ENGR 3210 Fundamentals of Logistics Engineering

1. ENGR 3210 Fundamentals of Logistics Engineering Class 15 September 30, 2002

2. 2 Development of Transportation Rates Most rates are available on web pages to customers and are composed of two parts: Line haul rates describe the charges to go from origin to destination Other charges are usually classified as special service charges and include special terminal services, stop off charges, or costs for detention of equipment.

3. 3 Categories of Line Haul Rates Line haul rates are determined by a range of factors including: Product: National Motor Freight Classifications Shipment size Route Other: cube, import- export, etc. Start with product based rates

4. 4 Product Based Line Haul Rates To simplify pricing, National Motor Freight Classification classifies products based on factors such as density, cost, ease of handling, liability, etc. Web site for NMFC data: http://www.nmfta.org/whatisclass2.htm Note: Items not specifically described are categorized under a “NOI-not otherwise indexed” classification.

5. 5 Rate Determination Steps to Determine line-haul rate: Classify Product to be shipped Identify Class rate Determine break weight Negotiate any discounts possible based on fixed/variable, customer value, volume, direction (back haul possibility), etc. Nice summary from Roadway: http://www.roadway.com/shippers/guide.html

6. 6 Rate Example 18,000 lbs. of furniture with a density of 9 lbs per cubic foot, must be shipped between NY and Memphis. (Item 2070-06) By Table 6-4, LTL class is 100 By table 6-5, the rate is $27.58 per cwt for weights between 10k and 20k pounds. Are we close enough to 20,000 lbs. to realize the weight break? Calculate the break weight:

7. 7 Break Weight Break weight is the weight above which the next higher weight-break rate should be used for lower transport costs. Carriers allow the shipment to be declared the next higher weight-break quantity if the total charges are less than the straight calculation.

8. 8 Break weight and Cost Calculation For our case, Therefore shipping charges are: 14.29*200=$2858 (computed based on the 20,000 lb shipment)

9. 9 Relative Classifications Note that if our furniture had been 5 pounds per cubic foot, we would have used rate class 150 for LTL. Does a higher rate per hundred pounds make sense? Illustrates the impact that packaging has on logistics costs

10. 10 Rates By Shipment Size To simplify rate calculations, many carriers “publish” (web site or diskette) rates by class, weight, distance, etc. These are often categorized by zip codes (from - to)

11. 11 Rates by Route The rate is usually based on the most distant point on the route.(Back haul becomes an issue in these negotiations). If it is possible to use a full vehicle, the least expensive per mile rate can be negotiated. If stops along the way are involved, stop charges may be included. Other services are a part of the negotiations.

12. 12 Miscellaneous Rates A wide range of route pricing schemes are possible. Cube rates: Based on space occupied and not weight. Primarily for light and bulky products. Deferred rates: shipper accepts possibility of delay to obtain lower rates. Carrier has some flexibility to fill in schedules and loads. Ocean rates: usually based on weight, tolls, handling, and volume and seldom uses classifications.

13. 13 Special Service Charges Special line-haul services are a common feature of transportation charges and contracts. We will discuss two: Diversion / Reconsignment: Diversion changes the freight to a different destination while en route. Reconsignment is a change in the consignee after the freight has reached the destination. Advantages: Last minute selection of dynamic markets (perishables, etc.) Carrier’s equipment is a rolling warehouse for the shipper

14. 14 Other Special Services Transit privileges provide storage rights prior to the final destination. The advantage to the carrier is that it locks in the business. The advantage to the shipper is more flexibility in meeting market demand and reduced rates.

15. 15 Stop-Off Privileges A variation is “stop off privilege” to load or unload en route to final destination. Usually a reduced rate is obtained compared to multiple links.

16. 16 The Key on Stop Off Costs Whether loading or unloading en route, the key for considering stop off costs is to trade stop off costs compared to rate/distance breaks.

17. 17 Terminal Services Another group of services are terminal related: Pickup and delivery are not always included. Sometimes this involves freight breakdown to smaller trucks in major cities. Switching: movement of rail cars to private sidings may be an additional charge. Demurrage and detention: penalty charges for excessive retention of equipment- rail cars, trailers, etc.

18. 18 Private Fleet Costs A 1996 survey of private trucking fleets found these justifications: Service / reliability Order/ cycle time reduction emergency response Improved customer contact (??? What is this???) What are these items worth? Do these firms realize the total costs?

19. 19 Documentation Text contains a review of transportation documents. Bill of Lading: Freight Bill: Freight Claims: International Documents

20. 20 What is a Bill of Lading? The legal contract between the shipper and the carrier The receipt for the goods Certifies that the goods were in order when received by the shipper Defines the terms of the transportation contract Evidence of who owns the goods

21. 21 What is a freight bill? Defines the charges for the transportation service Much of the same items as Bill of Lading

22. 22 What are Freight Claims? Claims made by shippers against carriers Loss, Damage or Delay Overcharges due to mistakes or incorrect classifications of goods

23. 23 International Documents are typically more extensive due to import and export inspection requirements

24. 24 Transport Fundamentals Summary The goals from the logistics strategy must be translated into the maze of transport rates. Negotiate the best transport agreement based on knowledge of carrier costs, your costs (total) and what is possible. From the carrier’s perspective, know the cost issues for your customer (or carrier) and develop rate plans that meet these goals.

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