International Management Logistics

Transportation

Transportation is the most visible of all functions of logistics and high contributor to logistics
cost. It is defined as the act or an instance of transporting certain good or a person. In logistics,
we talk about fast, accurate and precise movement of goods to the desired destiny. We have two
functions of transportation with respect to business.

Transportation functionality: Functions of transportation

1. Product movement:

 What is moved?

Generally in a business we have the movement of following:

Raw Material, Semi Finished items, Work In Progress, Finished goods, packaging material,
rejected material- movement is required up or down the supply chain

 What resources are used?

The Resources used by transportation are:

a. Time, Temporal Costs - product is locked up during transit, hence inaccessible

b. Money, Financial Costs-

• Administration Costs, salaries, maintenance, etc

• Product loss and damage

• Cost of fuel for prime mover

c. Nature, Environmental Costs -

• Guzzles natural fuels

• India consumes about 90% of the total available and imported oil for transportation

• Transportation Creates congestion, air pollution and noise pollution.

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• Environmental cost is tangible and substantially intangible.

As transportation utilizes temporal, financial and environmental resources, items must be moved
only when product value is raised.

2. Product Storage:

 Temporary storage when loading and unloading is expensive

 Storage space is not available or limited

 Vehicles kept moving on circuitous route

 Airplanes hovering

Principles of transportation

The major principles of transportation are those which increase efficiency, speed, accuracy and
decreases cost of transportation of goods. Hence principles of transportation are:

1. Economy of scale

• Bulk shipping brings down per unit transportation cost

2. Economy of distance

• Cost per unit kilometer decreases as the distance moved increases

• Principles of transportation are fundamental in evaluating transportation strategies.

Transportation Environment & Transportation decisions

By the term environment we understand those factors which surround the transportation model
and affect the transportation decisions. Transportation environment contains following factors:

• Shipper

• Consignee

• Carrier

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• The government

• Public

When these parties with separate and distinct interests interact transportation environment is
created. The relation between these factors is shown below. The figure shows us how 5 factors
are inter linked with each other.

Roles and perspective of each party

Shipper

 Shipper is a person who’s main objective is to:

• Predict and minimize the transit time

• Minimize cost

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• Specify the pickup time

• Assure zero loss and damage

• Timely exchange of information and invoicing

 Whereas a consignee wants:

• Specified delivery times

Carrier:

 Carrier is a intermediary body, who works for:

• Revenue maximization

• Cost minimization [labor, fuel and vehicle costs]

• Flexibility in pickup and delivery times to consolidate moves

Government:

 Government of a country has a keen interest in stable and efficient transportation

environment to sustain economic growth. Transportation enables the effective and
efficient Public Distribution System. Hence promoted product availability at reasonable
cost. So government play an important role to have a:

• Control on carrier rates and licenses

• Own carrier service

• Infrastructural support - net work of roads, Airports and ATC, Ports and Harbors

Public

Public of an economy is a very powerful entity. Its basic requirements:

 Trigger transportation activity by demanding products

 Demand easy accessibility transport

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 Demand goods and services from all over the world at minimum cost

 Demand safety - accidents of various kind, road, rail, air and water (oil spills)

 Demand safe environment - atmosphere, water, noise

Transportation Mode:

Mode identifies transportation method or form of transportation. It generally consists of

following modes:

Road

Rail

Air

Sea

Impact of transport mode on costs of transportation:

The mode which we use for transportation of goods affect the total cost of transportation as
different modes has different cost of transportation. The faster the transportation the costlier it is.
The following are the basic impacts of different modes:

 Transport time: The faster the transportation the costlier it is.

 Inventory: Larger the inventory, costlier the transportation.

 Packaging: More the rugged mode of transportation, more strong packaging of goods is
required to ensure safety.

 Insurance - air, high insurance: More risky the mode, more costlier would be its interest.

 Breakage: Slow and rugged transportation leads to more damage while transit. Hence
cost of transportation increases.

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Transport Infrastructure [Transport elements]

Transport infrastructure is the facilities and aids available for better transportation of goods.
Better transportation leads to smooth functioning of transport. Factors that affect the smooth
functioning of transport are:

1. Terminal facilities - well maintained loading unloading facilities, space for movement of
vehicles, platforms, railway yards

2. Vehicles- trucks, ships or wagons. Their size, shape & speed

3. Rights of way- cost of right to use passage. Rails, roads, airways

4. Routes and sectional capacity-number of lanes

5. Limit on speed, weight, height

6. Weigh bridge facility

7. Nature of product

8. Carrier organizations

Various features of modes or modal characteristics:

To measure relative weight of each mode System, we consider factors like mileage, traffic
volume, revenue, nature of traffic composition important to decide which mode to choose.
Taking various modes in consideration with respect to India:

Railways – Rail network

 Stands out in terms of tone - kilometres moved

 226 billion tonne-kilometres and 55.8% of total tonne-kilometers moved in 1982 in India

 449 billion tonne-kilometres and 51.7% of total tonne kilometers now moved in India

 Hence percentage share decreases.

 Facing very stiff competition from roadways.

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 Railways require high capital investment due to right of way, switching yards, terminals,
locomotives and rolling stock, but low operating costs

 It Focus on specific products than on broad range

 Raw material extractive industries away from water ways.

Developments in this area

Recent customer friendly attitude for e.g. inter modal transport through alliances and acquisitions
as in US, providing single window service to customers. Specialized Equipment are Developed
to suit the needs of bulk volume of customers. Following are some of the features that has
changed the dimensions of modern railway transport from conventional railways

 Unit trains

 Container trains

 Double stack containers

 RORO service to road transport - konkan railway

 Private container trains -Adani logistics, boxram

 Container corridors

Enclosed tri-level automobile car

A unit train, also called a block train
Double stack containers
Road transport

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Road transport refers to highway transport which is done with motor carrier through roads or
highways. It has high flexibility and speed because of door to door service facility option. It is a
ultimate mode of transport as it allows the flexibility of reaching from door to door and to those
places also where other modes can’t reach, for e.g. Hills. This form has seen a rapid growth, post
world war II. This is due to rapid growth in automobile sector leading to better trucks available.
Some of its features are shown below:

 Low capital cost as compared to railways

 179.2 billion tonne-kilometres and 44.2% of total tonne kilo-metres moved in 1982 in
India

 585 billion tonne-kilometres and 56% of total tonne kilo-metres moved in India now

 Operating costs are higher

 Ideal for small shipments over short distances

 Labor intensive

 Occasional fuel shortages

 Availability of good quality vehicles

 Availability & cost of maintenance and spares

 Bad and unsafe road conditions

 Carrier organizations and their disputes with government

 Octroi

 Old MVA

 Restrictive permits

Developments in this area

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There is high growth noticed in this mode after world war II. This is because of innovation and
technology advances in automobile sector. Some of the reasons for developments in India are:

 Entry of several manufacturers of trucks-entry of Daimler to produce Mercedes CVs

 Trailer-tractor sets

 National grid of highways

 Road widening schemes, bypass to cities

 Pay and use roads – Authorized private road builders have the authority to build road for
themselves.

 Express ways made all over India.

 The Golden Quadrilateral.

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Water transport

Water is the oldest mode of transportation. There is huge development in this mode. Firstly
sailing vessels were used to transport men and goods. Then steamships came in 1800. These
were powered by coal and used boilers. After it diesel driven ships came in 1920 which change
the dimensions of the sea transportation system. This increased speed and transport capacity.
Some of the features are:

 Limited scope for deep water transport

 Limited extent of navigable inland water transport – to use for lakes, rivers, canals.

 Main advantage of water transportation is extremely large shipments & low cost

 Importance of deep water vessels & deep water ports to fully realize benefits of water
transport

 Diesel towed barges

Tug-barge combinations

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 Diesel towed barges- high flexibility, disadvantages are range of operation (not for long
distance) and slow speed

 Ferries- for small water bodies like rivers and bays.

 Inland water Transport is not used to its full potential in India although we have used
mechanized IWT since early 1800.

Main hurdles appear to be

1. Low priority in policy

2. Construction of dams

3. Receding water levels in the rivers

4. Tough competition by other modes

Developments in this area in India

 Construction of deep water ports: JNPT

 Construction of ports with private investment

 Port Pipavav, India's first port in the private sector is operated by APM Terminals, one of
the largest operators of container terminals in the world

 A consortium led by P&O Australia is setting up a $200 million Container terminal on

BOT basis at Jawaharlal Nehru Port Trial operation started in April 1999

 Agreement signed for construction of a captive Coal Jetty at Mumbai by Tata Electrics.

Pipelines

Pipelines are a significant part of the US transportation system. In 1989 they accounted for 53%
of all crude oil and petroleum oil ton-mile movement. The basic nature of a pipeline is unique in
comparison to all other modes of transport. Pipelines operate on a 24 hour basis, seven days per
week and are limited only by commodity changeover and maintenance. Its basic features are:

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 It transports Liquids - oils, crude, petroleum products

 In India, extensively used for transporting crude and petroleum products

 More than 5,000 km of pipeline exists in India for crude and petroleum products

 Used in Slurries - coal slurry, iron ore, lime

 Huge quantity of water is necessary which is a concern for environment

 In India pipe line is used for transporting iron ore.

 Gases and vapors- natural gas, LPG, in India LPG pipe line is in existence

 Pulverized dry bulk material - cement by hydraulic suspension

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Main features of this mode of transport

 Reliable all weather means of transport

 Low energy consumption

 Pipeline being underground space occupation is minimal

 Pipe line operates all the time except when it is shut down for maintenance

 No empty container or wagon to be brought back

 Highest fixed costs, right of way and laying of pipeline, and lowest operating costs

 Not labour intensive

 Not flexible by nature. Pipe lines are stationary

 Physical state of the commodity is a limitation.

 This mode of transport can release capacity of other modes for transport of essential
commodities

Rope ways

This is the mode of transport used in hilly areas. This is done by transporting good on a container
hanging on a rope and this container travel on this rope. It can be seen below in the diagram. It is
generally used for small distances, generally till line of sight. Its basic features are:

 Hilly and otherwise inaccessible area

 Steep gradients

 Cause minimum ecological imbalance

 Point of supply and demand can be connected by shortest route

 Logistics of fruits in Himachal Pradesh

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Air transport

Air transport refers to transportation done through air (With the help of aircraft). It’s among the
fastest modes of transportation. Its basic features are:

 Speed of transport is highest

 Fixed costs are lower than rail or road or pipe line. But operating costs are highest

 Air transport brings distant markets closer - perishables market in gulf countries

 Overcomes the hassle and cost of setting up depots and service centers overseas

 Full potential of peak seasonal demand can be taken

 Test marketing is easy. Products can be shipped directly from the factory

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The Indian Air cargo Market 

 The growth of air cargo in India has also been manifold though it might not have kept
pace with the progress made all over the world. Table 1 shows how both international and
domestic air cargo traffic has increased, reflecting an overall year on year growth. 

Table 1: Trends in cargo traffic at

five international airports in India.
(Figures in '000 tonnes)
TRANSPORTATION MODES
RAIL ROAD WATER AIR PIPE
LINE
CAPITAL EX II IV III V HIGHEST I
OPERATING III II IV I V
COST
SYSTEM KM 63,000 15,03,000 15544 5000 kms
kms kms kms[IWT]
Rail Road Water
(InlandAir Pipeline
Dependability III II IV V
W- ways) I
[minimum
TONNE KM deviation449 585 Billion 66 BTKM 70 BTKM
from schedule,
Billion Tonne KM (British-T)
weather, congestion&
Tonne [Costal
other problems]
KM Shipping]
Capability II III I IV V
SPEED III II IV I V
[ capacity to tackle any
AVAILABILTY II I IV III V
size of the load]
[ABILITY TO [quantity of IV
Frequency II V III I
SERVE A SET
scheduled movement]
OF LOCATIONS]
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Freight Rate Structure & Principles:

1. It Cover actual cost of transportation.

Factors influencing cost of transportation.

A. Fixed costs:

 Interest on capital

 Depreciation

 Insurance premium

 Administrative overheads

 Expenses on fixed facilities like buildings

B. Semi fixed costs:

 Salaries of the staff

 Facility for servicing, periodic maintenance etc

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C. Variable costs

 Cost of fuel and lubricants

 Maintenance directly attributable to a particular trip – breakdown

 Damage to the vehicle and also the cargo. Eg. hilly roads, bad roads, war effected sea
routes

D. Vehicle utilization

 Carrier likes to gain maximum mileage out of his vehicle

 Run the vehicle at top speed to cover max. distance at min time

Quote higher rates if following are not conducive to the above

 Road conditions

 Terminal detentions [congestion, formalities, loading/unloading etc.]

 Obtaining a return load [market factors]

 Nature of goods, hazardous, corrosive [liability, insurance]

 Density, consignment light by weight

 Storability, shape and size of the product

2. Traffic Bearing Capacity

 Value addition by transportation.

 Transportation cost should not upset the value added

3. Public use

 Items to satisfy basic needs of common man should be moderately charged

4. Government Policy

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freight rates are controlled by the state for

 Promotion of certain type of trade

 Development of certain type of industry

 Freight rates are hiked or depressed by state

5. Profit

 Margin for reasonable return on investment

 Entrepreneurial time and efforts

 Funds for future development of business

Components of transportation decisions

Decisions of selecting a particular mode is made using following procedure:

I. Mode Selection

 Air - most expensive, but very fast

 Road - relatively quick and inexpensive, highly flexible

 Rail - An inexpensive mode for large quantities

 Water - the slowest but most economical for large overseas consignments

 Pipeline - primarily for oil and gas.

II. Carrier in house or out sourced - whether product owner performs the function or out
sources it.

- Private carrier, contract carrier, public carrier, exempt carrier

III. Trade off situations

 Cost of transportation and cost of inventory

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 Cost of transportation and cost of responsiveness to customer

IV. Carrier Selection

1. Constitution of the carrier’s organization

2. Business turn over

3. Area of operation

4. Branch offices or associates’ offices

5. Strength of fleet

6. List of clients-
DESIGN current & former, for
OPTIONS FORascertaining reliability
A TRANSPORTATION
NETWORK
7. Nature and volume of business
Retail
Retail
8. Normal transit time quoted by carrier stores
stores
Supplier Retail supplier Supplier
stores
Supplie9. Record
Retailof claims settlement by carrier
rs stores

10. Reference from banks, carriers’ association

V. Route and network selection

Route is the path the product takes and network is locations and routes along which a product
can be shipped

 A logistics manager’s options for scheduling and routing decisions

ALL SHIPMENT S
VIA DC

DIRECT DIRECT Retail stores

SHIPMENT SHIPMENT Supplier
WITH MILK
RUNS

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MILK RUNS
FROM DC
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Direct shipment network

From shipper directly to retailers.

Features:

1. Warehouses are eliminated

2. Long route, hence low cost

3. Simplicity of operation

4. Time of transportation is short

5. Decision points are quantity and mode

Direct shipping with milk runs

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

2. From a number of suppliers deliver to a single retailer. eg. Toyota plant in US

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Features:

1. Movement consolidation

2. Truck utilization

3. Transport cost reduction

All shipments via Central Distribution Center

NETWORK PROS CONS
suppliers
STRUCTURE to Distribution center and Distribution center to retailers
DIRECT
Features:
 NO DC  HIGH INVENTORY
SHIPPING  COORDINATI  SIGNIFICANT RECEIVING
1. Supply chain costs reductionONwhenEASYdistances are large.EXPENSE
DIRECT  LOWER  INCREASED
2.SHIPPING
DC stores inventory and acts like
TRANSP a transfer point COORDINATION
WITH MILK COSTS COMPLEXITY
3. Economies of scale in inbound transportation to DC. Outbound transportation cost is low as
RUNS  SMALLER
retailers are close to DC
INVENTORY
ALL via Distribution
Shipping  Center
MOVEMENT
Using Milk Runs  INVENTORY COSTS
SHIPMENTS COSOLIDATI  INCREASED HANDLING
VIAlot
Small DC WITH
sizes ON
to large number of retailers from DC. INCREASED
INVENTORY COORDINATION
Features:
STORAGE COMPLEXITY
Consolidation of smalllotsLOW
1.ALL - reduction of outbound  transportation
INCREASED cost
SHIPMENTS INVENTORY COORDINATION
VIA• DC WITH
Tailored Network  - MOVEMENT
Tailor made to the companyCOMPLEXITY
needs.
CROSSDOCK COSOLIDATI
Features:
ON
1.ALL
Matches the needs of the company
LOWER  INCREASED
SHIPMENTS OUTBOUND COORDINATION
2.VIA DC WITH
Coordination is complex TRANSORTA COMPLEXITY
MILK RUNS TION COSTS
TAILORED  TRANSPORT  STILL HIGER
NETWORK ATON COORDINATION
SUITES TO COMPLEXITY
INDIVIDUAL
NEEDS
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Fig.no.22
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Intermodal transport

 Intermodal movements combine the cost and/or service advantages of two or more modes
in a single product movement

 The more popular combinations are TOFC [Trailer On Flat Car] and COFC [Container
On Flat Car].

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

 Co-ordination of different modes of transport to avoid wasteful competition

 Single window service to the customers

 Encouraging containerization both for internal as well as import/export cargo

RAIL COMMON
PIGGY BACK

ROAD COMMON,
CONTRACT, FISHY BACK
EXEMPT,
PRIVATE

WATER COMMON,
CONTRACT, TRAIN SHIP
EXEMPT,
PRIVATE

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

LAND BRIDGE
WATER OR AIR WATER OR AIR
LAND [RAIL OR ROAD]

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COFC

TOFC

Transshipment

 Transportation of goods and materials to the destination using one or more intermediate
destinations

 A technological requirement

 Air travel to US

 A means of logistical cost reduction

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