IL/U2 Topic 11 Service Choices and their Characteristics
The transportation user has a wide range of services at his or her disposal that revolve around the five basic modes: water, rail, truck, air and pipeline. A transport service is a set of performance characteristics purchased at a given price and the variety of transport service is almost limitless.
The five modes may be used in combination e.g. piggyback or container movement; transportation agencies, shippers’ association and brokers may be used to facilitate these services; small shipment carriers like, UPS or FEDEX may be used for their efficiency in handling small packages or a single transportation mode may be used exclusively. From among these service choices, the user selects a service or combination of services that provides the best balance between the quality of service offered and the cost of that service. The task of service-choice selection is not as forbidding as it first appears because circumstances surrounding a particular shipping situation often reduce the choice to only a few reasonable possibilities.
To aid in solving the problem of transportation service choice, transportation service may be viewed in terms of characteristics that are basic to all services: pricing, average transit time, transit time variability and loss and damage. These factors seems to be the most important to decision makers as numerous studies over the years have revealed. It is presumed that the service is available and can be supplied with a frequency that makes it attractive as a possible service choice.
Price [cost] of transport service to a shipper is simply the line-haul rate for transporting goods and any accessorial or terminal charges for additional service provided. In the case of for-hire service, the rate charged for the movement of goods between two points plus any additional charges, such as pick up at origin, delivery at destination, customs clearance, insurance or preparing the goods for shipment, makes up the total cost of service. When the shipper owns the service e.g. fleet of trucks, the cost of service is an allocation of the relevant costs to a particular shipment. Relevant costs include items such as fuel, labour, maintenance, depreciation of equipment and administrative costs.
Transit Time and Variability
Delivery [transit] time usually referred to as the average time it takes for a shipment to move from its point of origin to its destination. The different modes of transportation vary according to whether or not they provide direct connection between the origin and destination points.
For example, shipments move on air carriers between airports or on water carriers between seaports. However, for the purpose of comparing carrier performance, it is best measure transit time door-to-door, even if more than one mode is being used. Although the major movement of a shipment may be by rail, local pick up and delivery are often made by truck if no rail sidings are available at the shipment origin and destination points.
Variability refers to usual differences that occur between shipments by various modes. All shipments having the same origin and destination points and moving on the same mode are not necessarily in transit for the same length of time due to the effects of weather, traffic congestion, number of stop off and differences in time to consolidate shipments. Transit time variability is a measure of the uncertainty in carrier performance.
Loss and Damage
Because carriers differ in their ability to move freight without loss and damage, loss and damage experience becomes a factor in selecting a carrier. Product condition is a primary customer service consideration.
Common carrier have an obligation to move the freight with reasonable dispatch and to do so using reasonable care in order to avoid loss and damage. This responsibility is relieved if loss and damage result from an act of the nature, default by the shipper or other causes beyond the control of the carrier. Although carriers, upon proper presentation of the facts by the shipper, incur the direct loss sustained by the shipper, there are certain imputed costs that the shipper should recognize before making a carrier selection.
Potentially, the most serious loss that the shipper may sustain has to do with customer service. The shipment of goods may be for replenishing a customer’s inventory or for immediate usage. Delayed shipment or goods arriving in an unusable condition means inconvenience for the customer or possibility higher inventory costs arising from a greater number of stock outs or back orders when anticipated replenishment stocks did not arrive as planned.
The claims process takes time to gather pertinent facts about the claim, takes effort on the part of the shipper to prepare the proper claim forms, ties up capital while claims are being processed and sometimes involves considerable expense if the claim can be resolved via court action.
Obviously, the fewer the claim against a carrier, the more favourable the service appears to the user. A common reaction of shippers to a high likelihood of damage is to provide increased protective packaging. This expense must ultimately be borne by the user as well.