers overseas
➢ Full potential of peak seasonal demand can be exploited.
➢ Moving entire facility to meet peek demand.

➢ Test marketing is easy. Products can be shipped directly from the factory as time is of
high importance
Components of transportation decisions
• Mode of transportation
Air - most expensive, but very fast
Road - relatively quick and inexpensive, highly flexible
Rail - An inexpensive mode for large quantities
Water - the slowest but most economical for large overseas consignments
Pipeline - primarily for oil and gas
Transportation decision here is selection of mode for transportation of goods from our company
Inter-modal transportation:
In addition to the five basic modes of transport, a number of intermodal combinations are
available to the shipper. The more popular combinations are TOFC [Trailer On Flat Car] and
COFC [Container On Flat Car]. Intermodal movements combine the cost and/or service
advantages of two or more modes in a single product movement. Benefits of long haul, short
time & flexibility are optimized for achieving overall cost reduction.

RAIL COMMON

ROAD COMMON,
CONTRACT,
LAND BRIDGE
EXEMPT, PRIVATE
LAND [RAIL OR ROAD]
WATER
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CONTRACT,
EXEMPT, PRIVATE
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It is not always possible to transport the goods by only one mode of transportation due to
economy of transportation, long distance of transportation. So it is essential to have mixed
modes, some of the most commonly used are;
➢ Piggyback (road + rail)
➢ Fishy back (road + water)
➢ Birdy back (Road + air)
There are ten possible co-ordinate services they are rail-truck, rail-water, rail-air, rail-pipeline,
truck-air, truck-water, truck-pipeline, water-pipeline, water-air, air-pipeline. Not all of this
combination is practical. Some of these combinations are possible and have gained little
acceptance.
TOFC: Trailer on flat car refers to transporting trucks on rail board flatcars; usually over long
distance than trucks normally haul. TOFC is blending of the convenience and flexibility of
trucking with the long haul economy of rail. The cost is less than for trucking alone and has
permitted trucking to extend its range. Likewise, rail had been able to share in some traffic that
normally would move by truck alone. The shipper benefits drom the convenience of door-to-door
service over long distances at reasonable rates. These features have made piggyback the most
popular coordinated service.
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COFC:
Roll On/Roll Off [RORO]: High cost of lifting a container from the truck and loading on to a
ship made logisticians look for a new idea. Concept of RORO is driving the truck loaded with
the container directly on to the deck of a ship and driving off the deck on reaching the
destination. Truck loaded with container uses the ship as a mobile bridge! You may have seen
passenger buses rolling on to ferries and rolling off after crossing the river.
LASH [Lighters Aboard A Ship]: All ports are not accessible to deep water vessels. The deep
water ships stand a long way off on sea. Cargo from shallow ports is loaded on the barges, the
barges are towed to the ship. The huge crane of the ship lifts the entire barge and places it on the
deck. After reaching the destination barge is placed on shallow waters to reach the port.
Classification of carriers
1. Common Carriers: The basic foundation of the public transpoty and system is the
common carriers. They have the right to transport any material within the specified zone
(trucks and tempos)
2. Contract Carriers: They provide transport service for selected customers. The basic for
contract is an agreement between a carrier and a shipper for a specified transportation
service at a previously agreed cost.
3. Private Carriers: A private carrier consists of a firm providing its own transportation.
They are not for hire.
4. Specialized Carriers: Specialized carriers are for a specific goods to be transported for eg
a. Oil tankers
b. Trailers to carry containers, loads and special product material ( 8 ft high, 20 or 40
ft length and 7 ft wide)
c. Special closed trucks/tempos
d. Parcel service’s – Blue Dart, Fed Ex etc
Value added services:
✔ Electronic tracking
✔ Advanced label imaging system (bar code)
✔ Delivery confirmation service
✔ On call pick up services
✔ Packaging and forwarding etc

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Selection of Carrier
Following care is to be taken while selecting a carrier for shipping the consignment to the
consignee.
➢ Shipper should carefully see constitution of the carrier’s,constitution to assess what
kind of an organization he has to deal with. Is it professional? Family or proprietorial?
➢ Volume of business, to get an idea of the infrastructure the company can afford to
provide for business.
➢ Area of operation, the length and breadth of business, the extent to which the carrier can
reach the goods in the country.
➢ Branch offices or associates’ office. Check if the carrier can manage his his operations
at faraway places through the network of own offices or the offices of associates.
➢ Strength of fleet. The size of fleet owned by the carrier which can be committed to
business at any given time.
➢ Ask for up to date clients list for seeking the opinion of other clients of the carrier.
➢ Ask specifically for list current clients, for ascertaining reliability.
➢ Type of business the carrier is doing will indicate if the carrier is suitable for the shipper.
➢ The average transit time quoted by the carrier for some well known destination.
➢
➢ Record of claims settlement by carrier to know how good or bad the carrier is whenever
there is a claim settlement
Reference from other shippers’ banks, carriers’ associations as a measure of confidence.
Transportation Hidden Costs
The physical distribution component of a major project, including transportation of raw
materials, project materials, machinery and equipment and such infrastructure facilities as roads,
vehicles etc., usually accounts for 20 to 30% of the total capital cost.
The general scarcity of various goods, unpredictable nature of the economy and economic
behavior on the part of the business community and the bureaucracy in India make it all the more
necessary for one to plan well ahead. In fact, planning of transportation and infrastructure must
be done well ahead of general planning, so that resources spent on other parts of the project do
not result in in - fructuous expenditure.

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In developed countries, these facilities are already available in abundance or are provided for
well in advance. In developing countries, action is generally initiated only after the project has
been partially put through or when it becomes totally inescapable to do so.
On the other hand, because of lack of these facilities, such problems are faced even during
construction.
Eg. Trucks get stuck in muddy roads, work sites remain unapproachable, and serious
vehicular accidents are caused near the project areas.
In developing countries, for the supervision of construction of a building, usually no qualified
individual is appointed for the co ordination and planning of transportation infrastructure, which
forms a major fraction of the total cost of a project running into crores.
For a major project, the average total cost to the economy of a project costing Rs. 100
croreswhich is delayed by one year from the date of targeted completion is 39% more than the
original budgeted cost on account of the following:
1. The rate of interest on capital may be taken at nearly 12%.
2. The profit on income per year about 12%
3. The cost of depreciation on account of obsolescence or rusting without running of the
plant at 5%.
4. The cost of escalation of the project cost at 10%.
The cost of delay in the completion of the project would therefore be roughly about Rs.11 lakhs
per day or Rs. 3.25 crores per month. It would be worthwhile to educate senior executives to
recognize these facts, for this aspect of the project is usually ignored by project authorities.
Project authorities do not hold themselves responsible for the transportation bottlenecks
and resulting delays. These delays are due to non-receipt of equipment, machinery, raw
materials etc. and these delays generally run into months. Due to such delays, the project
suffers heavy losses, which occur because of congestion in the ports, traffic jams, railway
restrictions etc. Therefore, it is financially more practical to obtain critical equipment,
machinery and raw materials, critical not from the point of view of availability in the
market but critical form the standpoint of transportation bottlenecks- so that the likely
delays are avoided.

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A proper transportation planning of materials, therefore, may well save a project as well as the
economy form the ill effects of wasteful expenditure. At the same time it would help speed up
production.

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