Imagine a world without automobiles, trains, airplanes and ships.

Highly unimaginable in
today’s context, as every facet of modern society relies on transportation. Its pervasiveness is
almost transparent to us as we move between home, jobs, markets, education, healthcare, and
leisure activities and even in the use of products in everyday life. Transportation has, over the
years, been central to physical, economic, social, and cultural development. It has been a major
catalyst for expanding economic growth and trade, thereby, greatly improving the quality of life.
The industry revolution and information technology revolution has greatly transformed the
transportation networks and operations beyond one’s imagination by shrinking global networks
and connecting global resources. The revolution has, thereby, been a force in driving a change in
business performance from a traditional to a more challenging and perhaps a more profitable
one. Transportation is, thus, a fascinating domain from many perspectives.

From the utility perspective transportation can be classified into:

Passenger transportation

Freight Transportation
Transportation: A definition

What is transportation?

Transportation is a method of moving people or goods from one place to another. For instance,
getting to and from office requires transportation, so does getting food from the fields into the
grocery stores. The word transportation is derived from the latin word trans, meaning across,
and portare, meaning to carry. Transportation creates time utility, which is getting a product to a
destination on time, and space utility, which is the optimal utilization of space available for to
carry larger volumes of goods at a low cost. If, for example a finished product is not moved to
the market at the right time it ceases to have any value.

Transportation Management

Transportation management refers to managing inventory in motion for delivery to the right
place, at the right time and in right condition, choosing the right equipment and in the right
direction.

Transportation management encompasses management of inbound transportation and outbound

transportation.

In broad terms, it also consists of the management of areas such as shipment scheduling, routing,
freight cost management, shipment tracking, and parcel management in an optimal way.

Logistics: A definition

Transportation is basically the management of goods in the dynamic state, while logistics is the
science of managing inventory both in motion and in static condition

The definition of logistics accepted by the Council of Logistics Management is “the process of
planning, implementing, and controlling the efficient, effective flow and storage of goods,
services and related information from point of origin to point of consumption for the purpose of
confirming to customer requirements”. This definition includes inbound, outbound, internal, and
external movements.

Logistics broadly comprises order management, warehouse management, distribution

management, transportation management and other value added services such as labeling,
stacking and so on.
Supply Chain : Definition:

Supply chain begins with the sourcing of Raw material and ends with the sale of the finished
product or service. A supply chain is defined as a network of suppliers, manufacturers,
transporters, distributors, storage facilities and retailers that participate in production, sale, and
delivery of a particular product to the customer make up the supply chain.

Hence, the important players are:

Suppliers, who are the individuals or businesses that provide resources needed by a company in
order to produce goods.

Manufacturer, those who produce/manufacture, products for sale. An entity, which assembles
from raw materials, supplies, or sub-parts a completed piece or product.

Transporters, who facilitate the transportation of unfinished /finished goods and products.

This includes inbound transportation, which is the movement of goods from the supplier to the
manufacturer and outbound transportation, which is the movement of goods to the consumer.
Distributors, maybe a company or person responsible for getting the product from the
manufacturer to the retailer. A distributor is the proverbial “middle man”. Storage facilities
mainly consist of warehouses. These are especially designed for the receipt, storage and handling
of goods in transit.

Storage facilities, Warehouses make up the storage facilities. Storage is necessary for incoming
materials for production and finished goods for physical distribution to customers.

Retailers are businesses that buy goods from wholesalers or manufacturer and resell them to
customers. Supply chain exist in both service and manufacturing industries, although the
complexity if the chain may vary greatly from industry to industry and firm to firm.

Customer is one who purchase a commodity or service.

Supply Chain : Agricultural produce

In this display shall examine the agricultural produce supply chain and its complexity. This
comprises the production, transportation, processing, packaging, and distribution of food grains.
A typical supply chain will consist of:

- The farmer who grows the food grains.

- Inbound transportation from the farmer to the processing facility.
- The processed grain or cereal is then taken to be packaged.
- The packages are made from wood pulp supplied by the label manufacturer
- Then this is sent to the distributor
- Outbound transportation from the distributor to the retailer.
- The retailer sells the packaged cereal to the customer.

The complexity of the value chain is caused by:

- The presence of innumerable farmers who grow grains.

- The location of processing facilities in various locations, processing various types of
grains.
- The existence of various packaging centers, distributors and retailers involved in supply
chain.

The development and integration of various processes and resources is critical to building a
successful and efficient supply chain. Effective supply chain management results in cost
effectiveness, an entry to new markets and increased sales.
Synopsis

The set of diagram illustrates the relationship between the three key elements transportation,
logistics and supply chain.

Transportation handles both inbound and outbound transportation that is inventory in the
dynamic condition while logistics is the management of inventory in motion and static
inventory.

Logistics encompasses the handling of both inbound and outbound inventory.

Supply Chain Management comprises sourcing, planning, designing, demand forecasting,

manufacturing, transportation, storage, distribution and sale.

Thus, transportation is a subset of logistics and supply chain; logistics is a subset of supply
chain: and supply chain is a super set of logistics and transportation.
At the end of this module, you will be able to:

- Trace the key milestones in the history of transportation

- Outline the evolution of freight transportation in the US

Key Milestones
Today, transportation is an indispensable part of our lives. But have we ever stopped to wonder
how it all began? In this display, we shall take a look at the key milestones in the history of
transportation. From the earliest times, man has felt the need to move himself and his
possessions from place to place. In pre-historic times the only option was to travel by foot.
Man’s need for transportation led him to domesticate animals.

In 5000 BC, oxen, yaks and donkeys were used as carriers.

In 4500 BC, horses were domesticated and used for transportation, Horses were of great value
because they could be used to transport as well as be ridden, often at a speed far greater than that
of humans.
3500 BC saw, perhaps the greatest invention in transportation history – the invention of the
wheel. The wheel was believed to have been made by the Sumerians. It was made of planks of
wood joined together. The next logical evolutionary step after the invention of the wheel was
fixing it to the cart and chariot. The two-wheel chariot is believed to be the world’s first form of
wheeled transportation. This increased the speed to travel over land, and eventually led to the
four-wheeled cart, which was used to carry supplies and equipment.

3200 BC saw the invention of the river boats by the Egyptians, The Egyptians were the pioneers
of sea travel in Europe. Their earliest boats were used only on the river Nile. Their simple boats
later evolved to include a large square of cloth mounted on a central pole. This cloth, called a
sail, would turn the boat into a sail-propelled ship. This new addition gave man the ability to use
waterways as a means of swift travel from one place to another, and even to travel against the
current of rivers. Later, they built stronger ships that could use either oars or rudders.

In 2000 BC there were improvements to the wheel, with the inclusion of spokes and axles. The
spoke was developed in an attempt to lighten and strengthen the structure of the wheel. This
allowed for the more efficient transportation of heavier loads.

Between 300 BC and 200 AD the Romans built the first extensive system of paved roads. The
Romans were famous for their road building. At its most powerful, the Roman Empire had
50,000 miles (80,500 Km) of well-kept roads connecting Rome to the most distant parts of the
Empire.

The invention of the horse collar in 1100 AD allowed man to yoke two animals together, thus
revolutionalizing output and efficiency.

Ships evolved greatly, especially between 1400 and 1500 (the 15th century) leading to great
voyages of exploration. The Arabs first designed the three-masted style of ship in which
Magdellan (1519-22) and Drake (1577-80) would later sail around the world, and in which
Columbus would reach America.

In 1662, Blaise Pascal introduced the first public bus, which was horse-drawn and had a regular
route, schedule, and fare system.

In 1769, James Watt patented the steam engine. A steam engine is a device that converts the
potential energy that exists as pressure into steam, and then converts that to mechanical force.

In 1787, John Fitch made the first successful trial of a forty-five-foot steamboat on the Delaware
River on August 22, 1787. He constructed four different steamboats between 1785 and 1796 that
successfully plied rivers and lakes and demonstrated, in part, the feasibility of using steam for
water locomotion.

The invention of the steam engine was critical to the invention of the modern railroad and trains.
In September, 1825, the Stockton & Darlington Railroad Company began as the first railroad to
carry both goods and passengers on regular schedules using locomotives designed by English
inventor, George Stephenson, George Stephenson is considered to be the inventor if the first
steam locomotive engine for railways. Stephenson’s locomotive pulled six loaded coal cars and
212 passenger cars with 450 passengers over 9 miles in about one hour.

The automobile is the second most innovative invention in the history of transportation since the
wheel. A German, Carl Benz, built the first motor car in 1865. It was basically a tricycle with a
petrol motor at the rear. Many of the early cars were two seaters, steered by a tiller, not a wheel.
By 1905, cars began to look like the cars today, with headlamps, bonnet, windscreen, rubber tires
and number plates. Roads were sprayed with hot tar to ensure a smoother ride and fewer
punctures.

The next stride in transportation looked not to the land, or even to the seas, but to the sky.
Powered airplane flight began in 1903 when the Wright Brothers, Orville Wright and Wilbur
Wright flew their first machine in America. The craft soared to an altitude of 19 feet, traveled
120 feet, and landed 12 seconds after takeoff. In 1909, the U.S. Government brought its first
airplane, a Wright Brothers biplane.

Most people credit Henry Ford with inventing the automobile. The fact is he didn’t. He did,
however, introduce standardized interchangeable parts and assembly-line techniques in his plant,
which allowed for mass production of automobiles. In 1909, Henry Ford’s ‘Model T’ was
introduced in America. It was cheaper because it was made of an assembly line. It thus, brought
cars closer within the reach of the masses.

In 1919 the first sustained scheduled daily passenger air service started in Germany. France soon
followed with the first international air service with a route connecting Paris and Brussels. On
August 25, 1919 the first sustained scheduled daily international service started between London
and Paris. This was accomplished by Britain’s Aircraft Transport and Travel Ltd. This set new
standards of punctuality and regularity.

The most exciting journeys of the 20th century have been in space. On October 4, 1957, the
USSR succeeded in launching the very first earth orbiting satellite, Sputnik I. The first manned
space-flight, however, did not take place until April 12, 1961, when the Russian Cosmonaut Yuri
Gagarin orbited the Earth in the Vostok I.

In 1962, the French and British governments signed an agreement for the joint design and
building of a supersonic airliner. In 1976, the First Concorde passenger flights were stared.
Concorde brought with it supersonic passenger travel at twice the speed of sound.

In 1981, for the first time, NASA successfully launched and landed its reusable spacecraft, the
Space Shuttle. The shuttle was used for a number of applications, including launch, retrieval, and
repair of satellites and as laboratory for physical experiments.
Thus in the history of transportation, man has moved from inventing the wheel to traveling
through space.

Evolution of Freight Delivery

Having outlined the important milestones in the history of transportation, let us look at how this
impacted freight delivery. For instance, let’s say, that a parcel had to be delivered from New
York to San Francisco.

Taking into consideration the period, innovation and time-frame, for delivery, let us trace the
evolution of freight delivery. The delivery of a Parcel ‘A’ was not possible before the 1820s as
there were no known delivery routes. The only practical way to travel and trade across long
distances was along the nation’s natural waterways. Initially, ocean transportation was the only
major mode of transportation.

Hence, the evolution of transportation geographically started between the north and south. In
1840, Parcel A was transported by carriages or wagons and delivery took 6 months.

Geographically, transportation then extended in the east and west directions strengthened by the
presence of inland waterways and later with the railroad. However, the railroads could not
compete with water transportation in the North and South direction due to lower costs. In 1847,
the ocean route was used to transport Parcel A. From New York to Panama the parcel was
transported over land, and the ocean route was used from Panama to San Francisco.

The delivery time of the parcel was reduced to 1 month. By 1858, the delivery of Parcel A could
be done in 23 days, using the Transcontinental Express stagecoach. The early development of
railroads started the transformation of America into the mobile nation that it became. In 1860,
Parcel A was delivered din 2 weeks using the rail network. The beginning of the
Transcontinental rail services in 1869 reduced the delivery time of Parcel A to 1 week.

This represented a remarkable achievement in territorial integration, which was only possible by
rail It reduced the journey across the continent (New York to San Francisco) from six months to
one week. An entirely new mode of transportation was introduced in the early years of 20 th
Century, with the invention of the airplane by Wright brothers in 1903.

In 1920, the first airmail service was introduced, thereby, delivering Parcel A in 4 days. This
service was, however, used only for documents. Overnight delivery services like courier
agencies made it possible to deliver Parcel A in less than 12 hours, by 1973 with the use of
intermodal transport.

The geographical evolution of transportation changed phenomenally over time with the benefits
of road network and airways, which covered the whole of the US. This facilitated multimodal
and intermodal transportation. This industry revolution combined with the IT revolution
strengthened the intelligent transportation era.

Thus, freight delivery evolved to become a fast and efficient service with the evolution of
transportation.
Module objectives

This module provides an outline of the freight transportation industry. At the end of the module
you will be able to

- Categorize the Freight Transportation Industry

- Analyze the various segments of the industry

Freight Transportation Industry Classification

The Freight Transportation sector is a highly competitive business area whose function has
traditionally been to provide a service to the manufacturing and retailing community. However,
today Freight Transportation is responsible for moving goods from one place to every place. The
basic concept of classification is to understand how the fright is carried, what type of freight is
carried and who is involved in the transaction. The Freight industry can thus be classified into 3
main segments:

- Modes
- Commodities
- Participants/Stakeholders
Freight Transportation Industry classification: Modes

Transport modes are the means and equipment supporting the mobility of freight. The modes of
Freight Transportation are:

- Trucks by road
- Wagons and flat carriers by rail
- Cargo planes and belly cargo by air
- Ships and inland waterways in maritime
- Combination of modes in Intermodal/Multimodal

Lower volumes and shorter distances are covered by trucks. Heavy, low-value commodities are
mostly transported by rail and water transportation, while lighter, high-vale, time-sensitive
commodities often move by air. Intermodal combinations such as air-truck or rail-truck are used
to provide door to door deliveries

Road transport is usually used for short distances (from 500 to 750 km). Railway transport for
average distances. Maritime transport for long distances (about 750 km)
Road Transportation

- Transportation by trucks which mainly comprise of tractors and trailers

- Primary mode of Freight Transportation
- Trucking services offered include heavy freight hauling, less than a tuck load and full
truck load transportation.
- Tying up with other modes such as railways and ships to provide intermodal services.
- Offer greater flexibility in comparison with other modes
- There is an increased use of technology with systems such as dispatching, fleet
maintenance, container tracking and tracing for greater optimization and increased
efficiency.
- Provides flexible point – to point services which are fast and reliable.

Rail Transportation

- Transportation by trains such as open Wagons, closed wagons and flat carriers
- In surface transport, rail is used to transport large quantities of low value goods like coal,
ores and grains over long distances.
- Increased offering of end-to-end services through intermodal transportation.
- In the use of technology, railways have an image of being technologically outdated.
However microprocessors, computerized simulation programs, fiber optics and wireless
devices are being used to enhance safety, increase fuel efficiency and maximize
equipment life and productivity.
- These developments allow freight rail roads to provide world class service to their
customers.

Air Transportation

- Transportation through cargo planes and passenger planes carrying belly cargo
- Transports high value freight in low volumes
- Fastest growing. Annual growth – 6 to 7 %
- Half of world’s air freight traffic moves to , from or within US
- Air freight industry is a mix of large express package air carrier companies such as DHL
and FedEx, small time operators and passenger airlines such as Unites Airlines that
operate cargo divisions.
- Express package air carriers dominate US air freight industry. FedEx, UPS and DHL are
key players in US
- This sector offers quick service, reliability and competitive rates to handle competition
- Transports freight of low volume but of high value such as electronics, clothing and
perishables like flowers.
-
Maritime Transportation

- Transportation through inland waterways and oceans

- Used to transport heavy and high volume of low-value commodities at comparatively
lower unit costs
- Its an integral part of intermodalism
- An efficient and modern intermodal system has become crucial to any port’s success
- Key to successful intermodalism is to make the transfer between ship, rail and truck as
invisible or seamless as possible
- Advancing technologies such as containerization, automated handling, routing and
scheduling, cargo security and satellite tracking and monitoring have increased
operational efficiency and reliability.
- Jahre Viking which is 1504 feet long and 226 feet wide is the world’s largest crude oil
ship and is taller than Petronas tower, the tallest building on earth.

Intermodal / Multimodal

Intermodal transportation is generally defined as a system of transport whereby two or more

modes of transport are used to transport the same loading unit in an integrated manner. While,
multimodal is the continuous movement of goods by more than one means of transport. For eg:
A container for export is transported by a truck to a ship. The container is transported using both
a truck and a ship. This is intermodal/multimodal transportation.

The difference between the two is that intermodal transport has a single bill of lading, while
multimodal transport has multiple bills of lading.

The importance of intermodalism is aptly summed up in a statement by Norman Mineta, US

Transport secretary “Railroads cannot any longer just think railroads, they must think highways
and airways. Trucks cannot just think highways, but must think of creating and maintaining deep
water ports. We have the technology to bring our separate transportation infrastructure together
to create true intermodalism.”
Modes: Infrastructure

Each mode of transport has various constituents which are essentially the infrastructure required
for that mode of transportation. Modes compete with, and complement in terms of cost, speed,
accessibility, frequency and safety. The infrastructure basically consists of routes, terminals and
vehicles. The main elements in road transportation consist of roads and lanes, truck terminals,
and the trailers and tractors of trucks. Road infrastructure is a large consumer of space with the
lowest level of physical constraints among transportation modes. Road transport systems have
high maintenance costs, both for the vehicles and the infrastructure. The value of cargo
transported by road is usually moderate to high; the cargo volume is less than 50,000 pounds per
vehicle. And in terms of service trucks are generally on time.

The constituents of rail transportation include tracks, yards, locomotives and rail cars. They have
an average level of physical constraints linked to the type of locomotives. Heavy industries are
traditionally linked with rail transport systems. Trains transport not only bulk goods but also time
sensitive goods such as machinery, automobiles, and perishables. The value of cargo transported
by rail is usually low to moderate; there are no restrictions on cargo volume and in terms of
service trains generally require 4-6 days for transportation of freight.
Air corridors, runways and aircraft are the components of air transportation. Air transport
constraints are multidimensional and include the site of take off and landing, the climate, fog and
aerial currents. Air transportation has been accommodating growing quantities of high value
freight, like electronics and clothing, and perishables such as flowers. The value of cargo
transported by air is usually high; the cargo volume is very small, usually less than 200 pounds
and in terms of service, air freight transportation is done overnight.

The main maritime routes comprise oceans, coasts, seas, lakes, rivers and channels. Docks make
up the terminals and ships and barges are the modes. Maritime transportation has high terminal
costs, since port infrastructures are among the most expensive to build, maintain and improve.
High inventory costs also characterize maritime transportation. It is usually linked to heavy
industries, such as steel and petrochemical facilities adjacent to port sites. The value of cargo
transported by sea is usually low to moderate; the cargo is typically bulk shipments and in terms
of service, container transit trans-pacific usually takes 6-7 days.

In the case of all the modes of transportation the routes and terminals are fixed stock, while the
vehicles make up the rolling stock. In most cases, the government is responsible for maintaining
the fixed stock. But there are times, when the transport operator or carried or some independent
body, which leases fixed stock to the carried takes the responsibility of maintaining the fixed
stock.
Freight industry classification: Commodities

Commodities can be classified into:

- Dry bulk, which is dry cargo or shipment packed and loaded without count.
- Liquid bulk is liquid cargo such as petroleum products that are shipped unpackaged.
- Containerized is the technique of using containers in which a number of packages are
stored, protected, and handled as a single unit in transit.
- Specialized refers to transporting of cargo such as hazardous materials, chemicals and so
on.

Dry Bulk

Dry bulk refers to minerals or grains stored in loose piles and moving without a count. Coal, iron
ore and sugar are examples of dry bulk.

Dry bulk cargo is carried unfastened without any packing and count. The product to be carried,
therefore, has to be homogeneous in terms of quality, grade and other features and
characteristics.

Large quantities of products of homogeneous characteristics constitute dry bulk cargo and are
transported as full or part shiploads. When a bulk cargo shipment is too small in relation to the
capacity of a bulk cargo vessel, it will not be economical to ship it in bulk as dry bulk is
transported in large volumes to reduce costs. The principal characteristic of dry bulk cargo is that
it is transported in high volumes, is low in value and usually low in perish ability. The preferred
mode of transportation for dry bulk is usually road or rail.

Having outlined the module objectives, let us first examine the classification of the freight
transportation industry.

Liquid Bulk

Cargo which is transported and stored in liquid form, other than in a drum or similar vessel is
referred to as liguid bulk.

Liquid bulk is cargo transported in liquid form and in large volumes. Oil and oil products usually
make up the liquid bulk cargo. The preferred mode of transportation for liquid bulk is water, rail
or pipelines over long distances and trucks for short distances.
Containerized

Shipments of general or special cargo in a container for transport in various modes rather than
merchandise which is shipped ‘in bulk’ or in loose cartons.

Containerized type of cargo is when the product is loaded onto containers and moved from door-
to-door without the contents being handled. It is the most common method used to transport
high-value or value-added agricultural exports, electronics and clothing. Cargo transported by
containers are usually very time sensitive. Teh volumes of transportation vary significantly. Rail,
air, road and sea are required for transportation of containerized cargo.

Types of Containers

A container is defined as an article of transport equipment which is:

• Of a permanent character and accordingly strong enough to be suitable for repeated use.
• Specially designed to facilitate the carriage of goods, by one or more mode of transport,
without intermediate reloading.
• Fitted with devices permitting its ready handling, particularly its transfer from one mode
of transport to another.
• Is a standard sized metal box into which goods are packed.
• The use of containers means that time and money are saved in transferring cargo between
different means of transport; for example, from ship to train.
• The types of containers are :-

- 20 Foot container, which is 20 feet high and has a width of 8 feet

- 40 Foot container, which is 40 feet high and has a width of 8 feet
- Super high cube container, which is an oversize container; and
- Air container, which is a container conforming to standards laid down for air
transportation

Specialized

Specialized cargo involves the transportation of hazardous cargo such as fire arms, nuclear
material, ammunition and chemicals and includes the transportation of iron, steel, machinery,
linerboard and wood pulp, refrigerated cargo and livestock. These require specialized conditions
for transportation. For instance, transporting animals requires conditions of safety, comfort and
hygiene. The transportation volumes of cargo may vary significantly.
Freight Industry Classification: Key Participants

The key participants in the transportation of freight are:

• Consignor/Shipper
• Intermediaries
• Carrier
• Consignee

Consignor or Shipper - A consignor is a person or company sending a shipment or many

shipments. The shipper is one who owns the shipment, Freight transportation intermediaries
provide a bridge between shippers and carriers to facilitate the flow of information and goods.

Carrier - the airline, railroad, motor carrier, shipping line, or other enterprise which is engaged
in the business of transporting cargo from a consignor to a consignee. The types of carriers
include common carriers, contract carriers and private carriers; and

Consignee - the person or organization a carrier is directled to deliver a shipment to. Such
person or organization is generally the buyer of the goods being shipped.

Intermediaries

The various types of intermediaries include:

- Freight Forwarders generally act as agents on behalf of the shipper

- Custom House Agents prepare and execute the necessary paperwork and documentation
for the importing of goods
- Shipping Agents are authorized to transact business in the transportation of cargo, on
behalf of an individual or company
- Logistics Service Providers manage the entire process and expense of the flow of goods

Freight Forwarders

Freight Forwarders may be individuals or companies that act as agents for the shipper and
arrange transportation for goods. Many freight forwarders offer additional services such as
preparing export documentation, arranging for goods to be packed into shipping containers and
arranging for goods to clear customs.

Custom House Agents

This refers to persons who are licensed to act as agents for transaction of any business relating to
the entry or departure of conveyances or the import or export of goods at any customs station.
Customs business activity relates to :
 • Entry and admissibility of merchandise
• Its classification and valuation
• Payment of duties, taxes, or other charges
• Refunds, rebates, drawbacks thereof

Shipping Agents

This refers to a person authorized to transact business for, and in the name of, another person or
company in the transportation of cargo.

Logistics Service Providers

Logistics Service Providers manage the proces and expense of the flow of goods as they pass
from origin to destination through inventory, transport and distribution including documentation
and related material control services, on behalf of the customer.

Roles of Logistics Service Providers

The different roles of Logistics Service Providers can be classified into:

- 1st party Logistics, signifies a self-sufficient logistics function. This refers to the in-
house Logistics of an organization with their own vehicle pool and warehouse. The
company owns transport, warehouses, handling equipment, and others including staff to
process the logistics functions. Most small businesses buying and selling in the same
place are 1 PL.

- 2nd party Logistics, also called asst based logistics is the management of traditional
logistics functions such as transport ans warehouse. A company that does not own or
have enough facilities and infrastructure may hire the LSP to provide the vehicles or the
basic service. The major reason is to reduce the cost or capital investment. This refers to a
traditional commodity capacity provider. A 2PL provides service for a single or a small
number of functions in the supply chain such as forwarding, warehousing and trans-
shipments services.

- 3rd Party Logistics, is essentially an outsourced logistic service. which refers to an

independent company that provides logistical services to another company, such as
handling product returns, managing and tracking transportation of goods.

3PL refers to an organization that handles and implements a particular logistics function,
using its own resources, on behalf of another company.

- 4th Party Logistics, provider is a supply chain integrator that compiles and controls the
resources, capabilities, and technology of its own organization with those of
 corresponding service providers to deliver a complete supply chain solution. The growth
and popularity of the 4PL providers reflects the growing demand for complete logistics
solutions by users of freight logistics services.

Order Fulfillment Scenario

Let us take an example of John who purchases a Sony Camcorder online. John selects and
checks out his order with Amazon.com. Amazon.com receives Johns order, confirms it and
validates payment details. They then dispatch the product to John from their stocks in their
warehouse. In this transaction, Amazon.com's warehouse is the 1PL's provider.

In the context of 2PL's, John's order is confirmed and payment details validated by Amazon.com.
Amazon.com then sends the order to Sony, Sony directly dispatches the order to John. Thus,
Sony warehouse is the 2nd party warehouse to Amazon. This offers greater flexibility for
Amazon.com as they can have a variety of products.

In the context of 3PL's, Amazon.com confirms John's order and passes it on to DHL. DHL
functions as the 3rd party in the transaction. DHL verifies the availability of the order in their
warehouse and dispatches the order if stock is available. In case, of non-availability of stocks
DHL makes an order to Sony on behalf of Amazon.com and procures the stocks. This is referred
as 3PL's.

Thus Logistics Service Providers are classified as 1st, 2nd and 3rd party as per their roles and
responsibilities.

Module Summary

Now that you have completed this module, you will be able to:

- Categorize the freight industry

- Analyze the various segments of the industry
Module Objectives:

At the end of this module, you will be able to:

- Explain the key business processes and functions in Freight Transportation and Logistics

Typical Business Transaction

A Typical transport Transaction involves the movement of goods from one point to the other. For
instance, movement of goods from a supplier, which is the point of origin, to a customer, which
is the point of delivery. Although the transaction seems simple, it requires a number to decisions
to be made based on an enormous amount of information flow. This involves special business
process, preparation of documentation and knowledge of certain contract terms
Information Flow

This diagram represents the flow of information and the product flow among the shipper, carrier
and receiver. The information flow between the shipper and receiver is that the shipper quotes a
price. The receiver receives the prices, places an order, receives an order confirmation, traces the
shipment, receives the shipment and pays the invoice

The information flow between the shipper, carrier and receiver is more complex. The shipper
first tenders the shipment. The carrier acknowledges this tender. The shipper then schedules the
shipment, packs it and loads shipment. The shipper and carrier trace the shipment. The receiver
receives notice of arrival, is required to schedule dock space and unload the shipment. On
receiving the shipment, the receiver also gets the freight bill from the carrier. The carrier receives
the payment from the receiver. The receiver then gets a freight audit.

Thus there is an enormous amount of information flow involved in the processes of planning the
shipment, finding tariffs and rates, making a booking, tracing the cargo and managing
documentation.

The carrier functions are

• Transportation Planning
• Transportation Management
• Freight Accounting

The shipper functions are

• Planning
• Transportation Planning
• Transportation Management
• Freight Accounting

The Receiver functions are

• Network Planning
• Demand Planning
• Transportation Planning
• Inventory Management
• Freight Accounting
• Warehouse Management
Key Transportation Processes

The Key businesses processes in freight transportation are:

- Building Loads/shipments, which deals with hat needs to be transported and in what
volumes.
- Booking freight deals with booking and the various types of carriers.
- Routing and scheduling deals with the route and timings of the freight transportation.
- Consolidation deals with combining shipments of two or more shippers.
- Cargo pickup deals with the time of pick up.
- Documentation deals with the printing of shipping and export documents.
- Tracking shipment en-route deals with the status of the shipment in transit.
- Cargo delivery deals with the confirmation of delivery.
- Freight payment deals with the various modes of payment and
- Freight audit validates the accuracy of the transportation charges.
Build Shipments / Loads

Building loads and shipments is the primary process. Let us first understand the difference
between a load and the shipment. A shipment is the freight transferred to a carrier by a consignor
at one place of delivery to a consignee at another place in a single unit. It is basically the release
of freight to the consignee at one specific destination.

For E.G. if a truck starts with 4 boxes at A, drops 3 boxes at B and 1 at C. there are 2 shipments:
A to B and A to C.

On the other hand, a load comprises a collection of shipments in a single unit. For instance a
truck starts with 4 boxes at A, drops 3 boxes at B and 1 at C. there are 2 shipments A to B and A
to C. However it’s a single load as it is in same truck.

A container carrying various shipments is an example of a load. This process will enable the
determination of the volumes that needs to be transported in various shipments and the number
of loads

Freight booking with carrier

Freight Booking is when a customer submits an application to move cargo of a specified quantity
on a particular transportation service.

Freight booking is to make a reservation on a carrier for transportation of cargo

Freight may be booked by contacting a carrier /transporter either through a known carrier or
through a selection process. The means to contacting carrier are either by pre-identifying or
contacting existing transportation service provider, selecting them by negotiation, through a
broker or consolidator or by ad hoc mechanisms.

Another factor which has an influence on this consideration is what is to be booked and the terms
of the delivery.

Freight Booking : Other Factors

The shipper may book either the entire carrying capacity such as a truck, ship, plane, train or just
a portion of the carrying capacity like a container, wagons or less than truck load.
The ways of charter in the Bulk (Dry/Liquid) Shipping Industry are:

• Time Charter
In a time charter the vessel owner contracts to turn over the ship to the person who
charters it, in return for a daily fee. On receiving the vessel, the charterer becomes
responsible for giving the ship orders and paying fees associated with the vessels
employment including port and canal fees, local taxes, wharfage and dockage charges.
The shipper also determines the routing and scheduling.

• Voyage Charter
A voyage charter is an agreement between an owner and a charterer to carry cargo
between two or more points at an agreed rate. The two negotiate the amount of cargo the
vessel is to carry, and the rate at which the charterer will load the vessel. The carrier
decides on the routing and scheduling.

Contracts in the trucking industry are:

• Truckload
This refers to a quantity of freight that will fill truck and is charged according to the
distance of transportation.

• Less than truckload

A small freight shipment typically less than 10,000 pounds and charged per ton.

Charters in the rail road transportation are:

• Full Wagonload
A consignment of goods which is a full wagon load and remains full through transit from
origin to destination without trans-shipment.

• Less than full wagonload.

This refers to a small consignment of goods that require just-in-time delivery of goods
and the tracking and tracing capabilities.

Freight Booking- Types of Carriers

Freight is booked on either contact carriers or select carriers

Contact carriers include common carriers and contract carriers

Common carriers are entities that provide transportation services whenever needs without a
contract possibly infixed lanes while contract carriers are for-hire operators who offer
transportation services only to certain shippers under a specified contract,

On the other hand, Select carriers are selected through a special contract mechanism called
tendering. Here the shipper selects the carriers taking into consideration several factors. the
factors include: total transportation costs, which includes the freight rate as well as other
logistical system costs like equipment terms, responsibility for claims and loading responsibility.

Transit time, which includes the length in time and reliability and consistency. Lower reliability
leads to increased inventory costs. Security, which takes into consideration the safety of the
freight being transported. Carrier capability which deals with services such as hauling
capabilities, that is, the ability to provide specialized vehicles and/or equipment for temperature
control and specialized services like on-lime shipment tracing. And carrier accessibility, which
includes accessibility to both shipper and consignee and also accessibility in terms of
infrastructure like railroads, shipping lines and airlines. this will ultimately result in an
agreement, which is shipment specific and either long term or short term.

Freight Booking Contact Mechanism: Tendering

Tendering is the management and commercial decision of choosing and awarding an order to a
contractor based on the estimate and other details furnished by a number of contractors.

Transporters are categorized as either preferred carriers or accepted carriers. Preferred carriers
refer to those carriers having an existing relationship the shipper or those referred through a
known source. Accepted carriers are those on the given list with a company, but are not listed as
preferred carriers. Typically shippers contact the preferred carriers before the accepted carriers.

Tendering is of three types: sequential, auction and composite.

Sequential is where bids are first sent to the preferred carriers and are offered to accepted carriers
only if no suitable preferred carriers are found. Auction is where bids are sent to both preferred
carriers and accepted carriers at the same time, selected on certain criteria. Composite is a
combination of the sequential and auction tendering, where sequential is followed first and then
the auction if needed.

Freight Booking Contact Mechanism: Broker / Consolidator

A freight broker or consolidator is not the owner of the goods but an intermediary between a
shipper and a carrier. He buys space on a carrier and sells it to different shippers.

For example a full container can have three boxes. A carrier will charge $20 for the 1st box; $36
for two boxes and $51 for the entire container, which means $17 per box for three boxes.

There are 3 shippers, who want to ship a box each. A consolidator will ship it at $19, by making
a margin of $2, and in addition, also offer the value added service of pick and pack and
paperwork. This is a win-win situation for both as the shipper also saves a dollar.

The advantage of a freight broker is that there is great flexibility and is especially useful to those
with less than truck load shipment or less than container load shipment.
Having covered the various factors taken into consideration while booking freight, let us discuss
another important factor, which is, deciding freight rate.

Freight Booking: Freight Rate

Freight rate refers to the charges in dollars per ton or kilometer for the transportation of freight.
On the other hand, tariffs are the rates published by carriers in tariff sheets.

Freight rates for a various shipments are determined on the basis of classification or rate
administration.

Classification is the process of grouping goods that need to be transported on characteristics that
affect storage and transportation like density, storability and value. For example, goods that
require refrigeration will be classified in 1 group. For each shipment, the carriers will find out in
which group of the above classification table the product can be placed. Every group has a
particular value ranging from 35 to 400. Higher this value, greater is the expected cost of
transportation and storage, and hence freight rate quote from the carrier. The trucking industry
uses the National Motor Freight Classification system.

In Rate Administration, the carrier publishes freight rate for different shipment volumes for all
given pairs of origin and destination. The applicable surcharges are added to these freight rates to
give the final quotation to the shipper.

Determination of freight rate faces several challenges. The first is finding the right rating for a
given product. With the detailed classification table, there is little room for ambiguity for most
commodities. Nevertheless, many products, there could be room for negotiation. A lower rating
could reduce freight rates substantially. Another challenge is that product classification, that is,
the rating, can be significantly affected by the type of packaging. The challenge is to take the
optimal product packaging decisions to reduce overall costs.

After creating loads, contacting a carrier, booking freight and confirmation of order from the
carrier end, the next step is transportation planning such as routing and scheduling and
consolidation. Transportation planning can be done by the carrier, shipper, consolidator or third
party logistics provider as they are aware of shipment details and also the point of origin and
destination.
Routing & Scheduling

Routing is the process of determining the most cost-effective route the shipment will take to the
eventual destination. Routing includes description of mode of transportation, actual route of
carrier, and estimated time en route.

Scheduling is a plan of times for starting and/or finishing activities. It involves planning the
movement of cargo into and out of one or more terminals in the appropriate amounts, in addition
to coordinating the time in relation to the priority of cargo. At times shipment schedules can be
adjusted forward or backward in time so they can be combined with other shipments.

The goal of routing is, thus, to find the best path a vehicle should follow through the network of
roads, rail lines, shipping lanes and air routes while the goal of scheduling is to determine the
best pattern for stops, multi-vehicle use, driver layovers, and time of day restrictions.

The benefits of routing and scheduling include greater vehicle utilization, improved and more
responsive customer service, reduced transportation expenses and reduced capital investment in
equipment.

Routing is generally done either via three generic transportation networks: direct shipping
network, distribution network or hub and milk runs.
Routing: Direct Shipping Network

In a direct shipping network, routing of each shipment is mentioned. The decision variables in
this case are the quantity that needs to be shipped and the mode of transportation. The advantage
here is that operation and coordination is very simple. Another factor is the elimination of
intermediate warehouses as goods are shipped directly to the consignees.

Examples of direct shipping network are coal movement from mines to power plants via rail,
movement of large consignments from suppliers to retailers, direct container liner services
between Indian and the United States and project cargo movement like equipment for Reliance
Refinery plant in Jamnagar.

Routing: Distribution Center or Hub

In routing of shipments via a distribution center or hub, the hub acts as an intermediary between
a consigner and the consignee. The hub thereby can be used to store inventory, as well as, serves
as a transfer location. The hub is generally used when consignment between the origin and
destination are not that large. Hub-and-spoke network structure is possible only if the hub has the
capacity to handle large amounts of time-sensitive consignments.

For example, in container shipping hubs include the ports of Singapore, Dubai and Rotterdam.
The other ports are called feeder ports. For the railroads, the hubs are generally classification
terminals, which are used for breaking and building freight. For the express cargo industry the
regional hubs maintained by service providers like DHL, UPS and FedEx.

Routing: Milk Runs

Milk runs are similar to the concept of milk vans that deliver milk to various unloading points
and then return empty to the point of origin. Thus the name, Milk runs. This optimizes
transportation flows by performing multiple collection or delivery for customers in the same
industry. For example, instead of arranging for transport from location A to location B and back,
there are fixed routes with various loading/unloading points, combining the required orders from
different customers at the same time.

Milk runs are of two types:

- Direct shipping with milk runs

- Shipping via distribution centre with milk runs.

Direct shipping with Milk Runs is generally used when frequent, small deliveries are needed on a
regular basis or when the suppliers or retailers are in geographical proximity. In this, however
there is the empty movement of the vehicle from the destination to the origin, which is an
unproductive move. This is referred to as ballasting in shipping and deadhead in trucking.
Shipping via Distribution Centre with milk runs is used if small lot sizes are to be delivered
regularly and suppliers are not located in close geographical proximity. The important factors
that need to be considered here are how close the distribution centre should be to the consignee,
the route to be followed between Distribution centre and destination points and how best a truck
should be stacked so that unloading at multiple points is easier.

Consolidation

Consolidation is another important process. Consolidation refers to the cargo shipments of two or
more shippers. Container load shipments may be consolidated from multiple consignors. This is
usually done when consignors are in close proximity to each other or if they have shipments to
the same destination. The primary advantage of consolidation is that it reduces cost.

Cargo Pickup

Cargo pick up is the next step in the transportation process. Once the cargo reaches a destination,
which may be a transit point or the last destination, it needs to be picked up. Cargo pickup
requires appointment scheduling and loading.

Appointment scheduling is the process of formally agreeing at a time, date and place of loading
by the transporter and the consignor. The issue of capacity availability – both in terms of loading
manpower and vehicle availability are also resolved.

Loading the shipment comprises loading of the goods in the truck, a train, loading of containers
in a container ship/aircraft and loading of bulk cargo in a dry bulk ship. The objective of a load
plan is to optimize the three dimensional configuration of goods or containers, to ensure safety
and balance during loading as well as post loading, to ensure maximum utilization of rolling
stock and to come out with an efficient stacking norm. The parameters considered while loading
is the type of goods, in terms of physical dimensions and the possibility of damage. Another
parameter is the sequence of loading and unloading such as multiple pickup or delivery points in
the case of a truck or container ship like FIFO, which is first in first out and LIFO, which is last
in first out. The breaking and building of cars in case of freight train is also taken into
consideration in the sequence of loading and unloading.

Cargo pickup is followed by the process of getting the required transportation documents such as
Bill of Loading, Shipment Manifest, etc. in order. We shall look at transportation documentation
detail in the following module. The next process is shipment and tracking.

Shipment Tracking & Tracing

Shipment tracking and tracing has become an essential transportation process. Tracking
establishes the present status of a shipment. It provides the delivery dates and times and even the
name of the person receiving the shipment. Tracing is the process of determining the shipments
history, where it’s being held and if no one is there when it’s delivered.
The status is provided in three ways:

- Report of where the conveyance was last seen referred to as spotting message
- Report of an action done such as “picked up” or “delivered”
- An estimated time of arrival

A major advantage of this is that it provides in-transit visibility of a shipment and thereby
enhances customer satisfaction.

This is then followed by the process of cargo delivery, to the consignee named on the Bill of
Lading. The next process is freight bill payment.

Freight Bill Payment

Freight bill payment is the next transportation process. A freight bill is a shipping document to
confirm delivery of the freight and indicate the terms of payment for the transportation services
rendered. It gives the description of the freight, its weight, amount of charges, taxes and whether
the bill is collect or prepaid. The freight bill differs from the bill if lading in that the freight bill it
provides the charges applicable for transporting the shipment while bill of lading sets the terms
for carrying the shipment and is a document of title. Freight bills maybe prepaid or collect bills.
If the bill is prepaid, freight charges are paid by shipper. If the bill is collect, freight charges are
paid by receiver of the goods or a third party. Freight rate consist of basic freight rate as well as
additional components.

The additional components include:

- Diversion charges
- Re-consignment charges
- Demurrage or detention charges
- Transit service charges
- Accessorial services and surcharge

Freight bill deductions are amounts which are reduced from the gross amount payable to the
carrier by the shipper. The reasons for deductions could be delayed delivery cases where the
contract stipulated such a clause, shortages in received quantity as compared to the shipped
quantity and damages to the delivered goods such as water seepage due to inefficient tarpaulin
cover in trucks.

Some Important definitions are :

Prepaid

This denotes that transportation charges have been or are to be paid at the origin point of
shipment by the shipper/consignor.
Collect

Transportation charges for which payment is required at the time of delivery at the destination
(residence or warehouse).

Diversion Charges

This refers to charges due to a change in the destination of the shipment prior to its arrival at the
original destination.

Re-consignment Charges

This refers to charges due to a change in the consignee prior to delivery.

Demurrage/Detention Charges

This refers to charges due to delay in loading/unloading of cargo beyond a stipulated time.

Transit Service Charges

This refers to prices for transit services, which include stopping a shipment at an intermediate
point for processing and so on.

Accessorial Charges

These charges refer to charges made for performing services beyond normal pickup and delivery
such as inside delivery, storage charge, weight and inspection charge and hazardous material
charge.

Surcharge

A surcharge on freight charges is levied either to offset currency fluctuations or even a surcharge
on fuel.

Freight Bill Audit

Freight bill audit is the final process in freight transportation. This is the process of verifying the
accuracy of the transportation charges shown on a carrier’s freight bill. This, thereby, involves
the reviewing of bills and other documents or information to ensure precision.

The freight bill audit could be pre-audit or a post audit. A freight bill pre-audit determines the
exact transportation charges due to the carrier prior to payment. A freight bill post-audit, on the
other hand, validates and verifies a carrier’s invoice or accuracy. It seeks to eliminate duplicate
or erroneous payments. If a discrepancy is discovered, a claim is filed with the carrier. Freight
auditing maybe done internally by the transport and logistics department or by specialized freight
bill auditing firms.
Pre-Audit

Pre-auditing a freight bill validates freight bills prior to payment. It seeks to eliminates carrier
overcharges.

Post-Audit

Post-Audit of a freight bill is auditing after the invoices have been paid.

Other Processes

In addition to the key processes, the other process include

- Warehouse Management is managing and storage of materials throughout the warehouse.

This is especially considered with putting away, replenished, and picking goods.
- Order Management refers to the management of order information and inventory
availability.
- Transportation Management includes routing, fleet management, yard management,
carrier management and freight cost management.
- Distribution Management encompasses channel management, physical distribution
management and also includes working with carriers, managing facilities, handling
inventory control and fulfilling orders.
- Reverse Logistics is the method used to move previously-shipped goods from a customer
back to a manufacturer or a distribution centre. For instance, reverse logistics includes
managing customer returns, excess inventory disposal and the return journey of empty
trucks and freight cars.

Module Summary

Now that you have completed this module, you will be able to:

- Explain the key business processes and functions in freight transportation and logistics.
Bill of Lading (BOL)

A Bill of Lading is the basic document between a shipper and a carrier. It is a contract of carriage
and defines the terms and conditions of carriage. The bill of lading describes the conditions
under which the goods are accepted by the carrier and details of the nature and quantity of the
goods, identifying marks and numbers, destination, etc. It is also a receipt for the merchandise
being shipped. The Bill of lading even serves as a document of title to the goods described
therein.

Is a contract between carrier and shipper for transport of goods. It is a receipt issued by a carrier
to a shipper for the goods received for transportation and its condition. It even serves as a
document of title of goods in case of dispute.

Types of BOL:

Straight BOL – It is non-negotiable bill of lading in which the goods are designated to a named
consignee and a carrier is obligated to deliver those goods to the named consignee.

Order BOL – It is negotiable bill of lading. There are two types:

• A bill drawn to the order of a foreign consignee, enabling him to endorse the bill to a
third party.
• A bill of lading drawn to the order of the shipper and endorsed by him either “in blank”
or to a named consignee. The purpose of the latter bill is to protect the shipper against the
buyer’s obtaining the merchandise before he has paid or accepted the relative draft.

Direct BOL – A direct bill of lading relates to shipments which are loaded by a shipping
company at one port and unloaded at another. In other words, it relates to a direct shipment from
one port to the other by the same carrier

Through BOL – A through bill of lading refers to a shipment from one port to another by more
than one shipping line. The goods are taken by the initial carrier from the port of shipment to a
port of transshipment where they are then transferred to a vessel of another shipping line for
transportation to the port of final destination.

Received BOL – This confirms that the carrier has received the goods designated for shipping
On Board BOL – Is issued after the consignment has been loaded on the ship and states the
loading date and name of the ship

Clean BOL – A receipt for goods signed by carrier indicating that the goods were received in
good order and condition

Foul BOL – A receipt for goods signed by carrier indicating that the goods were damaged when
received from the shipper.

Bill of lading can be categorized into four based on the mode of transportation.

Types of BOL based on mode of transport:

Road WayBill – Document indicating that goods have been received for shipment via road,
usually by trucks. This certifies that a contract has been signed between the shipper and the
carrier concerning the transportation of goods by road.

Rail Way Bill, which is a transport document which certifies that a contract has been signed
between the consignor and the carrier concerning the transportation of goods by rail.

This creates a contract between the shipper and the rail freight carrier. The rail transport
document serves as a receipt by the carrier for the goods shipped. The rail way bill shows the
name and place of the shipper, the date of receipt of the goods and the name of the consignee.

Air Way Bill – is a bill of lading for air transportation. This covers both domestic and
international flights transporting goods to a specified destination. It confirms the conclusion of a
contract between a carrier and shipper. This bill also sets certain conditions with respect to
handling, flight route and delivery of the goods, limitations of liability, description of
commodity, and applicable transportation charges. Air waybills specify the terms under which
the air carrier is agreeing to transport the goods and contain limitations of liability. They are not
negotiable. This may be master air waybill or a house waybill.

- Master Airway Bill – A MAWB covers a consolidated shipment of more than one
shipment issued by a carrier
- House Airway Bill – This is issued by a freight forwarder to a shipper

Ocean BOL – This is a contract of carriage between an exporter (seller of goods) and an ocean
carrier. This form serves as a receipt for the cargo and a service contract stating (among other
things) where to deliver the goods, freight charges to be paid and to whom the goods are to be
delivered
Other Documentation:

Shipping Manifest – It is document containing the full list of ship’s cargo that is extracted from
the bill of lading. A copy known as the outward manifest is kept with custom’s authorities at the
port of lading. A copy known as the inward manifest is kept at the discharge point.

Certificate of Origin –It is a document stating which country the goods were produced in. It is
used for customs or foreign exchange purposes or both. This is certified by chamber of
commerce, and required by some countries for tariff purposes.
The meaning of trade terms vary from country to country. To avoid confusion, standard terms
called Incoterms have been developed by the international Chamber of Commerce to make the
terms of sale clear and precise. Incoterms provide a set of international rules for the
interpretation of the most commonly used trade terms between buyer and seller, in foreign trade.
These Terms describe in detail the rights, responsibilities, obligations and costs of the sellers and
buyers in international trade, with particular reference to the transportation of goods. Some terms
were designed with sea vessels in mind while others were designed to be applicable to all modes.
The basic specifics that these terms address are

- Cost: Who is responsible for the expenses involved in a shipment at a given point in a
shipment’s journey
- Control: Who owns the goods at a given point in the journey
- Liability: Who is responsible for paying damage to goods at a given point in a shipment
transit
There are 13 different terms divided into 4 categories. Each of these terms deals with different
situations involving the movement of goods.

The categories are:

E-Terms

Departure Terms where sellers responsibilities are fulfilled when goods are ready to depart from
facilities. It has minimum seller obligation. Here the seller makes the goods available to the
buyer at the seller’s own premises.

It has only one category EXW (Ex-Works)

Ex Works

Ex means From. Work means factory, mill or warehouse, which are the sellers premises. Ex-
Works means the seller’s only responsibility is to make the goods available at the seller’s
premises, ie., the works or factory. The seller is not responsible for loading the goods on the
vehicle provided by the buyer unless otherwise agreed. The buyer bears the full costs and risk
involved in bringing the goods from there to the desired destination. The buyer is responsible for
all transportation costs, duties, and insurance, and accepts risk of loss of goods immediately after
the goods are purchased and placed outside the factory door. Ex-Works represents the minimum
obligation of the seller. Some manufacturers may use the term Ex Factory, which means the
same as Ex Works. The term is applicable to all modes of transport including multimodal.
C-Terms

Terms beginning with C deal with the shipments where the seller pays for shipping, but without
assuming the risk of loss or damage to the goods or additional costs due to events occurring after
shipment and dispatch. The seller is also responsible for export customs clearance. Seller is not
liable for risk/loss/damage to the goods during shipping.

For the C terms, the main carriage is paid by the seller. These terms include:

Cost and Freight

Requires the seller to pay the costs and freight necessary to bring the goods to the named
destination, but the risk of loss or damage to the goods as well as any cost increases are
transferred to the buyer when the good pass the ship’s rail in the port of shipment. Insurance is
the buyer’s responsibility. The buyer is responsible for the import customs clearance and other
costs and risks.Applicable only to sea and inland waterway

Cost, Insurance & Freight

CIF (Cost, Insurance and Freight): Seller is responsible for delivering the goods onto the vessel
of transport and clearing customs in the country of export. He is also responsible for purchasing
insurance with the buyer named as the beneficiary.Risk of loss transfers to buyer as the goods
cross the ship’s rail. If these goods are damaged or stolen during international transport, the
buyer owns the goods and must file a claim based on insurance procured by the seller.
Applicable only to sea and inland waterway.

Cost Paid To(CPT)

Seller clears the goods for export, delivers them to the carrier and is responsible for carriage
costs to the named place of destination. Risk of loss or damage to the goods transfers to the
buyer when the goods have been delivered to the custody of the final carrier. Applicable to all
modes of transport.

Carriage and Insurance paid(CIP)

CIP (Carriage and Insurance paid): Delivery of goods and cargo insurance to the named place of
destination at seller’s expense. Applicable to all modes of transport.
F-Terms

Terms beginning with F refer to shipments where the primary cost of shipping is not paid for by
the seller. Seller has to deliver goods to a carrier appointed by buyer.

The main characteristics of the F terms is that the main carriage is not paid by the seller. The
terms in this category include:

Free Carrier (FCA)

The Seller fulfills his/her obligations when the goods are delivered to carrier at a named point
specified by buyer. The risk of loss or damage to the goods is transferred from seller to buyer at
that time. If the place chosen is the seller’s place of business, the seller must load the goods onto
the transport vehicle; otherwise, the buyer is responsible for the main carriage/freight, cargo
insurance and other costs and risks. Has been designed to meet the requirements of multi-modal
transport such as containers, traffic by trailers and ferries.

Free Alongside (FAS)

FAS (Free alongside ship): Seller transports the goods from his place of business, clears goods
for export and places goods alongside ship on quay. The risk of loss then shifts to the buyer.
Buyer is responsible for loading the goods onto the vessel and for paying all costs involved in
shipping the goods to the final destination. Applicable only to sea and inland waterway.

Free on Board (FOB)

FOB states that the seller is responsible for delivering the goods from his place of business and
loading them onto the vessel at the port of shipment named in the sales agreement as well as
clearing customs in the country of export. As soon as the goods cross the ship’s threshold the risk
of loss is transfered to the buyer. The buyer is responsible for all transportation and insurance
costs from that point, and also for clearing customs in the country of import. The seller pays the
cost of loading the goods. Applicable only to sea and inland waterway transport.

D-Terms

Shipper/seller responsibility ends when goods arrive at some specific point. Seller has to bear all
costs and risks needed to bring the goods to the country of destination. These are essentially
arrival/delivery terms. The D terms are:

DAF (Delivered at frontier)

The seller is responsible for all costs involved in delivering the goods to the named point and
place at the frontier. The sellers obligations are fulfilled when the goods have arrived at the
frontier but before the customs border of the country named in the sales contract. Risk of loss
transfers from seller to buyer at the frontier. The buyer pays the cost and bears the risk of
unloading the goods, clearing customs and transporting the goods to the final destination. This
term is applicable to all modes of transport.

DES (Delivered Ex-Ship):

The seller makes the goods available to the buyer on board the ship at the destination named in
the sales contract. Seller is responsible for all costs and risks involved in delivering the goods to
a named port of destination. Upon arrival, the goods are made available to buyer on board the
vessel. The buyer must pay the cost of unloading the goods and any customs duties. Applicable
only to sea and inland waterway transport.

DEQ (Delivered Ex-Quay)

The seller makes the goods available to the buyer on the quay or wharf at the destination named
in the sales contract. Seller bears all costs and risks in transporting to the wharf (quay) at the port
of destination. The buyer must pay duties, clear customs, and pay cost/bear risk from that point
onward. Applicable only to sea and inland waterway transport.

DDU (Delivery Duty Unpaid)

The seller is responsible for all costs involved in delivering the goods to a named place of
destination where the goods are placed at the disposal of the buyer. The buyer assumes risks of
loss at that point and must clear customs, pay duties and provide inland transportation and
insurance to the final destination. The term is applicable to all modes of transport.

DDP (Delivery Duty Paid)

Seller bears costs up to named point of destination including customs clearance at the country of
import. Under DDP, the seller literally provides door to door delivery, including customs
clearance in the port of export and the port of destination. Thus the seller bears the entire risk of
loss until goods are delivered to the buyer’s premises. The term is applicable to all modes of
transport.

Here, the seller is responsible for most of the expenses, which include the cargo insurance,
import customs clearance, and payment of customs duties and taxes at the buyer’s end, and the
delivery of goods to the final point of destination, which is often the project site or buyer’s
premises. The seller may opt not to insure the goods at his/her own risk.
The global transportation industry is reshaping itself in response to technological forces. New
patterns of freight and product distribution are emerging to take advantage of the information
technology revolution. Innovative new technologies are being deployed to enhance network
performance and to integrate operations across the supply chain.

Advanced information systems provide real-time information on freight operations and

congestion on highways and rail lines. The primary Information Technology applications used in
the freight transportation industry are

1. Transaction Systems
2. Advanced Systems
3. Operational Systems
4. Business Systems

Transaction Systems
The transaction systems are systems that deal with the various processes in transportation and
provide for better efficiency and agility in response to market demands. The systems under this
category include:

• Transport Management system and/or carrier management systems

• Warehouse Management System
• Freight Forwarding System

Transport Management System

The role and importance of Transport Management Systems (TMS) has been elevated as

- Reliable
- Efficient
- Cost-effective

Transportation operations are the need of the hour. These systems facilitate the procurement of
transportation services, efficient planning of transportation activities and execution of the plans.
This includes operations of various kinds such as

- Carrier Registration
- Carrier contract Management
- Order acceptance
- Load planning Algorithms, that is, constraint based consolidation across commodities
- Route Optimization
- Asset Availability and Event Management
It also encompasses operations such as Automated Carrier Selection taking into considerations
cost And Performance, Pickup to Delivery Cycle with in transit updates, Freight Audit, which
includes automated voucher generation and voucher matching with contract and even revenue
sharing.

Effective transportation management systems provide for efficient carrier management,

maximizes asset utilization, increases driver productivity, improves inventory management,
lowers costs, and enhances customer service and reliability.

Warehouse Management Systems

A warehouse Management system directs the flow of materials both into and out of specific
storage locations, in an ordered sequence. This also comprises management of a warehouse's
resources, including space, labor, equipment and tasks.

The operations comprise three basic modules:

-Purchase module
-Warehouse receipts
-Sales module

The purchase module includes requisition, purchase order and part list maintenance.

Warehouse Receipts include receipts, putaway, replenishment, picklist cartonization and

packing and dispatch.

Sales module consists of operations such as order acceptance, allocation, invoicing and
collections.

The other operations include stock register, returns management, value added services that
include knitting, re-batching, break bulk and lot building, yard management and interface with
external systems.

The benefits of this system include

- Improved inventory accuracy

- Increased operating efficiency
- Improved picking efficiency
- Reduction in labor costs
- Increased shipping accuracy
- Better customer service.
Freight Forwarding System
A freight forwarding system assists in :

• Meeting the demands of the air and ocean freight forwarding business.
• Arranging for efficient transportation of shipments.
• Tracking shipment details and notifying customers of change in status.
• Facilitating operations such as documentation, carrier selection, scheduling and managing
consolidations.

The freight forwarding system enables efficient shipment transportation to meet the time
sensitive demands of air and ocean freight. It handles several aspects of a forwarder's operation.

The air freight system handles operations such as pick-up request, warehousing, LCL
shipments, FCL shipments, House Bill of Lading, Master Bill of Lading, Consolidation,
deconsolidation, delivery order, proof of delivery, trace and trace, multimodal shipments, mail
alerts and reports.

The ocean freight system handles operations such as pickup request, House Airway bill,
consolidation, Master Airway bill, billing to Shipper, job cost sheet, break bulk, delivery order,
proof of delivery, billing to consignee, multimodal shipments, track and trace and mail alerts.

The benefits of this system include:

- Reduced paperwork
- Improved tracking
- Improved customer service.

Advanced Systems
The advanced systems add value to the various transportation operations and enable greater
performance. The various advanced systems include:

- Optimization tools
- Performance management
- Visibility solutions.

Optimization tools, which are systems that help drop costs by strategic planning. These tools
consists of system that aid in maximizing efficiency, reducing excess costs, improving profit
margins and customer service through effective strategies. The various tools comprise load
optimization, route optimization and warehouse space optimization.

Performance management, which are systems that transform raw/basic data into strategic,
tactical and actionable information. It tracks key performance indicators, monitors business
trends and includes event management, profitability analysis and reporting capabilities.
Visibility solutions, which are those systems that provide for visibility of freight movements
through tracking and tracing. This also comprises dashboard reporting which includes slicing
across customers, divisions, services, order tracking across services, track and trace solutions and
mobile applications. Visibility solutions are being enhanced with added value and more
sophisticated applications and are being integrated into broader freight management systems.

This refers to those systems which track and trace freight movements. They are used for online
monitoring of travel activities of vehicles and provide information on vehicle position, route
traversed, vehicle speed and expected arrival time. Tracking enables identification of bottlenecks
of mobile assets, calculation of demurrage and dispatch, identification of inefficient drivers,
monitoring of fuel and enhanced cargo security.

The other advanced systems include Decision Support Systems which consist of modeling tools
and application integration which is the seamless integration of disparate systems and data
integrity.

Advanced data capture is through several systems optical character Recognition, Barcode
scanning Radio Frequency data terminals, vehicle mounted terminals and so on.

Operational and Business Systems

Efficient and optimal functioning in transportation operations and management requires
operational and business systems, as well.

The operational systems comprise

- Operation modeling
- Resource allocation and optimization
- Operations management
- Integrated
- Real time operation data and safety
- Incident management

The integration of the various operational systems facilitate greater efficiency in transportation
functioning.

The business systems consist of

- Decision Support Tools
- E-Business Tools
- Enterprise Management Tools
- Transaction Systems
- Asset Management System
- Workforce Management System
- Management information System
- Revenue Management
- Shared services
Application Footprint

The integration of disparate IT systems and processes is becoming increasingly important for
operational efficiency in transportation. This has given rise to Enterprise Application Integration
and Business to Business Integration

The front end solutions are what are the customer interacts with. Information to the front end
solutions is fed by systems such as Sales Management System (SMS), the Order Management
System (OMS) and the customer management system. Information to the sales management
system and the order management system is provided by execution systems.

The customer management system is provided information by the advanced systems. These
systems include the Decision support system (DSS) performance management system (PMS)
optimization Engines and visibility system.

The integration of the various systems leads to the automation, standardization and optimization
of critical processes. This facilitates the streamlining of planning and execution and substantially
improves performance and efficiency while reducing costs.
New Technologies
There has been an emergence of several new technologies particularly as security has become a
major concern. Some of the technology expected to play a key role in enhancing security
include:

- Active Sensors
- Electronic seals
- E-tags
- Biometrics
- Radio Frequency Identification
- Closed circuit television
- Real Time Location Systems
- Other Technologies.

Active sensors, which are used for cargo monitoring and sense specified parameter value in a
particular environment and transmit values to an active wieless application gateway. An example
of this is monitoring the temperature of refrigerated products.

E-tags or electronic identification provide vehicle identification and enable tracking and tracing
of vehicles carrying freight. This enables the recording of every vehicle that passes the gate,
identifies which tractor and trailer are connected and can be used to download information from
the bus of the truck. Planned versions of the tag allow two-way communications and uploading
of routing or dispatch information to the truck as it exits the gate. It has a range of up to 300 feet,
can read through obscuring materials and detect any change in status like temperature, intrusion,
tampering or shock. Thus, it supports safe and efficient operations.

Electronic seals, which include active and passive seals provide a unique identification number,
shippers contact information, transmit seal number, origin and destination information and route
information. The active seals are more expensive and can be used several times. The passive
seals are less costly and are one-time use seals.

The basic functions for electronic seals is to determine the integrity of the seal and record the
time and place of the transaction. It can detect a breach or tamper attempt as it happens and
record the time and location of the tamper event with latitude and longitude from the GPS or
another source. They, thus, contribute to security and also improve supply chain productivity and
effectiveness.

Biometrics, which are devices that enable identification of authorized personnel and enhance
security, usually against theft. Biometrics use fingerprints, hand geometry, eye, facial recognition
and dynamic signature for identification.
Radio Frequency Identification or RFID, which are devices that enable data to be stored and
transmitted, thereby enabling visibility and security of freight. The signal of each tag is
monitored by a cellular system of readers that receive and relay the tag’s location to a host
computer. This is an old technology that is being used more often today due to the fall in its
prices.

This is a method of remotely storing and retrieving data using devices called RFID tags. This
provides for visibility of shipment, faster delivery turnaround, faster custom clearance and theft
prevention.

Closed Circuit Television is used to accelerate cargo inspection. With an increase in the amount
of cargo to be inspected, CCTV enables load inspection by centralizing resources. It, thereby,
improves cargo surveillance by reducing time and costs.

Real time location systems, which provides continuous asset visibility and tracking from point
of origin to point of destination. Real Time Location Systems (RTLS) can identify item
locations, providing users with a real-time picture of supply chain movement and workflow.

Other technology, include acoustic detection, gamma ray detection and radiation detection.

Acoustic: This is an ultrasonic transducer that detects resulting reflection from objects inside the
container and forms an image of them.

Gamma Rays: Rays emitted from a radioactive element strike the object under supervision and
is displayed as an image.

Radiation Detection: This is used to detect the presence of a nuclear device.

Module Objectives

This module deals with an overview of the key business trends in the transportation and logistics
industry.

Key Business trends

The transportation industry has seen the emergence of several business trends. The emergence of
these trends is a result of various driving forces.

The key drivers are:

Containerization: This revolutionized cargo shipping. Containerization is the grouping of

general or special cargo in a container for transport in various modes. It reduces transit time,
pilferage, damage, packaging, and at times, costs through less freight handling. Today,
approximately 90% of cargo moves by containers.

It is the practice of consolidating many items into a single large container that is sealed at its
point of origin and opened at its destination. Containers allow for intermodal shipments of cargo,
because the same unit can be stacked on railcars, put on chassis and towed by trucks, or placed in
ships’ hold. This has greatly increased efficiency and security in shipping.

Deregulation: is another important force that has had a significant impact. Deregulation of the
transportation industry in the United States took place between 1977 and 1980. Deregulation of
the aviation, rail, motor carrier, and maritime shipping industries has opened the door to new
competitors, creating an environment that generated innovative, efficient, and affordable
transportation services.

Deregulation is the process of decreasing or eliminating government regulatory control over the
industry and letting competitive forces drive the market. Deregulation has resulted in a
substantial decrease of rates, especially in the shipping and trucking industries and has
encouraged innovation with respect to products, services and routes.

Differentiation is the next significant driving force. With and increase in competition, carriers
offer services that are required for product and delivery requirements. The net result has been far
greater differentiation in transportation service offerings. Differentiation may be through
reputation for quality, performance, product pricing and innovation.

Differentiation is the process of offering distinct services and products. Carriers tailor service
offerings closely to shipper product and delivery requirements.
Globalization, which is the integration of markets globally, is the next force spurring trends.
These companies hold and unique position because they are the very entities that make
globalization possible. This industry is made up of companies that supply the systems, run the
ware houses and operate the trucks, airplanes, trains and ships that move raw materials, finished
goods, packages and documents throughout the world. They act as the arteries of commerce.

Globalization involves the increasing international integration of production processes and the
market for goods and services. The transportation industry connects other industries, thus, it is
the key to globalization. Faster and cheaper transportation systems allow corporations to build
manufacturing facilities across the globe while maintaining scheduled, frequent deliveries of
parts and finished products. For instance, advances in the transportation sector allow businesses
to substitute just-in-time deliveries from remote manufacturing plants in place of large
inventories.

Intermodal transportation is another significant driving force creating new trends; Intermodal
transportation is a logistically linked system using two or more transport modes. Intermodality
enables economies of scale within a transportation system where modes are used in most
productive manner.

Intermodal is the use of two or more transportation modes to transport freight. For instance,
when containerized goods are loaded from truck to ship and back to truck again in the port of
destination. Goods are consolidated into larger groups that can be transported at lower costs. In
addition, it enables greater logistic flexibility and also reduces congestion and travel time.

And finally integration has also impacted the emergence of several trends in the transportation
industry. There are several advantages of a seamless, integrated transportation system.
Integration encourages competitive travel times, improves schedule reliability for moving freight
and ensure safe, efficient goods movement.

Integration is the grouping of a number of technical transport aspects to facilitate the efficient
operations of transport companies across a region. Integration of the various modes within the
transport chain will improve flexibility, quality and cost effectiveness and will fuel competition
between transporters instead of between transport modes.

These key driving forces coupled with information technology revolution, the internet and
associated technologies have transformed the structure and module operandi of supply and
demand channels. This has led to the emergence of:

-New Markets
-Host of New Players
-New Service Propositions
-Changing and Challenging Customer Requirements, and
-New Trading Relationships.
Impact of Trends

The various trends have led to the emergence of new practices in the transportation and Logistics
Industry. However, there are several logistics inefficiencies burdening the supply chain. These
include the lack of real time information, lack of digital connectivity between players; expert
logistics flows are very complex with a host of players and much of documentation on paper
form.

In order to provide speed to market, and fast and flexible customer response, a new business
environment is needed, which overcomes the various inefficiencies .This includes the ability to
provide a seamless delivery process, ability to track materials as they are in transit and also the
ability to adjust logistics and transportation agreements based on specific customer demands.

Furthermore, logistics today are required for larger distances from national to international to
intercontinental to worldwide. This has led to a growth in the number of local companies forging
partnerships with global players and increasingly integrating into the global high tech supply
chain. This provides several opportunities and challenges to the companies, as they have to
server customers who are globally dispersed, difficult to predict and sensitive to price and
service levels. This is physical network that is distributed right across the glove and has a large
number of players in the field.

What is the need of the hour?

Today, information is the need of the hour, and critical to a shippers requirement. The shipper
requires information about the shipment as it is as important as the shipment itself, access to
information anytime, anywhere, anyway, information that is personalized, timely, accurate,
actionable ns also the ability to conduct business transactions online.

To provide the shipper with the information, what is required is a ---

Single secured pipeline to share

-Information in common formats

-Integrated back end systems of shippers
-Logistics Service Providers
-Carriers and Customer regardless of input method.
-Common infrastructure for communication and information exchange.
Let us look at an example of mega players like Wal-Mart, who interact with their shippers
through an IT enabled interface, This allows a quick information exchange that enables Wal-
Mart to tell the shipper how they want receive their goods, how they want it packaged and the
day and the time they want the shippers trucks at their receiving docks. Thus, information makes
trade more dynamic and agile.

Business Practices

Today’s supply chain requires effective logistics management to meet the requirements of the
growing number of demanding global customers. The various business practices include
customer relationship management, collaboration, outsourcing and technology intensive
operations.

Customer relationship management provides a competitive edge based on key customer

partnerships. Customer relationships management tools are being used to build customer loyalty
identifying high value customer, establishing service enhancements, and better target marketing
communication, they also steam line business operations while enhancing relationships with
clients are partners.

Collaboration involves the sharing of critical and timely data, it’s based on open communication
between networks or trading partners, and it’s powered by information technology, Collaboration
can provide critical information regarding customer demands and delivery expectations up front,
which is vital to achieving high standards of customer service, retaining customer loyalty and
sustaining growth. Collaborating increases speed, it also provides for typical risk and information
sharing for a gain share type of agreement and responsibility sharing at a fixed best price.

Collaboration has several advantages. For example, let us take an example of collaboration
between a logistics service provider and a software company. The distribution centers were
reduced from 11 to 1 and the number of freight forwarders from 42 to 1. As a result of this,
inventory costs were slashed and cycle time was reduced to just 48 hours.

Outsourcing of transportation and logistics operations to a 3rd party enables retailers and
manufactures to concentrated on their core competencies rather than manage transportation,
hence making the supply chain more effective. Outsourcing facilities consolidation and reduces
transaction costs for both, thereby, increasing profits for both. It also reduces capital investment
in assets. The five most frequently outsourced activities within a supply chain are outbound
transportation, ware housing, inbound transportation, customs clearance and customs brokerage.

Technology intensive operations enable logistics providers streamline processes by effective

capture, communication and processing of information. Information technology is a key enabler
for logistics providers to bring in visibility and control to manage revenues and logistics, It, thus,
provides the ability to collect data instantly and accurately in real-time, and also reduces paper-
intensive processes. Technology also increases productivity and process efficiencies.

Conclusion

In today’s context, it is important of the logistics service provider to manage not only assets but
also information. The logistics service provider is no longer just a vendor, but a partner in the
supply chain. In fact, the logistics service provider can be a kingmaker in the business success
through the value chain execution.

Collaborative business practices are another notable industry trend. The key to collaboration
success is to establish trust within partners. To this end, advancements in information technology
enable this trust by providing transparency of operations in the business processes. Therefore, it
requires process integration along with technology integration and will be a win-win to every
stake holder. Another notable business practice is building flexibility, which is more important
than building capacity and inventory.
Technology must be used as an enabler as it greatly transforms functioning and performance in
the industry, Technology, thus, transforms the supply chain into an intelligent business value
chain.