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Unit 8: Transportation

restrained by regulatory restrictions designed to limit monopoly practices. Intermodal offerings Notes
began to develop more successfully during the 1950s with the advent of integrated rail and
motor service commonly termed piggyback service. This common intermodal arrangement
combines the flexibility of motor for short distances with the low line-haul cost associated with
rail for longer distances.
8.6.4 Non-operating Intermediaries

The overall transportation industry also includes several business types that do not own or
operate equipment. These non operating intermediaries broker the services of other firms. A
transportation broker is somewhat analogous to a wholesaler in a market channel. Non operating
intermediaries economically justify their function by offering shippers lower rates for movement
between two locations than would be possible by direct shipment via common carrier. Because
of peculiarities in the common-carrier rate structure, such as minimum freight charges,
surcharges, and less-than-volume rates, conditions exist whereby non-operating intermediaries
can facilitate savings for shippers.
Interestingly, there are cases where non-operating intermediaries charge higher rates than
offered by carriers. The justification for the higher charges is based on ability to arrange faster
delivery and/or more complete service. The primary intermediaries are freight forwarders,
shipper associations, and brokers.

8.6.5 Transport Economics and Pricing

The area of physical distribution concerns movement of a finished product to customers. In physical
distribution, the customer is the final destination of a marketing channel. It is through the
physical distribution process that the time and space of customer service become an integral
part of marketing, linking marketing channels with its customers.
The typical physical distribution performance cycle involves five activities: order transmission,
order processing, order selection, order transportation and customer delivery. These activities
have been shown in Figure 8.2.

Figure 8.2 Physical Distribution Cycle Activities

Order Order Customer
Processing transmission order

Order Order Customer
selection transportation delivery

Source: Upendra Kachru, (2010), “Exploring the Supply Chain,” Excel Books
This cycle links the seller and the buyer. We will discuss one element in this cycle, namely
transportation. Transportation decisions should be based on sound economics. In order to
understand transportation economics, it is necessary to first understand the transportation
environment, which is unique compared to many commercial enterprises.
The Players: Transportation transactions are influenced by five parties – the shipper (originating
party), the consignee (destination party or receiver), the carrier, the government, and the public.
The relationship is shown in Figure 8.3. In order to understand the complexity of the
transportation environment, it is necessary to review the role and perspective of each party.

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