Freight Management

The selection of transportation mode depends on the product characteristics and customer service requirements. For example, raw materials are invariably transported in bulk and through cheaper mode of transportation such as rail or sea. The unit value being less, the transportation cost, as per­centage of the value of material being transported, is very high. Hence freight reduction through scale economics becomes necessary. However, in case of high-value items, the deliveries required are faster and in smaller consignment with reliability. In this case, with the unit product value being high, the transportation cost as percentage of the product value is not so significant. Hence, faster and costly modes of transportation such as road or air are preferred.

For the logistics manager, cost, speed and reliability are the most important factors to select from the available transportation options. Table 8.2 shows the operating characteristics of different transportation modes.

1. Speed and Availability of Service

Speed of the service is dependent on the time taken to move products from one facility to another and finally to the customer. Speed is often more important than the cost of the service. The slower modes of transportations involve lower transportation cost, and they result in lower service levels. The availability depends on the existing transportation infrastructure and the ability of the mode to serve the given pair of locations. This sometimes becomes a major constraint in speedy delivery and necessitates the usage of inter-modal transportation.

2. Reliability

Reliability means ability of the carrier to deliver the shipment in good condition, in the stipulated delivery time frame to the customer.

3. Capability

Capability is ability of the carrier to accommodate the cargo in size, weight and quantity for trans­portation to the destination. This is very important for transporting the odd-sized and heavy prod­ucts over longer distances. In such cases, special trailers are required for product movement. The cost of transportation goes up in such cases. Along with transportation mode, the other consider­ations are availability of special material handling equipments.

4. Frequency

Frequency refers to the number of schedule movements of the carrier between pair of locations. Pipelines are preferred for movement of liquid products because of their continuous operations. However, for solid products road carrier is the best option.

Transportation decisions are dependent on a number of other factors, such as unit value of the product, predictability of demand, saving in transit time, cost of transport mode, its impact on inventory cost and the desired level of customer service. The selection of modes and the particular carrier is done on the basis of delivery time, delivery reliability, freight rate etc.

Source: Sople V.V (2013), Logistics Management, Pearson Education India; Third edition.