Chapter 13
Shipper Process
INTRODUCTION
In Chapter 12, attention was given to shipper transportation management strategy including carrier selection, contracting, negotiating, relationship management, and inbound strategy.
The focus of this chapter is on implementation and execution of this transportation management strategy and, in particular, on the day-to-day shipper activities required to manage the domestic and global transportation process. Successful transportation management requires a solid grounding in the transportation process details, such as rate analysis, documentation, and claims.
The chapter begins with the domestic transportation process including the attendant activities of shipment source, shipment analysis, carrier scheduling, load tendering, shipment monitoring, and postdelivery maintenance. This is followed by a discussion of the global transportation process.
DOMESTIC TRANSPORTATION MANAGEMENT PROCESS
Figure13.1 provides an overview of the domestic transportation management process that shippers utilize.
Shipment Source
The starting point in the transportation management process is either the customer order or purchase order, indicating a need for transportation services for either outbound or inbound transportation. The customer service, sales, or marketing departments are charged with the responsibility of receiving and processing the customer’s order. The order may come into the seller’s operation via mail, phone, fax, EDT, or the Internet.
The purchasing department is typically the initiator of the purchase order, telling the vendor that the company is authorizing the vendor to ship the product and the quantity indicated on the purchase order.
Associated with the customer order and purchase order are the underlying terms of sale agreed to between the buyer and seller. For routine item sales, the seller’s sales policy contains the terms of sale. For non-routine item sales and most purchase orders, the terms of sale are negotiated.
The terms of sale indicate who has control over the selection of the carrier, who pays the transportation freight bill, and where title to the goods pass from the seller to the buyer. Essentially, the terms of sale define the buyer and seller transportation role in the sales transaction.
Figure 13.2 shows some typical domestic terms of sale. The free on board (FOB) domestic terms of sale have a:
- named point that determines where title passes to the buyer,
- where responsibility for selecting and routing the shipment passes to the buyer, and
- where the buyer begins paying for the transportation charges.
For example, the FOB-delivered term of sale states the seller pays the freight charges to the buyer’s door, the seller selects the carrier and routes the shipment, and title passes to the buyer upon delivery to the buyer. The latter point means the seller has title to the goods during transit and bears the responsibility for filing claims for transportation loss and damage.
The FOB-origin term of sale means the buyer incurs all transportation responsibility, cost, and claim responsibility. The seller is responsible for making the shipment available at the seller’s door for the carrier that the buyer selects. The buyer selects the carrier, routes the shipment, pays the carrier, and assumes the responsibility for claims. The FOB-origin term of sale is used in purchasing of materials to enable the buyer to gain control over the cost and service of inbound transportation.
The FOB-Port of Entry term means the seller incurs all transportation responsibility up to the port of entry and the buyer assumes the responsibility from the Port of Entry to destination.
As you can see, the terms of sale used to sell and buy products determines the level of transportation control exercised by the buyer and the seller. If a firm buys all raw materials on an FOB-delivered basis and sells on an FOB-origin basis, the firm would have minimal transportation management responsibility. Today, many firms attempt to increase the amount of transportation management control by buying FOB-Origin and selling FOB-delivered. By using these two terms of sale, the firm can maximize its control over the cost of its products.
Shipment Analysis
The shipment analysis function examines the specifics of the shipment, service levels required, packaging, rates, and consolidation.
The shipment specifics come directly from the customer and purchase order, and define the product to be shipped, the quantity, the origin, the destination, the consignee, pickup and delivery dates, routing instructions, and delivery requirements. Figure 13.3 provides an example of the shipment specifics needed to effect the transportation of a customer or purchase order.
The information in Figure 13.3 provides all the information needed for the scheduling of a carrier.
The service level requirement is often the company’s stated delivery policy. Many Internet retailers state normal delivery as 5 business days and expedited delivery as the next day. If the buyer opts for expedited delivery, the transportation manager must select a carrier that will deliver the shipment the next day, typically an air or ground express carrier. Other sellers have a stated delivery policy indicating that 99 percent of the shipments will be delivered within 3 days. Both policies provide constraints on the transportation process to select carriers that are capable of meeting the delivery timeframes.
Packaging is typically the domain of engineering and production. The package must be strong enough to hold the product and pose minimal inefficiencies in the product- filling stage of the production process. The transportation manager must view packaging as to its ability to protect the shipment from damage while in transit. Also, many carriers specify in their rules tariffs the specific type of package to use for a product.
Rate Analysis
Once the details of the shipment are known and the packaging issues are satisfied, the transportation process moves to the analysis of rates. More specifically, the transportation manager examines the cost of alternative shipment methods to accomplish the move with the desired service level.
In this section the freight cost is analyzed for alternative transportation methods and the accompanying rates.
It is often cheaper to use an express carrier rather than an LTL carrier for shipments weighing less than 400 pounds (200 kg). The carrier selection decision will be based on the level of service required and the consistency of the carrier’s service.
Another rate analysis that considers the size of the shipment examines the cost of shipping the product via LTL or using a TL carrier. Figure 13.5
Shipment SpecificsOrigin: Polakwane / Destination: Richards Bay
Weight: 7000 kg / Distance: 1400km
Charges as LTL Shipment / Charges with Truckload Carrier
LTL Rate = R490 per 100kg / Rate = R9 per km
Discount = 45% / Distance = 1400km
Effective LTL Rate = R220.50 / Charge = 1400km @ R9 per km
Charge = 100kg @ R225.50 / =R1260
=R15435
Even though the shipper does not have a full truckload, it is economical for the shipper to use a TL carrier and pay for the empty space. In addition, the transit time via the TL carrier may be less than that with the LTL carrier because the TL carrier will go directly to the destination, whereas the LTL carrier will bring the load to its terminal for consolidation.
The final function included in shipment analysis is consolidation. As noted in the preceding chapter, shippers follow a strategy of consolidating shipments so as to realize the lower freight rates associated with higher shipment quantities. This consolidation function can be performed for a single shipment or for multiple shipments.
With zone skipping, the shipper, using a consolidator, bundles numerous shipments destined for a city, moves the bundled quantity to the postal system near the destination city, and the postal service delivers the packages to the respective consignees.
Carrier Scheduling
In the previous chapter, the various criteria used to select the mode and carrier were presented. In this section attention is given to the pragmatics of scheduling the carriers to handle the day-to-day shipments. The objective of carrier scheduling is to arrangefor a carrier to meet the shipper’s transportation cost and service goals contained in the carrier selection decision. As indicated in Figure 13.1, the carrier scheduling techniques include core carriers, routing guides, approved carrier list, and intermediaries.
The core carrier concept is based on the principle of leveraging business volume to obtain desired cost and service. Shippers develop a number of core carriers, anywhere from 3 to 20 carriers, that are the prime providers of transportation service. These core carriers typically realize over 90 percent of the shipper’s annual freight expenditure and are the first carriers the shipper contacts when there is a load to be moved.
Both the core carrier and the shipper are dependent on the other: the shipper relies on the core carrier to move the loads and the core carrier relies on the shipper for a major source of its revenue.
Depending on the number of core carriers a shipper is using, the loss of one core carrier may result in a significant disruption of service to customers, plants, and warehouses.
The same dependency issues exist for a core carrier. The greater the portion of revenue coming from one shipper, the more dependent the carrier is on the shipper.
To attain this carrier leverage across a large vendor base, companies utilize a routing guide that tells the vendor to use a carrier from a list of specified carriers. The routing guide is a matrix that tells the shipper which carrier to use for a given transportation link and focuses the inbound freight on a limited number of carriers. Figure 13.7 is an example of an LTL routing guide. The routing guide is a quick reference to which carrier should be used for inbound and outbound moves between particular states. The carriers identified in the cell are the least-cost, best-service core carriers to use over the transportation link.
Figure 13.7 shows that for a movement from Ohio to New York the carrier of choice is Yellow Freight (YL). If Yellow Freight cannot make the move, the next favourable carriers are Roadway Express ERD), Con-Way (CW) and Arkansas Best Freight (AB).
The approved carrier list is somewhat similar to the routing guide in that both provide a limited number of carriers from which to schedule the move. As indicated above, the routing guide provides a very limited number of carriers listed in order of priority; that is, the first carrier listed is the priority carrier, the second is next, and so on. The approved carrier list may have 8 to 10 carriers available for a given traffic lane, and the manager or vendor selects one of the listed carriers based on the carrier’s performance at that facility.
Another carrier scheduling activity is the use of intermediaries. Intermediaries are non-carriers that are used by shippers to locate carriers to physically move the shipper’s products. The classic intermediaries are the motor carrier freight broker and the railroad intermodal marketing company (IMC).
Shippers experiencing wide swings in demand for transportation find it difficult to establish long-term arrangements with carriers because there are periods throughout the year where there may be no demand for the carrier’s service. The intermediary maintains contact with hundreds of carriers who have varying amounts of excess capacity and will bring together the shipper and a carrier that is available to haul the loads.
The final carrier scheduling activity is securing the type of equipment needed for the move. The type of equipment needed depends on the product’s weight, length, width, height, temperature-control requirements, and customer service requirements. Heavy products requiring overhead cranes to load and unload, products such as the cement highway barriers, may dictate the use of flatbed or open top trailers or rail cars. Frozenfoods necessitate the use of refrigerated equipment, whereas some products need equipment that can provide protection against cold or humidity. For low-density products, shippers request high cube equipment to maximize the amount of product the vehicle can transport. Finally, the customer may request a particular type of equipment because of physical or operational needs and the seller must comply.
Load Tendering
Load tendering is the transportation management process that involves the offer and acceptance of the load, loading of the vehicle, and the attendant documentation. Figure 13.8 presents the different steps included in the load-tendering process.
The carrier accepting the offer will provide a formal acceptance via the transmission methods noted above and, depending on the shipper and carrier operating policies, may formally decline. The typical method of declining a load offer is no positive response; that is, if the carrier does not accept the load within a preset time limit the assumption is the carrier declines the load.
Once the carrier accepts the load, the shipper arranges a pickup appointment.
Today, consignees are requiring the carrier to make a delivery appointment. This requirement and the consignee contact information are conveyed to the carrier at the time the load is accepted, giving the carrier sufficient time to contact the consignee and arrange a delivery time based on the scheduled loading time and driving time to destination.
The next step in the process is picking, packing, and staging the order. The order is picked from existing inventory or the items are produced for the order. In the Dell model, a product is produced after the customer places the order. When the order is picked, it is packed for shipment. In most operations, the items in an order are placed in a box or on a pallet along with packaging material to protect the shipment while in transit. The final step is to stage the load near the loading dock for quick loading when the truck arrives.
After the vehicle is loaded and the documentation is prepared, the vehicle moves to the consignee’s location for delivery.
Documentation
The most common domestic shipping document is the bill of lading. The bill of lading is the beginning of a transportation shipment, unless the shipper and carrier have signed a long-term transportation contract that stipulates otherwise. It is the document that provides the carrier with the information necessary for the carrier to complete the move, and it governs the move. For interstate shipments, the carrier is responsible for completing the bill of lading, but the common practice is for the shipper to complete it. Because the shipper has all the information, it is more efficient for the shipper to prepare the document for the carrier’s agent to sign at the time of pickup.
The bill of lading serves the following purposes:
•Receipt for the goods tendered to the carrier
•Provides shipment information
•Contract of carriage
•In the case of an order, bill of lading acts as certificate of title to the goods.
When the carrier’s agent (driver) signs the bill of lading, the carrier has agreed that it has received the items itemized on the document. The signed bill of lading is the shipper’s receipt that the carrier has taken possession of the goods named on it. If damage occurs to the shipment, the bill of lading provides proof of what was given to the carrier and the condition of the goods (assumed to be in good condition unless specified otherwise).
STRAIGHT BILL OF LADING
The bill of lading can be either a straight bill of lading or an order bill of lading. The straight bill of lading is a nonnegotiable instrument, which means title cannot be transferred by endorsement. The terms of sale between the seller and buyer dictate where title to the goods passes to the buyer. The carrier delivers to the person named as consignee on the bill of lading and does not require presentation of the original copy of the straight bill of lading as a condition to delivery. The straight bill of lading does not act as certificate of title.
ORDER BILL OF LADING
The order bill of lading is a negotiable instrument and acts as a certificate of title to the goods named on it. Title to the goods remains with the seller until the goods are delivered to the person (buyer) surrendering to the carrier the properly endorsed original copy of the order bill of lading.
Shipment Monitoring
As noted in Figure 13.1 the shipment-monitoring function involves tracing/expediting, customer communication, and vendor communication. In essence, shipment monitoring is watching the progress of the shipment through the transportation system and communicating the status or problems to the customer or vendor. The widespread adoption of the Internet and GPS (Global Positioning System) has greatly enhanced the performance capabilities of carriers with regard to shipment monitoring.
Tracing involves determining where the shipment is at a given moment in time. With GPS, a carrier can determine within a few yards the exact location of a vehicle and the corresponding shipment.
Once the shipment is traced and its location is noted, the expediting function attempts to hurry the shipment along to delivery. The steps include working with the carrier to attempt a correction in the normal movement process so the shipment can be delivered earlier. For example, a container was being moved through the port of Montreal to the UK. Using the carrier’s tracking system, the shipper determined the container was at the port and was then able to have the carrier place the container on the next vessel sailing for UK instead of the scheduled sailing date in 6 days.