Transport Management | Transportation Management

by Alex Mugo

Factors like globalization and technological improvements in the past years have changed the
logistician‘s view of transportation. The logistics manager is expected to be more proactive in
identifying the desirable combination of carrier services and also the suitable pricing
structures in order to meet the objectives of the firm. Transportation, when managed
independently of other value added logistics operations often represents the weaker elements.
Transportation decisions, which are made in co-operation with, related functions, remove this
weakness.
The two main fundamental principles in transportation management and operations are
economy of scale and economy of distance. Economy of scale means the transportation cost
per unit of weight decreases with an increase in the size of shipment. Economy of distance
implies that there is a decrease in the transportation cost per unit with an increase in the
distance. These principles are essential while evaluating alternative transportation strategies
or operating practices.
Thus transportation management is an important activity for the organization which involves
the following process:
a) Analysis and Understanding of environment: There is a necessity to understand the
transport environment, to make sound transport decisions. The environment consists of the
five parties – shipper, consignee, carrier, government and public.
b) Clarity in objectives: The order of preference in performance of transportation functions
has to be decided. The manufacturer must determine his objectives at a level at which service
can be performed and the levels at which customers expect, the amount of trade
– offs that can be expected. Such setting of objectives can enable the company to choose an
efficient mode of transport.
c) Selecting mode of transportation: A choice between single mode and intermodal
transport has to be made to achieve objectives efficiently.
d) In source or outsource: After selecting the mode, the company must decide whether to in
source the activity or outsource to third parties. According to the mode selected, the company
must perform the functions.
e) Evaluation and Control: The efficiency of the transport system can be ascertained by
measuring the customer satisfaction.
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The components of a transportation network can be separated into 3 categories
Facilities
Facilities are the fixed components of a transportation network. They include:
User-specific Facilities: Warehouses, Terminals, Distribution Centres, Hubs, Docks, etc.
Common Facilities: Roadways, Rail tracks, Waterways
Equipment
This Consists of the various parts of a transportation network. Usually equipment belongs and
is maintained by the shippers or the carriers and includes: Containers, Trailers, Vehicles
(tracks, scooters), Rail (cars, locomotives), aircrafts, vessels
People
People that are involved in transportation-related or transportation supportive functions are
one of the crucial components of transportation networks.
Role of transportation in logistics/Supply Chain management
Transport‘s contribution to economic development includes the following:
 Network effects—linking more locations exponentially increases the value and
effectiveness of transport
 Performance improvements—reducing cost and time for existing passenger and
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freight movements increase transport‘s contribution to economic growth
 Reliability—improves time performance and reduces loss and damage, thus reducing
economic drag
 Market size-access to wider markets adds to economies of scale in production,
distribution, and consumption, thereby increasing economic growth
 Productivity—transport increases productivity gained from access to a larger and
more diverse base of inputs such as raw materials, parts, energy, and labor, and
broader markets for more diverse outputs
****Transport creates the place, time, quality and utility of goods
An example is given to evaluate the relationship between place, time and cost of a particular
commodity. If a commodity is produced at point A and wanted by people of another
community at any point B distant x from A, then the price of the commodity is dependent on
the distance between two centres and the system of transportation between two points. With
improved system the commodity will be made less costly at B.
Modes of transportation:
a) Road transport
b) Rail transport
c) Air transport
d) Deep sea transport
e) Pipelines
1) Road transport: It incorporates transport using road bound means like Lorries, trucks,
Vans, tankers etc. It is suitable for transporting durable, bulk products, door-to-door
deliveries especially where the distances covered are not long. Categories of road transport
include:
a) Own fleet e.g. company Lorries, Vans etc.
b) Contract/hire e.g. Swan carriers, Andy forwarders etc.
c) Public hauliers e.g. Signon freight
Advantages of road transport:
 It provides door-to-door service
 Its relative cheap compared with other modes of transport.
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 Its relatively faster
 It‘s very flexible.
 It‘s not limited to geographical features like mountains, valleys, rivers except large
water bodies.
 It‘s easily and greatly available
Disadvantages of road transport:
 Its relatively slower than air and pipeline transport
 There are more delays due to traffic jams unsuitable for long distances
 Not suitable for urgently required goods and perishables unless special facilities are
installed
 Unreliable since road transporters don‗t stick to strict time schedules
 They are more prone to accidents, theft and pilferage of goods
2) Rail transport: It‘s one of the oldest modes of transport and its popularity was fuelled by
the industrial revolution. The first trains were steam powered which were later replaced by
diesel powered and more recently electric trains were introduced. Rail transport is suitable for
bulky and durable goods to be transported over long distances, heavy/less value consignment
like sand, gravel, cement, grains etc.
Advantages of rail transport:
 It‘s one of the cheapest modes of transport
 Its suitable for long distances hauls
 Special wagons (Boogies) can be provided for special cargo e.g. refrigerated wagons
for perishables etc.
 It‘s reliable due to adherence of strict schedules
 It has a large capacity for transporting loads of related cargo
 It‘s suitable for transporting bulky and irregular goods e.g. tractors
 No major limitation on geographical areas
Disadvantages of rail transport:
 It‘s a slow means of transport
 Rail network is limited to few urban centres
 It involves heavy capital investment to construct and maintain
 Its unsuitable for perishable and urgently required cargo
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 It requires specialized skills to operate
3) Water transport (i.e. sea, navigable rivers, canal, lakes etc):
It encompasses the use of ships, barges, steamers, ocean liners, tankers cruisers, ferries,
canoes and boats. Its suitable over long distances, bulky and irregular shaped goods, for the
transportation of durables and for low value but large cargo.
Advantages of water transport:
 Reliable due to adherence of strict schedules
 It has the largest capacity to transport any quantities
 It has a global reach since no coastline in all the continents is inaccessible.
 It has relatively low cost of transportation
 Its flexible i.e. the same vessel can carry variety of items
Disadvantages of water transport:
 It‗s the slowest means of transportation
 There are higher labour since its labour intensive
 There are higher risks for total loss for cargo and goods in case of accident
 Its suitable for perishable and urgently required goods
 Its limited to only navigable area/water bodies
4) Air transport: It comprises air bound means of transportation like aeroplane and
helicopters. It‗s the fastest means of transport and therefore its suitable for urgently required
light, perishable or highly valuable cargo. Air freight is commonly used in exportation
business and plays significant part in international commerce.
Advantages of air transport:
 Reliable due to strict time schedules
 It provides the fastest link possible hence offsetting (cancel) the added cost
 It has wide reach and global presence/appeal
 Guarantee of safety and security of cargo is generally higher
 It‘s suitable for emergency supply like drugs, rescue efforts, humanitarian deliveries,
emergencies etc.
Disadvantages of air transport:
 It‘s the most expensive mode of transport
 There are higher risks of total loss of cargo in case of accident
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 It has limited capacity
 Its unsuitable for flammable, explosive and bulky products
5) Pipeline transport: It comprises underground transportation of liquid and gaseous cargo
in pipes. The revolution of pipeline has made it very convenient and easy to transport oil,
water and milk in some countries at minimum cost.
Advantages of pipeline transport:
 Limited interference from geographical features
 There are no delays in transporting cargo except in cases of break downs
 It offers flexibility because it‘s possible to switch from one fluid to another
 It‘s cheaper than air and road transport
 Its suitable for long distance haulage
 There is more security of cargo
 It‘s less labour intensive
Disadvantages of pipeline transport:
 There is a huge capital outlay required
 It has limited transportation i.e. only liquid and Gas
 Its unsuitable for perishable liquids
 It‘s subject to sabotage hence risk to cargo
Transport Management Strategy
A transportation strategy to be successful should recognize the following:
Customer requirements. The supply chain involves continuous and efficient movement of
product from vendor to manufacturer to customer. Thus the transportation program must
reflect and meet the customer‘s needs. The vital aspects are time and service.
Timely movement of shipments. Customers demand their shipments be delivered as they
require – on the date needed, by the carrier preferred, both shipped complete and delivered
complete and in good order. A transportation program, which can do this, can provide
customer satisfaction and give a competitive edge.
Mode selection. Selecting the mode of transport is an important consideration. The transit
time has to be considered while doing so.
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Carrier relationships. Volume catches the attention of the carrier of forwarder. The carrier
attention with volume creates a competitive interest in a business. Another side to this
attention is that the business cannot be divided among many carriers. The chief reason being
that responsive transportation can create a competitive advantage and this can be done only
with a focused relationship with a carrier.
Measuring/benchmarking. There is a necessity to know about the performance of the
strategy as well as the carriers. Measuring and benchmarking can be of assistance to this.
Measuring means comparing performance versus standards. Benchmarking means learning
what other companies do–the best practices. Benchmark needs to be done with a company in
the same industry.
Flexibility. As change is happening everywhere, the strategy has to be ready to change.
There is a constant change in the customers, products, business, suppliers and the overall
Corporate emphasis, which can dramatically change the company‘s strategy. It is important to
recognize that change will occur. Just as times are changing, the strategies will also keep
changing. A company must adapt itself to such an environment.
Participants in the Transportation Decisions:
Primarily there are five key parties in transportation decisions. Each of these parties has a role
in the transportation environment.
a) Shipper: The party, which requires the movement of the product between the two
points in the chain. The shipper‘s objective is to fulfil the customer order with
responsiveness but at the minimum cost.
b) Consignee: The destination party or receiver. The consignee also has the similar
objective of receiving the goods at a lowest cost and with maximum responsiveness.
c) Carrier: The party, which moves or transports the product with an objective of
maximizing the revenue at the least cost. Carriers have a tendency charge a higher
rate and reduce their costs by trying to consolidate various individual loads into
economical loads and thus would seek flexibility in pickup and delivery with the
client. This motive is in conflict with the manufacturer‘s objective of reducing total
transportation costs.
d) Government: The Government has a high interest level in the transactions because a
stable and efficient transportation environment is necessary to sustain economic
growth. To facilitate this, carriers must offer competitive services while operating
profitably.
e) Public: The ultimate determinant of transportation by desiring goods at reasonable
prices. Their concerns are related with the accessibility, expenditure, effectiveness as
well as the safety and environmental standards.
Factors affecting carrier decisions:
 Vehicle related cost: Cost incurred by the carrier for purchase or lease of the vehicle
to transport goods
 Fixed operating cost: Costs which can be associated with the airport, terminals and
labour which are incurred whether vehicles are in operation or not.
 Quantity – related costs: Usually variable in nature except in circumstances where
labour for loading and unloading is fixed.
 Trip – related cost: Includes the price of labour and fuel incurred for each trip
independent of the quantity transported.
 Overhead cost: Any cost incurred for planning, scheduling a transportation network
as well as the information technology costs incurred.
Factors affecting shipper's decision:
 Transportation Cost: Total amount paid to various carriers for transporting products
to customers.
 Inventory Cost: Cost of holding inventory incurred by the shipper‘s supply chain
network.
 Facility cost: Cost of various facilities in the shipper‘s supply chain network.
 Processing cost: Cost of loading / unloading orders and the other processing costs
associated with transportation.
 Service level cost: Cost of not being able to meet delivery commitments. This cost to
be considered in strategic, planning and operational decisions.
Transport economics and routing selection
Transport economics is an applied area of economics that is concerned with theefficient use
of society‘s scarce resources for the movement of people and goodsfrom an origin to a
destination
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Transportation economics, while considered a branch of applied micro-economics, is
associated with certain unique issues (Khisty and Lall, 2002) such as:
•The demand for transportation is not direct, but is derived
•The consumption of each transportation facility (i.e., each trip) is unique in time and space
•Technological differences among different modes and economies of scale
•Governmental interventionist policies and regulations in transportation
Transportation economics specifically addresses demand of transportation services, supply of
transportation facilities, elasticities of demand and supply, price mechanisms, and
transportation cost analysis.
The factors which influence transport economics:
1. Distance: This is a major influence on the cost as it is a direct contributor to variable
costs like labour, fuel, and maintenance. The tapering principle, where the cost curve
increases at a decreasing rate as a result of the distance function is relevant here.
2. Volume: It is viable to consolidate smaller loads into larger loads to take advantage of
the economies of scale.
3. Density: The product density or weight is discussed here, where the product density can be
increased within a truckload for better capacity utilization.
4. Stow-ability: This refers to the product dimensions and how they affect the vehicle space
utilization. It is easier to stow standard shaped items than odd – shaped items, which occupy
more space.
5. Handling: While loading or unloading trucks, railcars, or ships, there is a necessity for
special handling equipments like trolleys, forklift trucks, conveyors etc. to load or unload
trucks, railcars or ships.
6. Liability: These are product characteristics, which basically affect the risk of damage and
the resulting incidence of claims.
7. Market Factors: Factors like lane volume and balance. A transportation lane refers to the
movements between the points of origin and destination. When a vehicle is sent from the
point of origin, it may return empty-handed or may bring back load. Due to the imbalances in
demand in the manufacturing and consumption locations, a balanced (volume is equal in both
directions) move is nearly impossible.
It is the responsibility of the logistics managers to understand the influence these factors have
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on the transportation cost and minimize such expense.
Transport Demand
The demand for transport is said to be a derived demand. People do not travel for the joy of
travelling; rather they travel as they need/want to engage in some activity. Transport demand
can be focused upon the following:
 The need for persons to travel to other locations to partake in an activity
 The need to move goods/freight from the point of manufacture to the point of
consumption
Documents in Transport Decision Making:
Bill of Lading: A computerized, basic document, which is, utilized in purchasing transport
services. This serves as a receipt of the commodities and quantities shipped. It also serves as
the basis for damage claims in case of loss, damage, delay etc. The terms and conditions of
the carrier liability and gives in documentation form the responsibility for all possible causes
of loss or damages.
Freight Bill: This is how the carrier charges for the transportation services he performs.
The information contained in the bill of lading is utilized for preparation of this.
shipping Manifest: This document is used when multiple shipments are placed on a single
vehicle. The document provides a comprehensive list, which informs the entire load content,
making it unnecessary to view individual bills of lading as all details relating to the stops,
bills of lading, weight, case count etc. for each shipment are listed in this manifest.
Route selection
Route selection has two major dimensions:
 Construction. Involves activities related to the setting of transport networks such as
road and rail construction. Among the basic considerations are factors such as
distance and topography.
 Operation. Concerns the management of flows in a network. This is the most
common route selection activity since it considers routes as fixed entities and
therefore seek an optimal path considering existing constraints.
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Route selection thus tries to find or use a path minimizing costs and maximizing efficiency.
There are obviously two major dimensions in this function:
 Cost minimization. A good route selection should minimize the overall costs of the
transport system. This implies construction as well as operating costs. The most
direct route is not necessarily the least expensive, notably if rugged terrain is
concerned, but most of the time a direct route gets selected. It also implies that route
selection must be the least damageable to the environment, if environmental
consequences are considered.
 Efficiency maximization. A route must support economic activities by providing a
level of accessibility, thus fulfilling the needs of regional development. Even if a
route is longer and thus more expensive to build and operate, it might provide better
services for an area. Its efficiency is thus increased at the expense of higher costs. In
numerous instances, roads were constructed more for political reasons then for
meeting economic considerations.
Factors to consider in vehicle routing
 Demand data-This is a business area that has witnessed dramatic improvements by
leading organisations in recent years. Accuracy of demand figures reduces waste and
costs.
 Time and distance factors-These areas underpin vehicle routing and planning but are
often the results of a prior decision of where to locate a factory or warehouse.
 Route factors involve the different types of roads, congestion, changing situations
(that can be met by contingency planning and communicated via telematics).
 Customer and service constraints which need to be met in order to attain
organisational objectives
 Vehicle limitations and restrictions and how to work effectively(e.g. by using a third
party provider)
 Driver constraints, by particularly following regulations on maximum working hours.
 Product and unit load constraints and how to optimise resources around these key
criteria issues
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Steps in vehicle routing
 Establish delivery date and parameters
 Determine geographic data
 Determine demand
 Determine customer drop constraints
 Allocate demand to geographic area
 Decide on geographic rules
 Plan trips
 Plan routes
 Calculate vehicle requirements and mileage
 Calculate delivery costs
 Calculate vehicle utilisation
Clearing and forwarding and its role in transport management
Clearing and Forwarding agents:
Clearing and Forwarding agents are a link between the owners of goods and owners of means
of transport. They help cargo owners in efficient movement of goods to the buyers by
completing a number of procedural and documentary formalities.
Clearing and forwarding agents act as intermediaries in transactions between shippers and
suppliers of logistics services, and are required by customs to represent the owner in the
procedures for clearing cargo over international borders.
Role of clearing and forwarding agents in international trade
1. Provides strategic solutions of long distance product sourcing and movement.
2. Provides capabilities interfaced across a range of different transport modes.
3. Offers supply chain management solutions.
4. Delivery and customs clearance.
5. Cargo handling and distribution management
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Rights, duties and responsibilities of the forwarder as an agent:-
As agent forwarder generally accepts liability of:
 Own fault and his employees/servants.
 Routing to the wrong destination.
 Errors during customs operations.
 Delivery of goods contrary to instructions
Objectives of clearing and forwarding agent:-
1. Identification of scope of agents.
2. Documents of export and import
3. Appreciate outcomes of international conventions and their application.
4. Identify procedures relating to clearance a forwarding cargo in international trade.
5. Outline and illustrate the constituents of freight rates under different transport modes.
Functions of clearing and forwarding agents
1. Warehousing before transportation
2. Local transportation
3. Container arrangement
4. Reservation of shipping space
5. Selection of mode of transportation
6. Packaging, marking and labelling
7. Completing customs and port facilities.
8. Cargo insurance
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9. Advising exporters on trade laws
10. Educating exporters
11. Coordination with other agencies
12. Processing documents
Some of the documents involved in customs clearance are:
 Exports Documentation: Purchase order from Buyer, Sales Invoice, Packing List,
Shipping bill, Bill of Lading or air way bill, Certificate of Origin and any other
specific documentation as specified by the buyer, or as required by financial
institutions or LC terms or as per importing country regulations.
 Imports Documentation: Purchase Order from Buyer, Sales Invoice of supplier, Bill
of Entry, Bill of Lading or Air way bill, Packing List, Certificate of Origin, and any
other specific documentation required by the buyer, or financial institution or the
importing country regulation.
Customs Agents prepare the document of Shipping Bills in house for submission while rests
of the documents are obtained from the client. Preparing shipping bill involves Classification
of cargo under specific classification which is a critical activity in the entire process.
Customs clearance agents are also called Carrying and Forwarding agents. They are
registered and licensed by Customs to operate. Their role is limited to acting on behalf of and
representing clients as third party agencies engaged in customs clearance.
Customs Agents are linked through EDI with customs in most of the countries and use
documentation software to facilitate entire process.
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Performance of clearing and forwarding functions;
 Aid in the local transportation in container transportation and also work on reservation
of shipping space.
 Aid in selection of mode of transport, packing, marking and labelling and completing
customs and port formalities.
 Its duty is also on cargo insurance, advising exporters on trade laws and educating
exporters.
 Its duty is coordination with other agencies and procuring of necessary documents.
 Clearing and forwarding as a function coordinates the complexity of ¢financial,
transport, and other service activities. They can be thought of as travel agents for
cargo ¢shipped to overseas locations. Freight forwarding agents negotiate inland and
ocean rates besides offering valuable ideas on optimal and the most cost-effective
shipping alternatives.
Clearing and forwarding is carried out by freight forwarders or agents. These agents aid in
the performance of clearing and forwarding functions in the following ways;
 A freight forwarder makes recommendations regarding receiving payments for
exports. These forwarding agents provide custody and control of material in ¢transit.
They assist or prepare commercial invoice, packing list, draft, transmittal letter etc.
 Clearing & Forwarding Agents performs various logistics services that may expound
to shipping but mainly a Clearing & Forwarding Agents service may include creating
an invoice for international shipping, making arrangements for the shipment pickup
and cargo delivery reports, arranging and coordinating customs for attaching
warehousing, thoroughly completing all the documentation work required for your
shipment, and finally confirming the delivery of your shipment.
 Clearing & Forwarding Agents have established relationship with shipping lines, sea,
air and land transportation system including rail services, trucking, and shipping
ocean liners. Once the shipment has been handed over to the Clearing & Forwarding
Companies Agents, the shipper or the cargo owners can rely on clearing and
forwarding agents for timely shipping and safe delivery of the cargo. NOTE:A good
Clearing & Forwarding Agents will always be perfect in logistics skills of how to
arrange for careful shipping of cargo whether they are dangerous cargo or require any
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additional support meets the shippers‘‘ specific wishes all along the sailing or
shipping routes.
 Clearing & Forwarding companies Agents manages the trucking logistics for
airfreight and ocean freight import and export. Apart from that, Clearing &
Forwarding Agents are also ready to even provide packaging, letters of credit and
consular documentation. NOTE: Clearing & Forwarding Agents calculation of
clearance and freight charges depends upon the distance and other arrangements made
thereof for the safety of the product such as refrigeration facility, container facility, or
some other sort of preservation facility is required, or if there is any hazardous
material included in the package, or the number of carriers that would be required to
carry the goods, etc.
 Clearing & Forwarding Agents calculate all these factors for selecting the best bid
then add their own fee and then give the client a cost. If the Clearing & Forwarding
Agents agree with shipper or cargo owner over the same frames of price, time and
task, then it becomes the responsibility of the Clearing & Forwarding Agents to ship
the assigned cargo to the destination.
 Clearing and forwarding agents find out freight rates.
 The agents pay freight bill and receive bill of lading from shipping company.
 Clearing and forwarding agents enclose bill of lading and send copies to shipping line
and customer or to the bank acting intermediary.
 Clearing and forwarding agents arrange adequate parking including shipping marks.
 The agents also receive call forward notice from shipping company.
 The clearing and forwarding agents register details on custom entries forms and send
to customs. The financial stability of customs brokers or other third party providers is
therefore one of the issues to be carefully considered in their selection. Others are:
a) Competence of managerial and operational staff
Within the East African Customs Union Partner States (Burundi, Kenya, Uganda, Tanzania
and Rwanda), there is an agreement by the customs administrations and revenue authorities
that customs brokers undergo required, uniform training to enable them to obtain practicing
certificates issued by Customs as a condition for their licensing. Continuous professional
development will also be undertaken for those agents with practicing certificates, in
collaboration with the International Association of Freight Forwarders (FIATA)
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b) Membership in a national association of freight forwarders
In some countries (such as within the EAC Partner States) membership in a national
association is a prerequisite for licensing with Customs. If a clearing agent firm is not a
member of a national association, it is a clear sign such a company might be having
problematic issues with Customs, and has therefore not been recommended for initial
licensing or renewal. However, membership should not be construed as evidence of a firm‘s
integrity or professional standing at the present moment.
c) Agreements with other third party service providers
Clearing and forwarding companies provide transportation services within the same firm, or
through an arrangement with third parties. Even if the qualifications of the clearing firm
could be impeccable, engaging dubious transporters may cause delays if the truck is seized by
Customs for one offence or another. For example, a truck conveying goods that have been
cleared legally through Customs that are, however, commingled with others which have
beensmuggled. This may cause the delay of all the goods if the truck and the goods are
seized.
d) Reputation within Customs
Customs brokers interact with Customs on a day-to-day basis whether face-to-face or
electronically. Therefore, usually customs officials have a good understanding and insight
into the competence and integrity of potential agents.
e) Period of operation
Keeping all factors constant, a company that has been in operation for a long time without a
break is likely to have more sound governance and reputation in comparison with a complete
beginner. Since most clearing firms in many countries in Africa are in the small and medium
enterprise category, it would be quite risky to entrust the job of clearing large quantity, high
value goods to a firm that may not have the capacity to deliver.
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Regulatory requirements in Transport Management
Regulatory Issues
There are two major areas of transportation regulation: economic and safety. All freight
movements are subject to safety regulation, but not all are subject to economic regulation.
The regulation of the transportation sector has had an enormous impact on the logistics
activities of carriers and shippers. We will briefly describe economic and safety regulation,
legal forms of transportation, and the impact of deregulation on shippers and carriers.
Historically, transportation regulation has developed along two lines. The first, and perhaps
the most publicized in recent years, is econornic regulation. Economic regulation affects
business decisions such as model carrier selection, rates charged by carriers, service levels,
and routing and scheduling. safe^ regulation deals with labor standards, working conditions
for transportation employees, shipment of hazardous materials, vehicle maintenance,
insurance, and other elements relating to public safety.
The 1970s. 1980s and 1990s have been periods of deregulation in North America, Europe,
and elsewhere throughout the world. At the same time, safety regulation has been increasing
in terms of its scope and breadth. In the United States. all transport modes are regulated
(economic and safety) by the Department of Transportation (DOT) and are subject to a
variety of laws such as the Occupational Safety and Health Act (OSHA) of 1970, the
Hazardous Materials Transportation Uniform Safety Act (1990), and the National
Environmental Policy Act (1969). An important part of the responsibilities of a logistics or
transportation executive is to keep abreast of regulatory changes because of their potential
impact on the firm's operations.
In recent years, the role of various U.S. transportation agencies in administering the
regulatory environment has changed. Since the early 1970s, the trend has been toward decreasing economic regulation of transportation. Four of the five basic modes of transport have
been deregulated at the federal level.
Transportation is also regulated at the state level. It is beyond the scope of this book to
examine the myriad of state regulations that exist, but carriers and shippers must be familiar
with all regulations in states where they operate
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Legally Defined Forms of Transportation
In addition to classifying alternative forms of transportation by mode, carriers can be
classified on the basis of the four legal forms: common, contract: exempt and private carriers.
The first three forms are for-hire carriers. and the last is owned by a shipper.
For-hire carriers transport freight belonging to others and are subject to various federal,
state, and local statutes and regulations. For the most part, private carriers transport their own
goods and supplies in their own equipment and are exempt from most regulations, except for
those dealing with safety and taxation.
Deregulation has reshaped how logistics executives view the transport modes, particularly the
legal forms of transportation. In principle, these legal designations no longer exist because of
deregulation. For example. the distinction between common and contract motor carriers was
eliminated by the Trucking Industry Regulatory Reform Act of 1994 (TIRRA). However, the
terms are used within the industry and do provide some guidance with respect to
transportation type.
Common Carriers. Common carriers offer their services to any shipper to transport
products, at published rates, between designated points. To operate legally, they must be
granted authority from the appropriate federal regulatory agency. With deregulation, common
carriers have significant flexibility with respect to market entry, routing, and pricing.
Common carriers must offer their services to the general public on a non-discriminatory
basis; that is, they must serve all shippers of the commodities which their equipment can
feasibly carry. A significant problem facing common carriers is that the number of customers
cannot be predicted with certainty in advance. Thus, future demand is uncertain.
The result has been that many common carriers have entered into contract carriage.
Contract Carriers. A contract carrier is a for-hire carrier that does not hold itself out to
serve the general public: instead, it serves a limited number of shippers under specific
contractual arrangements. The contract between the shipper and the carrier requires the
carrier to provide a specified transportation service at a specified cost. In most instances,
contract rates are lower than common carrier rates because the carrier is transporting
commodities it prefers to carry for cost and efficiency reasons. An advantage is that transport
demand is known in advance.
Alex Chege PSM 621 DPSM
Exempt Carriers. An exempt carrier is a for-hire carrier that
transports certain products such as unprocessed agricultural and related
products (e.g., farm supplies. livestock, fish, poultry, and agricultural
seeds). Carriers of newspapers also are given exempt status.
The exempt status was originally established to allow far~nersto
transport their products using public roads; however, it has been
extended to a wider range of products transported by a variety of modes.
In addition, local cartage firms operating in a municipality or a
“commercial zone” surrounding a municipality are exempt.
Generally, exempt carrier rates are lower than common or contract carriage rates.
Because very few commodities are given exempt status, the exempt
carrier is not a viable form of transport for no st companies. In reality,
because transportation deregulation has eliminated pricing regulations,
almost all carriers can be considered exempt from pricing restrictions.
Private Carriers. A private carrier is generally not for-hire and is not
subject to federal economic regulation. Private carriage means that a
firm is providing transportation primarily for its own products. As a
result, the company must own or lease the transport equipment and
operate its own facilities. From a legal standpoint, the most important
factor distinguishing private carriage from for-hire carriers is the
restriction that the transportation activity must be incidental to the
primary business of the firm.
Private carriage has had an advantage over other carriers because of its
flexibility and economy. The major advantages of private carriage have
been related to cost and service. With deregulation, common and
contract carriage can often provide excellent service levels at
reasonable costs. Later inwww.linkedin.com/in/alex-mugo-05b896126/

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