Page 193 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes
Figure 8.3: Physical Distribution Cycle Activities

Public
Good Flow
Information Flow

Government

Shipper Carrier Consignee
(Receiver)

Source: Upendra Kachru, (2010), “Exploring the Supply Chain,” Excel Books
The shipper and consignee have the common objective of moving goods from origin to
destination within a prescribed time at the lowest cost. Carriers, as the intermediary, want to
charge the highest rate that the shipper (or consignee) will accept and minimize the labour, fuel,
and vehicle costs required to move the goods. To achieve this objective, the carrier desires
flexibility in pickup and delivery times to allow individual loads to be consolidated into economic
moves.

The government is the largest investor in infrastructure and therefore maintains a high interest
in transportation’s impact on the economy. The government provides rights-of-way such as
roadways, ports, airports and air traffic control systems. Government’s involvement takes the
form of regulation, promotion, or ownership. As a monopoly owner who maintains absolute
control over markets, services and rates, the government can regulate carriers by restricting the
markets they can service or by setting the price they can charge.

Example: Indian Railways is a government monopoly.
The final participant, the public, is concerned with transportation accessibility, expense, and
effectiveness, as well as environmental and safety standards. The public ultimately determines
the need for transportation by demanding goods and services and determining the value of such
services. The development of the airfreight industry shows that consumers may find cost less
important than speed and service. Very often, trade-offs are associated with cost, environmental
and safety standards.
The transportation relationship is complex because of the interaction between the parties. This
leads to frequent conflicts between parties with a micro interest shippers, consignees, and carriers
– as well as parties with a macro interest – government and the public.

Notes These conflicts lead to duplication, regulation, and restrictions of transportation
services which impact the economics of transportation.

8.6.6 Transport Economics

Transport economics and pricing are concerned with the factors and characteristics that determine
transport costs and rates. Transport economics is influenced by seven factors. These factors are
important while developing transportation rates. The specific factors are discussed below.

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