The document discusses transportation management and supply chain logistics. It covers 4 key areas: 1) economic drivers of transport costs like distance, volume, and product characteristics, 2) cost structures like variable, fixed, joint and common costs, 3) carrier pricing strategies like cost-based, value-based, and combination pricing, and 4) rates and ratings like class and commodity rates as well as special rates. It also discusses the roles and functions of a traffic management department.

1. Transportation Management
DISC 333: SUPPLY CHAIN MANAGEMENT

2. Transportation Economics and Pricing
1. Factors that drive transport costs;
2. Cost structures or classifications;
3. Carrier pricing strategy;
4. Transportation rates and ratings.

3. 1. Economic Drivers
Distance
Cost
Volume
Density Distance
Stowability
Cost per pound
Product case dimensions w.r.t. transportation
equipment
Handling
Weight of Load
Physical grouping
Liability
Cost per pound
Market
‘Lane volume’ and ‘balance’
Product Density

4. 2. Cost Structure
Variable Costs
Change in a predictable direct manner in relation to some level of
activity e.g. labor, fuel and maintenance costs.
Fixed Costs
Expenses that do not change in short run and must be serviced even
when the company is not operating e.g. vehicles, terminals, rights-
of-way, information systems, and support equipment.
Joint Costs
Expenses unavoidable when providing a particular service e.g. back-
haul costs.
Common Costs
Expenses that are incurred on behalf of all or selected shippers e.g.
terminal or management expenses.

5. 3. Carrier Pricing Strategies
Cost-of-Service
Price based on cost + profit basis;
Suitable for low value goods or in highly competitive situations;
Value-of-Service
Price based on value perceived by the shipper;
Suitable for high-value goods or when limited competition exists;
Combination Pricing
A price in between cost-of-service minimum & value-of-service
maximum;
Net-Rate Pricing
Established discounts and accessorial charges are built into the net
rates that result into an all-inclusive price.

6. 4. Rates and Ratings
Class Rates
Rate ($/CWT) for a class of products;
A two-step process:
1. Product Classification for transportation purposes
2. Rate Administration
Product Classification
Products with similar density, stowability, handling,
liability, and value characteristics are grouped together into
a ‘class’.
A number of different classifications may apply to the same
product depending on where it is being shipped, shipment
size, transport mode, and packaging.

7. 4. Rates and Ratings (contd.)
Rate Administration
Is usually based on the shipment origin and destination,
although the actual price is normally subject to a minimum
charge and a surcharge assessment;
The origin and destination rates are obtained from the
published tables for a particular shipment in the form of
$/CWT or $/mile;
Then two additional charges are added namely: minimum
charges (fixed costs) and surcharges (anticipatory expenses);

8. 4. Rates and Ratings – Special Rates
Commodity Rates
Special rates for commodity products without regard of
classification.
Exceptional Rates
Under competitive and large volume conditions, discounted
rates are provided by lowering the class of a product.
Aggregate Tender
Limited Service
Special Rates and Services
Freight-All-Kind Rates
To simplify paper work associated with the movement of mixed
commodities to lower the costs.

9. 4. Rates and Ratings – Special Rates
Special Rates and Services
Local Rate
Commodity movement under tariff of one carrier.
Joint Rate
Commodity movement under tariff of multiple carriers.
Proportional Rate
Special price incentives to utilize a published tariff that applies to
only part of the desired route.
Combination Rate
A rate that combines multiple rates when no single-line or joint
rate exist between origin and destination.

10. Traffic Department Administration
Responsible for:
1. Operations Management
2. Freight Consolidation
3. Rate Negotiation
4. Freight Control
5. Auditing and Claims
6. Logistical Integration

11. Operations Management
Equipment Scheduling
Load Planning
Routing
Carrier Administration
Carrier Selection – core carrier strategy
Carrier Integration – assessing the level of integration needed
with carriers
Carrier Evaluation – assessing relative capabilities

12. Freight Consolidation
Reactive Consolidation
Does not attempt to influence the composition and timing of
transportation movements.
Seeks to combine freight into larger shipments for line-haul
movements.
Can be achieved by three ways: (1) market area, (2) scheduled
delivery, and (3) pooled delivery.
Market Area:
Consolidation for a specific market area.
Volume deficiency for an area can be addressed by:
Intermediate break-bulk point for line-haul transportation
savings;
Consolidated shipments on specific days;
Small shipments by 3rd party logistic providers

13. Freight Consolidation
Scheduled Delivery:
Shipments to specific markets on selected days each week.
The plan is communicated to customers in order to manage their
expectations.
Pooled Delivery:
Freight forwarder, public warehouse, or transportation company
arranges consolidation for multiple shippers serving the same
geographical market area.
Proactive Consolidation
To achieve responsive logistics by active participation of
shippers, carriers, and consignees to realize consolidation
savings.
Requires Preorder Planning, and Multi-firm Consolidation.

14. Documentation
Bill of Lading
Acts as a receipt and documents products ad quantities
shipped.
Specifies terms and conditions of carrier liability and
documents responsibilities for all possible causes of loss or
damage except those defined as acts of God.
Types of Bill of Lading may be: Uniform, Order-Notified,
Export, and Government
Uniform: or Bill of Lading
Order-Notified: a credit instrument used during international
shipments
Export: allows shipper to use export rates
Government: used when shipping Government products

15. Documentation (contd.)
Freight Bill
A method to charge for transportation services performed.
Can be Prepaid or Collect
Shipment Manifest
Lists individual stops or consignees when multiple shipments
are placed on a single vehicle.