Principles and Practices of Transportation Chapter 1

Principles and Practices of
Transportation

PRINCIPLES AND
PRACTICES OF
TRANSPORTATION

ii

PRINCIPLES AND PRACTICES OF TRANSPORTATION
emphasizes the importance of the transportation in logistics

activities. It aims to introduce the basic terms, principles,
concepts and methods used in transportation. It covers
transportation infrastructure, transportation regulation,

transportation management and technology issues

Name:

Matric No:

Class:

Session:

Principles and Practices of
Transportation

Table of Contents

Chapter 1 Introduction to Principles & Practices of Transportation4

Chapter 2 Transportation Elements ...... Error! Bookmark not defined.

Chapter 3 Transportation Management Error! Bookmark not defined.

Chapter 4 Malaysia Transportation SystemError! Bookmark not
defined.

Chapter 5 Malaysia Transportation RegulationsError! Bookmark not
defined.

Chapter 6 Current Issues In Global Transportation Environment
................................................................... Error! Bookmark not defined.

References ............................................... Error! Bookmark not defined.

iii

Principles and Practices of
Transportation

iv

Principles and Practices of
Transportation

1Chapter INTRODUCTION TO
PRINCIPLES & PRACTICES OF
TRANSPORTATION

Learning Outcomes:
At the end of this chapter, you should be able to:

 Define transportation
 Explain the transportation functionality

 Explain the principles and practices of transportation

 Describe the transportation utilities
 Identify the transportation costs
 Define the roles of transportation in logistics
 Identify the relationship between transport and logistics

1.0 INTRODUCTION

Transportation is one of the key logistics functions associated with moving goods
vehicle on a particular technology in the supply chain, consisting of logistics
operations and functions, including forwarding, cargo handling, packaging, and
transfer of ownership of the goods, risk insurance, customs procedures, and so on.
The role that transportation plays in logistics system is more complex than carrying
goods for the proprietors. Its complexity can take effect only through highly quality
management. By means of well-handled transport system, goods could be sent to
the right place at right time in order to satisfy customers’ demands. It brings efficacy,
and also it builds a bridge between producers and consumers.

Transportation are derived from a demand. It is derived from the activities that been
done. For instance, a group of people wants to travel to UK and they need aeroplane
to fly there. While, a consumer buying a good in a store will likely trigger the
replacement of this product, which will generate demands for activities such as
manufacturing, resource extraction and transport (Rodrigue & Notteboom, 2018).

5

Principles and Practices of
Transportation

According to Rodrigue & Notteboom (2018), there are two major types of derived
transport demand:

1. Direct derived demand. Refers to movements that are directly the outcome
of economic activities, without which they would not take place. For instance,
work-related activities commonly involve commuting between the place of
residence and the workplace. There is a supply of work in one location
(residence) and a demand of labor in another (workplace), transportation
(commuting) being directly derived from this relationship. For freight
transportation, all the components of a supply chain require movements of
raw materials, parts and finished products on modes such as trucks, rail or
containerships. Thus, transportation is directly the outcome of the functions of
production and consumption.

2. Indirect derived demand. Considers movements created by the
requirements of other movements. For instance, fuel consumption from
transportation activities must be supplied by an energy production system
requiring movements from zones of extraction, to refineries and storage
facilities and, finally, to places of consumption.

Figure 1.1 Transportation as a Derived Demand
Note. Adapted from Rodrigue , J.-P., & Notteboom, T. (2018). Transportation as a
Derived Demand. Retrieved from The Geography of Transport Systems:
https://transportgeography.org.

6

Principles and Practices of
Transportation

Transportation can be of many forms. For instance, goods can be transported from
one part of the world to another by container ships. A faster mode of transportation is
that of air. Aircrafts have a high speed of delivery and reduced risk of damage. Land
transport is great for door to door transportation and is considered very important in
logistics activities. Bulk products are best delivered by rail transport whereas
pipelines and fuel tankers are suitable for transporting fuel. Choosing the means of
transport that is cost efficient for a company is an integral part of logistics
management.

Therefore, transportation is the base of efficiency and economy in business logistics
and expands other functions of logistics system. In addition, a good transport system
performing in logistics activities brings benefits not only to service quality but also to
company competitiveness.

1.1 TRANSPORTATION

According to Encyclopedia Britannica, transportation is the movement of goods and
persons from place to place and the various means by which such movement is
accomplished. While according to Wikipedia, the action of transport is defined as a
particular movement of an organism or thing from a point A to the Point B.

1.1.1 Movement of Goods

According to MBASkool.com, Movement of Goods is the process that goods are
transferred from one place to another. This is referring to the goods are transferred
from the source to the destination such as from one factory to a port to another
company to some other company. This is a very important step as the timely delivery
of all materials out and into a plant is very essential for the smooth functioning of the
plant / organization. Goods are generally transferred by air, rail, road and water in
planes, trains, trucks or ships. They physical movement of goods usually includes
several modes of transport – by road to a port, by ship to a country of destination
and by road to the customer’s location. For instance: 1000 unit cars were

7

Principles and Practices of
Transportation

manufactured by INOKOM in Kedah and were ordered by a company in Singapore.
The cars are transferred to the distribution center and then sent to the company’s
headquarters in Kuala Lumpur. This entire process is known as Movement of Goods.

1.1.2 Movement of Passengers

Movement of passenger is the process that persons are transferred from one place
to another. Movement of passenger usually related to the personal interests. For
instance, shopping and recreation activities are highly demanding for the passenger
movement as they need the transportation to fulfill their requirement. While for work-
related activities, it commonly involve commuting between the place of residence
and the workplace (Rodrigue & Notteboom, 2018).

Table 1.1 Differences between Movement of Goods and Passengers

Movement of Passengers

Arises from distribution of raw materials, Trip generation and attractions well
skills and labor. understand and predicted.
Manufacturer will move raw materials People will travel from their homes to
from their place of origin to the place where the value of their services
processing plant and moving the and salaries will be greater than when
finished goods to the consumption point. they remained in own locality
Multi-jurisdictional cooperation required. Can be handle within a single
jurisdiction
Complex chain of inter-regional and Movements often begin and end
international trips. within the same jurisdiction.

Must be loaded, unloaded and Board, get off and transfer without
transferred. assistance.
(Rodrigue & Notteboom, 2018) (Rodrigue & Notteboom, 2018)
Information must be processed Process information and act on it
through logistics managers. without assistance.
(Rodrigue & Notteboom, 2018) (Rodrigue & Notteboom, 2018)
Logistics managers meet choices Make choices between transport
between transport modes rationally. modes without assistance but often
(Rodrigue & Notteboom, 2018) irrationally.
(Rodrigue & Notteboom, 2018)

8

Require accommodations related to Principles and Practices of
storage. (Rodrigue & Notteboom, Transportation
2018)
Require travel accommodations
related to comfort and safety.
(Rodrigue & Notteboom, 2018)

Figure 1.2 Transportation and the Mobility of Goods and Passengers
Note. Adapted from Rodrigue , J.-P., & Notteboom, T. (2018). Transportation as a
Derived Demand. Retrieved from The Geography of Transport Systems:
https://transportgeography.org

Modes of transportation include air, land (rail and road), water, cable, pipeline and
space. It can divided into infrastructure, vehicles and operations. Transportation
infrastructure consists of the fixed installations, including roads, railways, airways,
waterways, canals and pipelines and also terminals such as airports, railway
stations, bus stations, warehouses, trucking terminals, refueling depots (including
fueling docks and fuel stations) and seaports. Terminals may be used both for
interchange of passengers and cargo and for maintenance.

Passenger transport may be public, where operators provide scheduled services,
or private. The term public transport refers to ferry services, buses, taxis and trains.
For the private transport, it is an individually-owned vehicles, such as car, van and
motorcycle. Freight transport has become focused on containerization, although bulk
transport is used for large volumes of durable items.

Transport is important because it enables trade between people, which is essential
for the development of civilizations. Without transport, it will strongly affected to the

9

Principles and Practices of
Transportation

nation’s economics as it will be no business activities, no employment and no
income distribution among the population. Transport plays an important part in
economic growth and globalization, but most types cause air pollution and use large
amounts of land.
1.1.3 Transportation Functionality

Transportation is one of the most visible elements of logistics operations. It is mainly
concerned with product movement and product storage.

1.1.3.1 Product Movement

Transportation is necessary to move the inventory to the next stage of the
manufacturing process or physically closer to the ultimate customer either the
product is in the form of materials, components, assemblies, work-in-process, or
finished goods. The primary transportation value proposition is product movement
throughout the supply chain. The performance of transportation is vital to
procurement, manufacturing and customer accommodation. Transportation also
plays a key role in the performance of reverse logistics. Without reliable
transportation most commercial activity could not function.

Transportation consumes time, financial and environmental resources. The major
objectives of transportation are to move product from an origin location to a
prescribed that can reduce time, financial and environmental resources.

a) Time Resources: Transportation has a restrictive element because inventory
is generally inaccessible during the transportation process. Inventory captive
in the transport system is referred to as in-transit inventory. In-transit inventory
becoming significant by reducing manufacturing and distribution center
inventories. Naturally, when designing logistical systems, managers strive to
reduce in-transit inventory to a minimum. Advancements in information
technology have significantly improved access to in-transit inventory and
arrival status of shipments by providing exact location and arrival times.

10

Principles and Practices of
Transportation

b) Financial Resources: Transportation also uses financial resources.
Transportation cost results from driver labor, vehicle operation, capital
invested in equipment and administration. In addition, product loss and
damage are significant costs.

c) Environmental Resources: Transportation impacts environmental resources
both directly and indirectly. In direct terms, transportation represents one of
the largest consumers of fuel and oil. Although the level of fuel and oil in
consumption has improved as a result of more fuel efficient vehicles, total
consumption remains high. Indirectly, transportation impacts the environment
through congestion, air pollution and noise pollution.

Since transportation consumes time, financial, environmental resources, it is
important that items be moved only when it truly enhances product value. By that,
the objective of product movement will be achieved. Without reliable transportation,
most commercial activity could not function. Loss and damage expenses must also
be minimized. At the same time, the movements must take place in a manner that
meets customer demands regarding delivery performance and shipment information
availability.

1.1.3.2 Product Storage

A less common of transportation function is temporary product storage. Product
during transportation is stored in the vehicle. Transport vehicle also used for product
storage during the shipment. While a product is in a transportation vehicle (in-
transit), it is being stored. Transport vehicles can be used for product storage but
they are expensive storage facilities. Since the main value proposition of
transportation is movement, a vehicle committed to storage is not otherwise
available for transport.

a) Warehouse storage has limited capacity: A trade-off exists between using
a transportation vehicle versus temporarily placing products in a warehouse.
This is desirable when the origin or destination warehouse has limited
storage capacity. If the inventory involved is scheduled to be shipped within

11

Principles and Practices of
Transportation

a few days to a different location, the cost unloading, warehousing and
reloading the product may exceed the temporary cost of using the
transportation vehicle for storage. Vehicles make rather expensive storage
facilities. However, if the in-transit product requires storage but will be moved
again shortly (e.g., in a few days), the cost of unloading and reloading the
product in a warehouse may exceed the profitability.
b) Diversion: Another transport service having storage implication is diversion.
Diversion occurs when a shipment destination is changed after a product is
in transit. For example, the destination of a product initially shipped from
Chicago to Los Angeles may be changed to Seattle while in transit.
However, if during the delivery process it is determined that San Francisco is
in greater need for the product or has available storage capacity; the product
could be diverted to the alternative destination of San Francisco.

Traditionally, the telephone was used to implement diversion strategies. Today,
internet communication between shippers, carriers headquarters and vehicles
facilities more efficient diversion. While diversion is primarily used to improve
logistical responsiveness, it also impacts the duration of in-transit storage. So
although costly, product storage in transportation vehicles may be justified from a
total cost or performance perspective when loading or unloading costs, capacity
constraints and ability to extend lead times are taken into consideration.

In summary, although product storage in transportation vehicles can be costly, it may
be justified from a total-cost or performance perspective when loading or unloading
costs, capacity constraints, or the ability to extend lead times are considered.

1.2 PRINCIPLES OF TRANSPORTATION

There are two fundamental principles guiding transportation management and
operations which are economy of scale and economy of distance. These principles
are important considerations when evaluating alternative transportation strategies or

12

Principles and Practices of
Transportation

operating practices. The objective is to maximize the size of the load and the
distance that is shipped while still meeting customer service expectations.

1.2.1 Economy of Scale

Economy of scale refers to reduction in the unit cost as the volume of shipment
increases. The cost per unit of weight decreases as the size of a shipment
increases. For e.g. a transportation vehicle like truck has a maximum volume
grasping of 10 Metric Tones. If full grasping is used then cost per unit volume will
decrease.

It is common knowledge that per unit transportation cost comes down as the bulk of
the items transported increases. Hence in order to gain benefits in terms of reduction
in transportation costs logistician tries to consolidate the bulk and then ship the
consignment rather than shipping half truck loads or half container loads. This
benefit is economy of scale.

For example, truckload shipments utilizing an entire trailer capacity have a lower cost
per pound than smaller shipments that utilize a limited portion of vehicle capacity. It
is also generally true that larger-capacity transportation vehicles such as rail and
water vehicles are less costly per unit of weight than smaller-capacity vehicles such
as trucks and airplanes. The larger the capacity of the transport, the more goods can
be transported at a time. If smaller is the capacity of the transport and a large
amount of goods, more trips will have to be made which will increase the cost per
unit of transport.

The fixed costs in transportation includes administrative costs of taking the
transportation order, time to position the vehicle for loading and unloading, invoicing
and equipment cost. These do not vary with the volume of shipment. The
administrative cost of shipping 1 kg of goods and 1000 kg of goods is same. When
scale are achieved because fixed expenses associated with moving a load are
spread out, thereby decreasing costs per unit of weight.

13

Principles and Practices of
Transportation

For instances: Suppose the cost to administer a shipment is RM. 10.00. Then for a
10 Kgs shipment the cost of transporting per unit of the product becomes RM 1.00,
while for a 1,000 Kgs shipment the cost of transporting per unit of the product RM
0.01. Thus, it can be said that an economy of scale exists for the 1000 Kgs
shipment.

Figure 1.5 Economy of Scale
1.2.2 Economy of Distance
Economy of distance refers to transportation cost per unit of weight decreased as
distance increased. The transportation cost per kilometer comes down as the
distance moved increases. Hence transportation is planned in a single long lap
rather than number of short laps to reach the destination. For example, a shipment of
1000 km will cost less to perform than two shipments of the same weight each
moving 500 km.
The fixed costs and costs like overheads of loading and unloading are spread over
the distance through which the load is moved. Transportation economy of distance is
often referred to as the tapering principle since rates or changes taper (decrease)
with distance. Transportation rates are distance related, not distance proportional.
The rationale for distance economies is similar to economies of scale. Longer
distances allow the fixed expenses to be spread over more miles, resulting in lower
overall per mile charge.

14

Principles and Practices of
Transportation

Figure 1.6 Economy of Distance

1.3 TRANSPORTATION UTILITIES

The concept of value goods and utility are closely related to each other. Goods have
no values unless they are moved to a place with a demand through a reduction or
efficient transportation cost.
Transportation adds value to the product by providing place and time utility for the
firm’s goods. The word "utility" means usefulness or ability to give satisfaction.
Transportation creates place utility and time utility. Without place and time utility,
goods have no value to the customer. In a broad sense, the production process is
really not complete until all utilities have been created because until then goods are
not capable of giving satisfaction and would not prompt a customer to exchange
something of value for something with no value. Thus, transportation is an essential
part of the total production process that cannot be overlooked.

15

Principles and Practices of
Transportation

Transportation service providers such as Federal Express (FedEx) and United
Parcel Service (UPS) have achieved success because they are able to provide
consistent time-in-transit and thus increase the time and place utility of their
customer’s product.

1.3.1 Place Utility

Logistics provides place utility by moving goods from production surplus points to
points where demand exists. Logistics extends the physical boundaries of the market
area, thus adding economic value to the goods. This addition to the economic value
of goods and services known as place utility.

Transportation physically moves products from where they are produces to where
they are needed. The movement across space or distance adds value to products.
This value added is often referred to as a place utility. Place utility is created by
having a product available at the place where it is needed. Transport provides the
utility of place by taking the item from factory to consumer. The goods at point B
(where goods are demanded) has more value than at point A (where goods are
produced). Goods have no value unless they are moved to a place with a demand
through a reduction or efficient transportation cost.

1.3.2 Time Utility

Logistics creates time utility through proper inventory maintenance and the strategic
location of goods and services. Time utility refers to easy availability of products or
services at the time when customers need or want to purchase them. In addressing
the utility of time, it involves a company's business plan and the logistical planning of
manufacturing and delivery issues.

For service providers, time utility is addressed by seeking to make services available
at the times that they are most necessary or desirable for consumers. It determines
how fast and how consistently a product moves from one point to another. It includes

16

Principles and Practices of
Transportation

considering the hours and days of the week a company chooses to make its services
available. If a product is not available at the precise time it is needed, there are may
be expensive repercussions, such as lost sales, customer dissatisfaction. The goal is
to offer potential customers an added value.
A time element such as 24-hour availability might be a value that a company
chooses to offer. Not only must goods or services be available whenever consumers
need them, but they must also be at that point when customers demand them. This
is called time utility or the economic value added to a good or service by having it at
a demand point at a specific time.
For example, logistics creates time utility by having heavily advertised products and
sales merchandise available in retail stores at precisely the time promised in the
advertising effort.
To some extent, transportation may create time utility by moving something more
quickly to a point of demand. For instance, substituting air transportation for
warehousing adds time utility. Time utility is much more important today because of
the emphasis upon reducing lead time and minimizing inventory levels through
logistics related strategies such as Just in Time (JIT) inventory control.

1.4 TRANSPORTATION COST

17

Principles and Practices of
Transportation

Figure 1.7 Cost Ratios of Logistics Items
Figure 1.7 shows the components of logistics costs based on the estimation from Air
Transportation Association (Chang, 1988). This analysis shows transportation is the
highest cost, which occupies 29.4% (one-third) of logistics costs, and then in order
by inventory, warehousing cost, packing cost, management cost, movement cost
and ordering cost. The transportation cost here includes the means of transportation,
corridors, containers, pallets, terminals, labors, and time. This figure signifies the
cost structure of logistics systems and the importance order in improvement
processing. The improvement of the item of higher operation costs can get better
effects. Hence, logistics managers must comprehend transport system operation
thoroughly.
A transportation service incurs a number of costs, such as labor, fuel, maintenance,
terminal, roadway, administrative, and others. This cost mix can be arbitrarily divided
into those costs that vary with services or volume (variable costs) and those that do
not (fixed costs). Sometimes, joint costs will incurred related to some services.

1.4.1 Fixed Costs
Fixed costs are not influenced by the volume of shipment. Fixed costs must be paid
even when there is no operations. It includes for costs of infrastructure (ports,
airports, railway tracks, and yards) roadway acquisition and maintenance, terminal
facilities, rights-of-way, information systems, transport equipment and costs
recovered over a period of time (10 – 20 years). This type of cost arises with the
ownership of physical transportation assets.

18

Principles and Practices of
Transportation

Examples are motor vehicles and trailers, terminals, ports, pipelines, docking
systems, rights-of-way, information systems, taxes, rents, loan interest, and
materials handling equipment. The fixed costs of ownership are not directly
influenced by shipment volume. In the short term, expenses associated with fixed
assets must be covered by revenue contributions above variable costs on a per
shipment basis. For instance: A Municipal Corporation appoints company XYZ to
build roads and collect tools from the users to recover the costs. When the contract
period ends, the company transfers the road to the Municipal Government. Contract
period is determined mutually between Municipal Corporation and Company XZ.

1.4.2 Variable Costs

Variable costs directly related with transportation activity and it can be predictable.
Variable costs directly proportional to volume of activity. It incurred whenever there
an operations or activities related to the vehicle. It usually include line-haul costs
such as fuel and labor, equipment maintenance, handling, and pickup and delivery.
Generally, it measured per mile or unit weight or both. For instance: Company ABC
owns 25 trucks and bears the costs of maintaining trucks, fuel, employees on job,
administration and paper work, etc.

1.4.3 Joint (Back-Haul) Costs

Joint (Back-Haul) Costs associated with the return journey of a vehicle after

delivering a consignment. It is created by the decision to provide a particular service

because of the imbalanced flows. For instance: Company PQR delivered a

consignment from Perlis to Johor by truck. After delivering the consignment, the

truck has to return to Perlis and if it returns empty then the costs cannot be

recovered. To recover the costs, this may have to be added to the actual cost of

delivering the consignment. Carrier quotations must include implied joint costs based

on the assessment of back-haul

recovery.

19

Principles and Practices of
Transportation

Figure 1.7 Imbalanced Flows
Note. Adapted from Rodrigue , J.-P., & Notteboom, T. (2018). Transportation as a
Derived Demand. Retrieved from The Geography of Transport Systems:
https://transportgeography.org
1.4.4 Common Costs
Common costs are incurred on behalf of all or a select group of shippers. Costs of
multiple smaller shipments to a common destination are consolidated into a single
large shipment. It usually include terminal or management expenses. The costs
usually allocated to shippers based on the level of customer activity such as number
of shipments. For example: Company LMN delivers multiple products (5 to 10 FMCG
products) via a truck to a nearby town benefiting themselves and customers through
cost-sharing. When this truck breaks down, then it’s costs are proportionately
distributed among the customers.

1.5 RELATIONSHIP BETWEEN TRANSPORTATION AND OTHERS
LOGISTIC & SUPPLY CHAIN ACTIVITIES

Without well-developed transportation systems, logistics could not bring its
advantages into full play. A good transport system in logistics activities could provide
better logistics efficiency, reduce operation cost, and promote service quality. The
improvement of transportation systems needs the effort from both public and private
sectors.

20

Principles and Practices of
Transportation

1.5.1 Roles of Transportation in Logistics

The role that transportation plays in logistics system is more complex than carrying
goods for the proprietors. Its complexity can take effect only through highly quality
management.

1.5.1.1 Bridge over buyer-seller gap

An organization’s logistics supply chain consists of a series of fixed points where
goods to come to rest and transportation links them. These fixed points in the
logistics system are where some activity temporarily stops the progress of the flow of
goods in the logistic pipeline such as factories, plants and warehouses.
Transportation links allow goods to flow between these various fixed points, which
become a bridge the buyer-seller gap. A gap refers to the needs and wants of the
user of certain products located in different origins to the consumer. Transportation
helps to reduce spatial gap between buyer and seller.

With the improvement of transportation system, a manufacturer company could sell
their products or goods matter in the form of raw materials, semi-finished goods or
finished goods throughout the worldwide. With this, for public or consumer, we could
purchase the goods from foreign country that the product may not being available at
local because of the transportation. Hence, no matter the gap between buyer and
seller are far apart for ten or thousands miles, the demand goods could able to send
to the required point.

Example: with the existence of transport, people from all over Malaysia can enjoy
rice as transport will bring the rice from the state of origin to different states of
destination as demanded.

1.5.1.2 Value Added

The value-added service will be occurred when the demanded products or goods are
being available at the right place and right time. Appropriate transportation system
allows companies add value to their products, offering place utility by having the right

21

Principles and Practices of
Transportation

product available at the right place where it is desired. With this, it could be satisfied
customer and improve customer service. A good transport system in logistics
activities could provide better logistics efficiency, reduce operation cost, and promote
service quality as well as increase the customer service.

Example: FEDEX gives a good service by send the items at the right time and right
place as requested by their customer.

1.5.1.3 Global Impact

With the improvement of transportation system, the activities of trade are not only
focused on domestic trade but also on international trade. The era of global economy
stretches supply chains cross-geographical boundaries. This increased spatial gap
results in greater transportation costs, connecting buyers and sellers that may be
tens of thousands of miles apart. Operations within this international marketplace
require more transportation time which necessitates higher inventories and resulting
higher storage costs. The greater the buyer-seller gap, the greater the transportation
and storage costs. Through the various type of transportation modes such as air and
water, the goods able distribute around the world.

Example: by using airplane, frozen curry puff now can be selling at Europe.

1.5.1.4 Importance in Economy

Around one third to two thirds of the expenses of enterprises’ logistics costs are
spent on transportation. By this kind of amount, clearly can say that transportation
can increase the economy for country. When the public uses transportation, they
need to pay for fees of tolls, taxes, fuel and other administrative and operation costs.
Besides, goods being import and export also lead to the Gross Domestic Product
(GDP). GDP contribution by transport services. With these, it can improve country’s
profit. This clearly demonstrates the importance of transportation in the economy
when considering the costs spent on transportation.

22

Principles and Practices of
Transportation

Example: transportation can generate country income by paying toll etc.

1.5.1.5 Importance in Company
The quality of transportation will affects the competitiveness of a company’s
products. The transportation will increase their competitiveness with other
competitor in term of product quantity, time and place utilities. Transportation directly
affects a facility’s operation and the quality of the transportation service. As the
transportation will deliver their product at the right time and right place with a good
condition, undamaged and loss, it could help a company to improve customer
service and customer satisfaction. Effectiveness of the transportation will give big
impact to the customer service.
Example: transportation create the competitiveness among the transporter.

1.5.1.6 Cost-service Trade Off
Cost-service tradeoff is a way that company can either create greater value to
customers at a higher cost or create reasonable value at a lower cost. Cost-service
trade off occurred when a company decides to switch the mode of transportation to
move raw materials from the sea mode to the air mode, the increased speed or
lower transit-time permits the company to hold lower inventories to meet demand
during transit time and use less warehousing space. But the company realizes these
advantages at the expense of higher transportation costs.
Example: transportation give the company to choose the transportation mode based
on their requirement.

23

Principles and Practices of
Transportation

1.5.2 Logistics and Supply Chain Management

1.5.2.1 Logistics Management

The Council of Supply Chain Management Professionals (CSCMP) defines
logistics as the process of planning, implementing, and controlling procedures for the
efficient and effective transportation and storage of goods including services, and
related information from the point of origin to the point of consumption for the
purpose of conforming to customer requirements. In other words, logistics is used to
refer to the process of coordinating and moving resources (people, materials,
inventory, and equipment – from one location to storage at the desired destination).
It is the overall process of managing how resources are acquired, stored and
transported to their final destination. The logistics term originated in the military,
referring to the movement of equipment and supplies to troops in the field.

Figure 1.3 Logistics Management

1.5.2.2 Supply Chain Management

A supply chain is the system of organizations, people, technology, activities,

information and resources

involved in moving a

product or service from

supplier to customer. It

involves with managing and

24

Principles and Practices of
Transportation

controlling the sequence of activities from supplier to end customer that add value to
the product/service supply pipeline. It is the stream of processes covering the
economic activities in freight logistics of moving goods through the raw materials,
supply, production, and distribution of products to the customer.

Figure 1.4 Supply Chain Management
Table 1.2 Four major criteria of Supply Chain Management concept (Felea &

Albăstroiu, 2013)

25

Principles and Practices of
Transportation

1.5.3 Relationship between Transportation and Logistics
Transportation is the driver of logistics, but logistics is the race car driver in the seat
of transportation. Logistics requires planning, transportation is just the mode to
execute the planning, when getting freight from point A to point B. Clearly, they are
not the same thing, but transportation is just simply a part of logistics.
1.5.3.1 Logistics System
Logistics system of a firm is a series of nodes (raw materials sources, production
and demand centers, and commodity storage points) and links (transportation
methods). The transportation link occasions the flow of goods between the various
nodes (fixed points in a logistics pipeline where inventory rests before it is moved
(transported) again to the next point).

26

Principles and Practices of
Transportation

Supply chain management (SCM) is the broad range of activities required to plan,
control and execute a product's flow, from acquiring raw materials and production
through distribution to the final customer, in the most streamlined and cost-effective
way possible (Rouse, 2018).

1.5.3.2 Transportation System

Transportation system is the physical link connecting a company’s customers, raw
material suppliers, factories / plants, warehouses and channel members (fixed
points) in a logistic supply chain. These fixed points in the logistics system are
where some activity temporarily stops the progress of the flow of goods in the logistic
pipeline.
Transportation system is the most important economic activity among the
components of business logistics systems. The transportation service function
affects not only the direct cost of the product but also the overall operating cost of an
organization. Around one third to two thirds of the expenses of enterprises’ logistics
costs are spent on transportation. According to the investigation of National Council
of Physical Distribution Management (NCPDM) in 1982 (Chang, 1988), the cost of
transportation, on average, accounted for 6.5% of market revenue and 44% of
logistics costs.

1.5.3.3 Relationship between Transportation and Logistics

Logistics is a component of supply chain Transportation
management. It focuses on moving a product or
material in the most efficient way so it arrives at the Logistics
right place at the right time. It manages activities Supply Chain Management
such as packaging, transportation, distribution,
warehousing and delivery. Logistics refers to what
happens within one company, including the
purchase and delivery of raw materials, packaging,
shipment, and transportation of goods to

27

Principles and Practices of
Transportation

distributors. While supply chain management refers to a larger network of outside
organizations that work together to deliver products to customers, including vendors,
transportation providers, call centers, warehouse providers, and others.
Transportation, logistics and supply chain management related each other. Without
well-developed transportation systems, logistics could not bring its advantages into
full play. A good transport system in logistics activities could provide better logistics
efficiency, reduce operation cost, and promote service quality.

28

Principles and Practices of
Transportation

MIND MAPPING / NOTES

29