Page 196 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 8: Transportation

 Insurance Cost: Goods in transit insurance covers property against loss or damage while Notes
it is in transit from one place to another or being stored during a journey. This insurance
can be for goods being distributed in company’s vehicle or by a third-party carrier, both
domestically and abroad. Policies often specify the means of transport to be used, which
may include the postal service.
 Class Rates: In transportation terminology, the price per kilogram to move a specific
product between two locations is referred to as the rate. The rate is also called the tariff.
The classification does not define the price charged for movement of a product. It refers to
a product’s transportation characteristics in comparison to other commodities.

Classification of individual products is based on a relative percentage index of 100. Class
100 is considered the class for an average product, while other classes run as high as 500
and as low as 35. Each product is assigned an item number for listing purposes and then
given a classification rating. As a general rule, the higher the class rating, the higher the
transportation cost for the product.
Products are also assigned different ratings on the basis of packaging. Glass may have a
different rating when shipped loose, in crates, or in boxes than when shipped in wrapped
protective packing. Very often, packaging differences influence product density, stowability
and liability. The same product may be differently classified depending on where it is
being shipped, shipment size, transport mode, and product packaging.
 Other Costs: Common costs, such as terminal or management expenses are often allocated
to a shipper according to a level of activity like the number of shipments handled. Other
costs may also include local taxes, octroi, toll taxes, etc. These are generally applicable in
case of road transportation.
 Joint Costs: Joint costs are expenses unavoidably created by the decision to provide a
particular service.

Example: When a carrier transports a truckload from point A to point B, there is an
implicit decision to incur a ‘joint’ cost for the back-haul from point B to point A. Either the
cost must be covered by the original shipper from A to B, or a back-haul shipper must be
found.
These costs have significant impact on transportation charges as in the absence of an
appropriate backhaul shipper; the original shipper pays for an empty trip.

Transportation has been recognized for many years as being one of the most important activities
in the physical distribution function. The shipper’s choice of transportation option in a single
market could be viewed as a cost model that provides the total transportation and inventory
cost associated with each transportation option. There exists a correlation between purchase
quantity and transportation mode decision.
Strategic transportation decisions include choice of transportation mode (rail, truck, air, ship)
and choice of type of carriage (common, contract, private). Other decisions can include the size
of shipments (or shipment frequency), and assignment of loads to vehicles. These decisions are
generally taken with the help of models.

Self Assessment

Fill in the blanks:
16. …………………… service is achieved by combining the capabilities of modes.
17. …………………… services represent an important part of logistics.

LOVELY PROFESSIONAL UNIVERSITY 191