After this unit you should be able to answer following questions

A. Concept Questions B. Short notes

1. Containerization
2. Nodal Points
3. Principles of transportation
4. Transportation policy
5. Freight rate structure
6. Inland Container Depots
7. Transportation infrastructure
8. Transportation modes
9. Material handling
10.Inter modal transport
11.Piggyback, fishy back, birdy back
12.TOFC, COFC
13.Unit train
14.Milkruns
C. Section II descriptive questions [10 marks each]
1. What is transportation mode? Describe various modes of transportation,
their advantages and cost elements.
2. Explain various pricing factors for transportation.
3. What is transportation performance? Distinguish between DRP & MRP.
4. What factors are required to be taken into account while selecting mode
of transport to achieve minimum cost? Explain.
5. What is an inland container depot [ICD]? What type of coordination
with transportation will be required?
6. Discuss principles and functions of transportation.

1
 7. What is transportation environment and who are the participants in
transportation decisions?
8. Explain transportation infrastructure.
9. What are nodal points? What is their significance in transportation
network?
10. Explain how Selection of Carrier is done?
11. How transportation policy is chalked out for a company?
Transportation
Transportation functionality
Transportation is the most visible of all functions of logistics and high
contributor to logistics cost. We can see trucks, containers and
wagonloads 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
1. Product movement:
What is moved?
Raw Material, Semi Finished items, WIP, Finished goods, packaging material,
rejected material - movement is required up or down the supply chain.
How is this done? What Resources are used?
Resources used by transportation:
A. Temporal - product is locked up during transit, hence inaccessible. We have
to spend a positive amount of time in transporting the material. Time is a

2
resource [temporal resource] that is expended in transportation. During the
time the product is locked up costs are incurred in proportion to the time
B. Financial - several cost elements like administration costs, salaries,
maintenance costs are expended. Loss on account of product loss and damage
also needs to be accounted for. Fuel consumed is a big cost in transportation
C. Environmental – this activity is a fuel guzzler, eats up natural fuels like oil,
directly and indirectly. - 67% of all domestic fuel usage in the US is by
transportation activity.
Creates congestion, air pollution and noise pollution. Environmental cost is
tangible and substantially intangible. As transportation utilizes temporal,
financial and environmental resources items must be moved only when product
value is enhanced
2. Product Storage:
Temporary storage in stationary vehicles or Vehicles kept moving on a
circuitous route - Product storage is expensive in a transport vehicle. But
some times keeping overall cost in mind this is adopted.
A. When unloading and loading is more expensive than storage
B. When storage space is limited. [Situation when inventory levels are very
high]
Principles of transportation
1. Economy of scale

3
It is common knowledge that per unit transportation cost comes down as the
bulk of the items transported increases. Hence in order to gain benefits
in terms of reduction in transportation costs logistician tries to
consolidate the bulk and then ship the consignment rather than shipping
half truck loads or half container loads. This benefit is Economy of
scale
2. Economy of distance
The transportation cost per kilometer comes down as the distance moved
increases. Hence transportation is planned in a single long lap rather than
number of short laps to reach the destination. The fixed costs and costs like
overheads of loading and unloading are spread over the distance through which
the load is moved.
When alternate transportation strategies are evaluated to meet customer service
expectation, economy of scale and economy of distance are
fundamental.
Participants in Transportation Decisions
Normal commercial transaction has limited number of parties to the business
decision. They are seller, buyer and directly or indirectly government. But a
transportation decision has number of parties to the decision. These 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
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 of the day. Government also
collects tax on the transaction. Government represents general public whose
interest they have to protect.
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.
Roles and perspective of each party
Shipper and consignee:
Predictable and minimum transit time, minimum cost, minimum taxation,
specified pick up and delivery times, zero loss and damage, timely exchange of
information and invoicing. These are the needs of the above parties. They look
at transportation from this angle. They are the basic elements of transportation.
Business between them initiates the need for transportation
Carrier:
What does he want? Revenue maximization and cost [labor, fuel and vehicle
costs, taxation] minimization. Flexibility in pick up and delivery times to
consolidate movement. Carrier facilitates the business between shipper and
consignee. He gets paid for his service. He adds value to the supply chain by
moving the material from supplier to the customer. Carriers’ strike in our
country is a repetitive phenomenon to protest against role of government.
Government: government while playing their role exercise control on all the
players. They want the business to flourish, at the same time benefits to reach
uniformly all over the country. They also have to provide the necessary

5
infrastructure to support transportation. It is said that one of the causes that
expedited the break up of Soviet Union was the weak infrastructure on account
of which products could not be transported to far-flung parts of the country.
Hunger deaths in India in spite of self-sufficiency in food production are
examples to illustrate the interest of the government. Government controls
carrier rates and licenses. Government owned carrier service is probably the
cheapest option for transportation available to business. Government supports
transportation by providing a network of roads, Airports and ATC, Ports and
Harbors. Government wants taxes to support above activities in national
interest. Ultimately the consumer, general public, has to bear the burden of tax.
Public
What do public want?

• Public as consumers trigger transportation activity by demanding

products and services of high quality from all over the world at minimum cost.
They have concern for safety as accidents of various kind have been a bye
product of transportation. Degradation of the environment is another threat
about which public are concerned as transportation is at the root cause of many
such concerns. Eg. Degradation of atmosphere and water, rise of noise levels,
oil spills due tankers carrying cargo of crude oil.
When these parties with separate and distinct interests interact transportation
environment is created.
Conflict of interests raises issues that interrupt smooth transport of goods in the
country. Government as the main arbiter steps in to iron out these differences
in the interests of business.
What is transportation mode?

6
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.
We can say such important features are, transit time, risk or liability,
smoothness of passage & flexibility
Impact of transportation mode on other costs associated with
transportation
• Movement costs: cost of power to drive the vehicle of transport depends on
the mode selected

• 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

• Obsolescence: Specially, when the transit time is quite large the

inventory can become redundant when it arrives at the point of use. We know

7
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.

• 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.

• Insurance: This cost obviously proportional to risk of damage and loss

in transit as this is the liability of carrier.

• Breakage: This depends on smoothness of transit and handling system

associated with the mode.

• Pilferage: This cost can be eliminated by switching to options like

container transport
• 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 reduce 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 customer service beyond a certain
level does not result into increased revenue. In other words it is only cost
and not value.

8
Transport infrastructure
Infrastructure is the main facilitator for any activity to take place. For
transportation to take place a strong infrastructure is primary. If this
infrastructure is inadequate transportation gets slowed down resulting into a
major obstacle in the growth of trade and business in that area.
Elements of transportation infrastructure

• Terminal facilities - well maintained loading unloading facilities, space

for movement of vehicles, platforms, railway yards

• Vehicles- trucks, ships or wagons depending on the mode. Their size,

shape & speed

• Right of way- passage to move on. Rails, roads, airways, limitations on

speed, weight, height etc. If we use this particular passage.

• 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.
• 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.
What are various features of modes or modal characteristics?
Modal characteristics are features of a particular mode that indicate the relative
importance of that mode. By measuring these features one can determine the
relative importance of each mode.
How do we measure relative importance of each mode? We measure
relative importance of each mode as of now or over a specific time span by

9
measuring the modal characteristics. Importance is the popularity or wide
spread usage of this mode in business. Modal characteristics are System
mileage, Traffic volume, nature of traffic composition and revenue.
System mileage: Mileage covered by the modal net work. Like total length of
roads in the road network in miles or kilometers is System mileage for road as
a mode. This measure explains to what extent road is being used or how
popular in business as a mode of transport today.
Traffic volume: is the amount of ton kilometers moved by a mode. This is a
better measure as this indicates the tonnage shipped by this mode as well.
Revenue: is the amount of transportation business in rupees or dollars
transacted by a mode. In simple terms how many rupees worth material is
shipped in this mode.
Nature of traffic composition: what variety of goods are moved by this mode
is a measure to indicate the spectrum of goods handled. This speaks of the
flexibility of the mode.
RAIL NET WORK
Rail network is fully owned and operated by the government in India. This a
major step for facilitating movement of goods through out the country at a very
low cost for promoting trade & business in the country. Rail net work stands
for maximum tonne kilometers moved in India now, thereby being an
important mode of transport in the country. Rail network accounts for 226
billion tonne kilometres and 55.8% of total tonne kilometers moved in 1982 in
India. If we try to compare these figures with US a much more prosperous
economy, we find that 37.4% of ton-miles moved were by rail in 1990. Post
world war business experienced auto boom and rapid spread of road network in
the US. As a result rail net work is facing very stiff competition there. This
trend is quite relevant in India too which has forced the railways to assume a

10
friendly posture in terms of service offered to customers who were taken for
granted by the administration until now.
Rail network 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.
Wooing raw material extractive industries that are away from waterways is an
example of this customer friendly policy. In the US, inter modal transport by
railways through alliances and acquisition is practiced to provide hassle free
service to customers. We can see an example of this practice in courier
business. Various modes of transport are used for taking the parcel to the
addressee by this business.

Development of Specialized Equipment: as a result of above change in

thinking several special equipment are developed to attract customer in an
environment of competition. All of these are in vogue in the US and some can
be seen in India. It will not be very long before we see all of them here.

• Enclosed tri-level automobile car

• Cushioned appliance cars

• Unit trains - entire train carrying a single product that can go directly to
the customer without getting shunted off in marshaling yards.

• Articulated cars - flexible units with extended chassis that can hold ten
containers.

• Double stack containers- containers in two levels

11
Nodal points in distribution system
[ref. KKK, pages [343 to 350]
In the context of Indian economy, in spite of liberalization, state exercises
immense influence on the national economy. Bulk of material transported is
either produced or in some form controlled by the state. Such materials are
coal, steal, fertilizer, cement etc that are to be made available at consumption
centers. On the other hand, state also has the responsibility to distribute
essential commodities through the public distribution system [PDS]. Hence the
responsibility for logistics of those items falls on the state. State also owns the
network of railways that encompasses entire country. Rail network is the
cheapest mode of transport for hauling bulk material in the country. In the
value chain of such commodities, if the state develops some facilities or nodes,
large amount of benefit may be derived by way of movement consolidation.
State owned rail network could link these nodes to the best advantage of state
and thereby to that of national economy. Problems of our distribution system
are well known what is produced never reaches the consumer in time and in
good shape. Hunger deaths in a country that is self sufficient in food
production is the indicator of our national logistical performance.
Some characteristics of nodal points are as under.
1. Nodal points should be closer to consumption points.
2. Number of nodal points would depend on volume of distribution. Too many
would be costly and too less would not make the desired change.
3. Nodal points should be well connected by rail network. Terminal and
shunting facilities are required at these places. There should be facilities for
loading, unloading, necessary facility for inter modal handling. Shipments
from the nodal points would be by road in trucks or bullock carts
4. Nodal points should be connected to consumption centers by roads

12
5. Normally, nodal points are district headquarters where necessary
operational support can easily be available.
6. Nodal points service an area with a radius of 100kms. So, generally 200kms
separate one nodal point from another.
Development of such nodal points in the country would give a shot in the arm
to logistical operations in the country for essential commodities and bulk
materials.
ROAD TRANSPORT
Road transport is rapidly pulling the carpet from under the feet of railways, as
we saw earlier, post world war. Its popularity is growing everyday. In India,
roadways moved 179.2 billion tonne kilometers in 1982. This is 44.2% of total
tonne kilometres moved by all modes as against 55.8% by railways. Important
features of this mode of transport are discussed below.
High flexibility and speed: this is the strength of roadways. No other mode
can connect any given pair of shipper & consignee as roadways. Nor 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.

13
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 needed for
movement of goods by rails.
This feature along with flexibility forms the formidable strength of this mode.
Operating costs are higher: due to fuel requirement and higher labor
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 of transportation
contractors or carriers going on strikes to project their problems with the
government.
Vehicle availability: limited availability of trucks poses a constraint. 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.
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

14
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.
Developments in this area
Entry of several manufacturers of trucks and trailers is relieving the strain from
this business. Construction of expressways and a national grid of highways is
another important step in this direction.
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. Sailing vessels
existed since far away times. Mechanized water transport came into being in
the form of steamships since 1800, diesel driven ships came into existence
since1920. Water transport is classified into deep-water transportation and
navigable inland water transportation or domestic water transportation on
lakes, rivers or canals. 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

15
• 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
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 is necessary which
is a concern for environment, 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 under ground 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

16
• 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
• 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

17
Freight rate structure

Freight rates are transportation rates charged by carriers for shipping the goods
to the consignees premises. These rates are structured round some principles.
Some of the principles are commercial nature and some of them are structured
by the state.
Principle of freight rates:
1. Should cover actual cost of transportation: fundamental principle is that
the rate should cover the cost without fail.
Factors influencing cost of transportation
A. Fixed costs:
• Interest on capital invested in the fleet
• Depreciation
• Insurance premium
• Administrative overheads and expenses on fixed facilities
B. Semi fixed costs:
• Salaries of the staff
• Miscellaneous maintenance expenses directly related to running of the
transport vehicle.
C. Variable costs:
• Cost of fuel and lubricants
• Maintenance directly attributable to a particular trip. Damage to the vehicle
and also the cargo. E.g. Hilly roads, bad roads, war effected sea routes
2. Vehicle utilization: Carrier likes to gain maximum mileage out of his
vehicle. If vehicle is idle it is a big loss to the carrier organization. Hence the
carrier would like to run his vehicle at top speed to cover max. Distance at min

18
time. While structuring the rates carrier would like to charge more if
opportunity for maximum utilization is limited.
Quote higher rates if following are not conducive to the above
• Road conditions are bad. Hence vehicle can not be driven fast.
• Terminal detentions [congestion, formalities, for loading unloading
(handling) etc.]: a delay at the terminal brings down vehicle utilization as the
vehicle is idling. If the destination is known for this kind of delays carrier
would charge higher rates.
• Obtaining a return load [market factors]. If the destination does not offer
opportunity for a return load carrier asks for a higher rate as would not be able
to utilize his vehicle during return trip. Normally if the destination is a
production center one would always find return trip to consumption center. But
the other way round probability of return load is very low. O
• Nature of goods, hazardous, corrosive[liability, insurance]. Such goods are
detrimental to the safety of the transport vehicle and operating staff. Hence
rates are high when such goods are shipped.
• Density, consignment light by weight: when the consignment is light by
weight the truck becomes full without full load being loaded. Hence the carrier
doesn’t get paid for the full load. So he hikes his rates when the consignment is
light.
• Stowability, shape and size of the product. When the load has an odd shape
speed of the vehicle is reduced to accommodate the center of gravity. This
brings down the utilization apart from being risky.

3. Traffic Bearing Capacity: transportation adds value by making the

product available to the customer. But the cost incurred by the shipper while

19
transporting should not outweigh the value added. The carrier structures rates
keeping this principle in mind.
4.
Public use: state introduces the principle that the transportation of essential
commodities should be done at a lower rate.
5. Government Policy: freight rates are controlled by the state for promotion
of certain type of trade and development of certain type of industry as per the
industrial policy prevalent at that time. Freight rates are hiked or depressed by
state the to meet the objectives of the policy.
6. Profit: Freight rate should cover costs of operation, capital investment and
margin for reasonable return on investment. It should also compensate
entrepreneurial time and efforts.
Business should generate enough funds to provide for future development of
business. The freight is expected to generate enough money to cover all these
requirements.
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 or business turns over, 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.

20
♦ Branch offices or associates’ office. Check if the carrier can manage his his
operations at far away 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 policy
Before one tries to formulate transportation policy for his company one should
understand components of transportation decisions. Transportation decisions
weigh cost/benefit with respect to these components before finalizing the
choice which would ultimately formulate the policy.
Components of transportation decisions

• Mode of transportation

Air - most expensive, but very fast

Road - relatively quick and inexpensive, highly flexible

21
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

• Route and network selection

Route is the path the product takes and network is locations and routes along
which a product can be shipped. In this case, the transportation decision is
selection of network.

• Carrier in house or out sourced

whether product owner performs the function or out sources it.
Trade off - customer service efficiency & growth in business
Improvement in customer service level cost money to the company. But
improved service level ensures customer loyalty and growth in business. But
improvement beyond a certain level may not result into benefits
proportionately. We have to identify this level and should not expend resources
for improvement beyond this point.

• Trade off - cost of transportation and cost of inventory

Transportation decision is about establishing the trade off point between cost
of transportation and cost of inventory. Increased transportation cost results in
savings in inventory cost as increased transportation cost crashes transportation
time. But the benefit ceases after a point if you go on increasing the
transportation cost. This is the point of trade off which should be identified and
we must stop increasing transportation cost beyond this.

22
 Above decisions form the core of transportation policy

DESIGN OPTIONS FOR A TRANSPORTATION NETWORK

Transportation network options

Retail Supplier Retail
Supplier Retail supplier stores stores
stores
Supplier
s
Retail
stores

ALL SHIPMENT S
VIA DC

Retail stores

DIRECT DIRECT SHIPMENT

SHIPMENT WITH MILK RUNS
Supplier

NETWORK PROS CONS

STRUCTURE
DIRECT • NO DC • HIGH
SHIPPING • COORDINATI INVENTORY MILK RUNS
FROM DC
ON EASY • SIGNIFICANT
RECEIVING

23
 EXPENSE
DIRECT • LOWER • INCREASED
SHIPPING TRANSP COORDINATI
WITH MILK COSTS ON
RUNS • SMALLER COMPLEXITY
INVENTORY
ALL • MOVEMENT • INVENTORY
SHIPMENTS COSOLIDATI COSTS
VIA DC WITH ON • INCREASED
INVENTORY HANDLING
STORAGE • INCREASED
COORDINATI
ON
COMPLEXITY
ALL • LOW • INCREASED
SHIPMENTS INVENTORY COORDINATI
VIA DC WITH • MOVEMENT ON
CROSSDOCK COSOLIDATI COMPLEXITY
ON
ALL • LOWER • INCREASED
SHIPMENTS OUTBOUND COORDINATI
VIA DC WITH TRANSORTA ON
MILK RUNS TION COSTS COMPLEXITY
TAILORED • TRANSPORT • STILL HIGER
NETWORK ATON SUITES COORDINATI
TO ON
INDIVIDUAL COMPLEXITY
NEEDS

A logistics manager’s options for scheduling and routing decisions are –

 Direct shipment network - From shipper directly to retailers.
Features:
1. Warehouses are eliminated, as the dispatch goes directly to retailer
warehouses are redundant, inventory in the warehouse and warehouse costs are
gone

24
2. Long route, hence low cost, as the distance is long cost per unit is expected
to be low.
3. Simplicity of operation, as the network is simple as it consists of only
shipper and retailer management of operation is simple.
4. Time of transportation is short, in the absence of warehouse product moves
directly.
5. Decision points are quantity and mode, no other decisions are relevant.
6. Decisions are on dispatch to dispatch basis, directly connected to customer’s
schedule. Mode and quantity decisions can be changed from dispatch to
dispatch
7. Inventory costs and receiving costs are high, inventory will have to be held
at customer’s place to cover transportation lead time. Customer also will have
to receive consignments directly from the supplier.

• Direct shipping with milk runs:

1. Single supplier to a number of retailers - deliver like a milaakman.

2. From a number of suppliers deliver to a single retailer
E.g. Toyota plant in US
Features:
1. Movement consolidation
2. Truck utilization
3. Transport cost reduction

• All shipments via Central Distribution Center

Suppliers send the supplies to Distribution centers and Distribution center

caters to the needs of retailers.

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Features:
1. Supply to DC with movement consolidation results into supply chain costs
reduction when distances are large.
2. DC stores inventory and acts like a transfer point for supplies to individual
retailers
4. Economies of scale in inbound transportation to DC.
5. From DC Outbound transportation cost is low as retailers are close to DC

• Shipping via Distribution Center Using Milk Runs

Small lot sizes to large number of retailers from DC.

Features:
1. Consolidation of small lots - reduction of outbound transportation cost

• Tailored Network

Tailor made to the company needs. This may be a new network synthesized
from above models. Or for some logistical mission one model and for some
other mission another model.
Features:
1. Matches the needs of the company
2. Coordination is complex. As the tailored network is synthesized
management may involve several decisions.
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

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 long haul, short time & flexibility are optimized for achieving overall cost
reduction

RAIL COMMON
PIGGY BACK

ROAD COMMON,
CONTRACT,
EXEMPT, PRIVATE

FISHY BACK

WATER COMMON,
CONTRACT,
EXEMPT, PRIVATE TRAIN SHIP

AIR COMMON,
CONTRACT,
EXEMPT, PRIVATE AIR TRUCK
[BIRDYBACK]

WATER OR AIR WATER OR AIR

LAND BRIDGE
LAND [RAIL OR ROAD]

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Containerization
[kkk pages 350 to 362]
Containers were introduced in US during 1955 and in India during 1960
Features of a container:
1. Robust but still light to ensure several handlings during unbroken transport
of goods by several modes
2. Equipped with fittings to facilitate safe and easy handling
3. Easily be stuffed or unstuffed in a short time
4. Water tight and air tight outer shell
5. Internal lining that doesn’t buckle under temperature and can be easily
cleaned
6. Watertight flooring, air tight door seals and locks
7. Insulation to protect refrigerated cargo. Interior washable to required
hygienic standard
8. Construction to allow circulation of air around cargo. Potential areas for
containerization are food stuff
Universal advantages of container as a packaging unit
1. Reduction in loss, pilferage and damage of goods
2. Reduction in paper work
3. Expedites door to door pick up and delivery
4. Eliminates multiple handling of contents as this is shipped as a single unit
5. Consolidation of movement of small lots
6. Standardization of handling methods and equipment
7. Reduction in packaging cost as container itself acts like a package
8. Optimizes the services of various modes. Container can easily be
transshipped.
Benefits of owning containers by product owners

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1. Ensures supply of containers
2. Product specific internal fittings can be provided
3. Reduction in transportation costs if the traffic is two way
4. Control of internal cleanliness as per product need
5. It can be used for delivery after arrival
6. Good storage system
Major benefits of containerization to business
1. Integration of various modes of transport
2. Reduction in handling time and thereby turn around time of vehicles
3. Standardized size of containers reduces reduce capital as well as
operational costs
4. Reduction in packaging cost as container itself is a robust packaging
5. Need for enclosed warehouses redundant
6. Regularity and reliability of transport service
Infrastructure of containerization
1. Deep water ports
2. Mechanized handling equipment
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

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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.
Inland container depots
Inland Container Depots [ I C Ds ]
ICDs are dry ports. Dry ports at a distance far away from the shoreline handle
all the import export formalities. ICDs act like deep-water ports installed
inland or interior where the natural benefit of shoreline is non-existing. This a
large warehouse where containerized cargo is accepted for export. The
exporter books his cargo at an ICD and completes all export formalities.
Thereon ICD moves the containers by movement consolidation to natural port.
Cargo crosses the dock and goes into the waiting ship.
• connect major ports [able to handle container ships] to hinterland. Hinterland
is deprived of natural deep water ports because of geography. This hinders
exports. Congestion gets created at natural deep water ports when export cargo
arrives from hinterland. Deep water ports being limited in number suffer
congestion as deep water ships carrying export cargo dock only at deep water
ports.
• facilitate customs clearance, export import formalities. ICDs ensure that
businessperson does not have to go to the deep water ports with his cargo for
clearing import/export formalities.
• ICD to be located after ascertaining export import potential and good road
network. One of the objectives of creating ICDs is to facilitate harnessing
export potential of hinterland. Hence this location analysis is essential.
• Serve as consolidation facility and should have handling equipment. Facility
to group small consignments and create container loads needs handling
equipment.

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• goods transfer from road to rail and otherwise. Inter modal transfer is a
major operation in an ICD. ICD consolidates consignments arriving by trucks
and transfer the cargo in containers to another mode, say rail for onward
movement to a natural port.
• increase the export potential of industries in the hinterland and also simplifies
import of goods by hinterland.
• Decongest major ports. This is another benefit provided by ICDs which is of
immense importance for a country with weak infrastructure like ours.
 Benefits of containerization can be fully exploited only when we have a
good net work of ICDs [Inland Container Depots]
While most of the bulk goods are transported by rail, all other goods are
transported by road.
• Although Rajasthan is a land-locked state, four inland container depots
(ICDs) at Jaipur, Jodhpur, Bhiwadi and Bhilwara, along with an air
cargo complex at Jaipur's Sanganer Airport act as efficient and
convenient gateways for outbound cargo. The customs department,
shipping companies, handling agencies, surveyors for authentication of
stock, banks, customs house agents and clearing and forwarding agents
are all based at the ICDs.
• The infrastructure at the ICDs has been strengthened with the
deployment of better equipment. This has resulted in the quicker
handling of containers, reduction of transit time from ICDs to ports. Of
the total export cycle time, the dwell time is down to 1.9 days, compared
to three days at other ICDs.
• Tariff at the Jaipur and Jodhpur ICDs has been reduced by 20 per cent,
recently.

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 • The air cargo complex provides facilities for customs inspection and
shipment of non-bulk goods for exports by air. To overcome the
problem of a limited lifting capacity of Indian Airlines, a scheme of
bonded trucks has been started.

JNPT is directly connected to the following Inland Container Depots:

Ludhiana Delhi
Kerala Sabarmati
Nagpur Pune
Mumbai (Wadibunder) Hyderabad
Chinchwad (Pune) Visakhapatnam
Bangalore Muradabad (U.P)
Chennai Kolkata
Jaipur Pitampur (M.P)
Jodhpur Aurangabad
Baroda Kanpur
Mirage Malanpur
Kandla Agra
Mulund --

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