MODULEs 3&4: Transportation Management

Lessons 3&4: Transportation Technology and Systems, Costing and Pricing for Transportation,
Transportation, Third Party Logistics, Transportation Management, Issues and Challenges for Global
Supply Chains
Lessons 3&4: LESSON1:
INTENDED LEARNING OUTCOMES

At the end of this module the students must be able to:



What Is Transportation Technology?

When you think of life-changing technological innovations in transportation, what comes to mind?
Henry Ford’s Model T? Commercial airlines? What about hybrid cars? All those answers would be
correct. The point is, these technologies completely upended the transportation sector’s status quo
and have had lasting impacts on how we get around.

Transportation Technology Definition

Transportation technology encompasses the tools, improvements and methods that move people,
animals and goods across the globe. Transportation technology uses vehicles and infrastructure like
railways and highways to support travel and covers movement via land, water, air and even space.

Innovations in transportation technology are essentially born out of three necessities: efficiency, ease
and safety. Scientists and transportation industry professionals work side-by-side to ensure that these
new technologies get more people (or things) to their destination faster, safer and with the fewest
amount of resources possible. For example, this is why we’ve seen a shift away from coal-powered
trains toward ultra-fast bullet trains, luxurious aircrafts to budget-friendly, cost-saving models and a
switch from gas-guzzling vehicles to 100 percent electric cars.

As technologies like artificial intelligence, data science, manufacturing and deep learning become
more advanced, so too will vehicles themselves. These fields act as the backbone for everything from
autonomous vehicles to aerospace travel, and even function as the basis for ride-hailing platforms
like Uber and Lyft. Because of the enormous potential these technologies hold, transportation
technology has become one of the fastest-growing and highly-contested fields in the world.
Thousands of startups are racing to create the “next big thing” in the world of transportation.
Benefits of Transportation Technology

As transportation technology continues to advance, the way we get from one place to another will
improve. The transportation sector has the ability to help humans create more sustainable modes of
travel — as demonstrated by electric cars and biofuel-powered airplanes. Even major industry players
like Boeing see the benefits of more sustainable travel, as the company has announced plans to
deliver planes that run completely on biofuel by 2030.

Transportation technology also allows people and goods to get to their destinations faster. Improved
speed for trains or delivery systems can save companies and consumers alike valuable time and
money. The logistics industry is also set to benefit from improved transportation methods and
infrastructure, as the two industries often work together to move goods efficiently and affordably.
Connected cars and freight trucks are one way logistics may improve, thanks to further transportation
technology development. As the number of IoT sensors in CCTV cameras along highways grow, data
can be collected to help solve traffic and congestion problems along major thoroughfares and delivery
routes. Connected cars are also able to predict traffic patterns with the help of signal phase and
timing information collected through IoT vehicles.

Although autonomous vehicles are not quite widespread yet, manufacturers and developers in the
field hope that one day self-driving cars will improve safety for millions of people. Nearly 40,000
people were killed in traffic accidents in 2020 in the United States alone. As autonomous vehicles
continue to develop, their capabilities of preventing accidents and sense collisions will drastically alter
the number of fatal car accidents each year.

Types of Transportation Technology

Transportation Technology Examples
Innovation in transportation technology is at an all-time high with creative solutions that are helping us
get down the block, across the country and even into outer space. Check out some of the most
groundbreaking modes of transportation below.

Underground Tunneling
Underground transit is all about moving people or things through vast systems of tunnels underneath
the Earth’s surface. Musk’s Boring Company — derived as Musk sat in Los Angeles traffic — is an
infrastructure and tunnel construction company that builds underground pathways for cars to travel
through at higher speeds and with less traffic congestion. So far, the company has built a tunnel in
Las Vegas called the LVCC Loop system. The three-station tunnel system connects the LVCC New
Exhibit Hall with the existing campus and is said to reduce a 45-minute walk time to approximately
two driving minutes. Underground tunneling, though in its early stages, is seen as an interesting
concept that has the potential to reduce traffic congestion and the overall environmental effects of
current car travel.

Underground Tunneling
Underground transit is all about moving people or things through vast systems of tunnels underneath
the Earth’s surface. Musk’s Boring Company — derived as Musk sat in Los Angeles traffic — is an
infrastructure and tunnel construction company that builds underground pathways for cars to travel
through at higher speeds and with less traffic congestion. So far, the company has built a tunnel in
Las Vegas called the LVCC Loop system. The three-station tunnel system connects the LVCC New
Exhibit Hall with the existing campus and is said to reduce a 45-minute walk time to approximately
two driving minutes. Underground tunneling, though in its early stages, is seen as an interesting
concept that has the potential to reduce traffic congestion and the overall environmental effects of
current car travel.

Aerospace
The transportation technology garnering the most excitement right now is aerospace. Companies like
SpaceX, Blue Origin and Virgin Galactic are battling it out to be the first company to offer commercial
space flights. That’s right, you no longer have to be a NASA astronaut to live out your childhood
dream of flying through outer space.

The rise of commercial space flight has brought about a series of incredible technological
advancements, including the use of reusable rocket boosters. Originally, rocket ships would shed
their boosters about two minutes after liftoff. These boosters were one-time use and would fall back to
the earth in a flaming heap. SpaceX has designed boosters that gently propel themselves back down
to Earth with precision. The reusability of these rockets is an achievement in cost-saving travel tech
that now opens up spaceflight to civilians (albeit extremely wealthy civilians at the moment). Relativity
Space is even 3D printing rocket ships.

The new-age “Space Race” is pushing transportation technology to its limits and producing some of
the most awe-inspiring tech we’re seeing today. It’s reducing original spaceflight costs from $500
billion to about $60 million per flight and having us picture future life on the moon, Mars and beyond.
Autonomous Vehicles
The battle over autonomous vehicles is also heating up. Virtually every big-named auto manufacturer
and startup vying to create the first mass-produced wave of self-driving vehicles. Imagine getting into
your car, punching in an address, sitting back and letting a car take you to your endpoint without you
having to touch the steering wheel or get stressed out navigating traffic. That used to be an
unreachable dream for decades. Now, it’s becoming a reality.
Companies like Google, Waymo, Uber, Tesla and Ford are all developing machine learning, AI and
deep learning platforms that help cars calculate their surroundings in real-time and act accordingly.
These vehicles are taking in millions of data points each second through a variety of sensors,
software and GPS. Sensors constantly monitor surroundings like people crossing roads, surrounding
vehicles and animals darting out into traffic and make split-second calculations on how to respond
safely and efficiently. Additionally, GPS monitors routes to find the quickest way to a destination,
upcoming accidents or bottlenecks that can be subverted.

The biggest hurdle in autonomous vehicles right now is safety. There are an infinite number of
scenarios that occur on the road. How can a car respond to each one like a rational human would?
Each automaker and startup are training these cars to drive safely and with the same rationale as a
human being. Although in their early stages, autonomous vehicles have made strides in
transportation technology that will have a massive impact on the overall future of how we get around.
Last-Mile Robots
Transportation tech isn’t all just about transporting people. It can also include the technology that
helps get our packages and products from point A to point B. One of the biggest advancements in
transportation technology for the shipping industry is last-mile robotics.

Instead of relying on a delivery driver or postal worker to drop off the item at your front door,
companies are now employing robots that traverse cities and glide down sidewalks to deliver your
package straight to your door. Amazon and FedEx are currently employing robots in certain cities to
deliver packages within a few-mile radius of their fulfillment centers, and Domino’s Pizza is using
robots to deliver their pizza orders on time.

Electric Vehicles
Electric vehicles are having a massive effect on how we get around, whether it’s across the city or
across the country. Companies like Tesla and Nissan have popularized the electric car, which runs
strictly on battery power to get us to where we need to go. Instead of refueling at a gas station,
electric vehicles need a battery charge to get them back on the road. Today’s most advanced electric
vehicles can run from 150 miles to 350 miles on a single charge. These vehicles are fantastic
examples of transportation tech because they’re fundamentally changing how vehicles operate and
how they’re powered.

Electric bikes, scooters (known as e-bikes and e-scooters) have become viable travel options for
traversing neighborhoods or entire cities. These vehicles provide ease of use and convenience that
hasn’t been provided by other last-mile forms of transport. Subverting traffic to get to work or making
that dinner reservation across town is now easier thanks to the options and eco-friendly benefits
provided by electric scooters and bikes.
Emerging Transportation Technology

Air Taxis
It seems there are countless possibilities for travel already, but humans are determined to explore
every avenue for transportation. Flying taxis and cars might be reality in the not so distant future.
Smaller aircraft to transport people easily around cities are in the works at least 20 companies. One
notable example is Uber’s efforts to bring air travel to a more casual level. Companies like Ilium are
working to create hyper-local air travel that offers zero-emission, low-noise transportation.

Hyperloops
Hyperloops are a proposed method of passenger or freight transportation that use electric propulsion
and low-pressure tubes to glide along at speeds that surpass those of commercial aircrafts. The use
of magnets to propel the passenger tube significantly reduces the amount of energy and monetary
costs it takes to operate the technology. Hyperloops are still in their infancy, with top speeds reaching
only half of the proposed 750 miles per hour. Still, they’re being put to the test as viable alternatives
to traditional travel methods in the near future.

Maybe in the far, far future we will won’t need vehicles at all, as scientists continue their pursuit of
teleportation after the first atom was teleported in 2017. ([Link]

2024 Best Transportation Management System (TMS) Software Packages

Managed transportation services continue to be the #1 topic we talk with shippers about as they look
to optimize their supply chain performance against the challenging backdrop of rising freight rates,
tight truck capacity, along with changing and more challenging customer requirements.

As we work our way through the discussion of Managed TMS, we invariably are asked what we
believe are the best transportation management software (TMS) platforms in the industry.

To help buyers through their TMS selection process of upgrading their supply chain technology, we
want to be as transparent and upfront as possible on the other TMS software options so they can
work through what system will be the best fit for them because there is not a one size fits all answer
on the topic.

With that said, let’s go through the list and then have a short discussion on how to assemble a
requirements document.

Best Transportation Management Systems (TMS)

3Gtms
Headquarters: Shelton, Connecticut

Website: [Link]

Cloud-based provider of end-to-end TL, LTL, and parcel capabilities for omnichannel shippers, e-
commerce companies, 3PLs, and freight brokers. The solution performs order management, freight
planning, carrier rating, execution, and settlement from a single screen for easier management of
complex shipping. The software is used in North America and internationally with a relatively low
TCO.

e2open
Headquarters: Austin, Texas

Website: [Link]

Summary: Plan, procure, execute, track and settle shipments with e2open's transportation
management system (TMS) for all modes and regions - domestic and international logistics for
shippers, freight forwarders, carriers, and logistics service providers (LSPs).

Descartes
Headquarters: Waterloo, Canada

Website: [Link]

Summary: Offers a stand-alone TMS and managed TM services. Robust capabilities with both
domestic and international capabilities for shippers and 3PLs supporting all freight modes. TCO is
relatively competitive.
Blue YonderBlue-
Headquarters: Scottsdale, Arizona

Website: [Link]

Summary: Largest independent SCM suite vendor. Robust platform for large complex shippers and
third party logistics companies. Handles global supply chain requirements. Total cost of ownership
(TCO) is high in comparison to other TMS platforms.

Manhattan

Headquarters: Atlanta, Georgia

Website: [Link]

Strong history going back almost three decades. TMS comes out of the box with integrations
into the Manhattan supply chain applications. Sold more as an add-on to their WMS. TCO is
relatively high.

MercuryGate

Headquarters: Cary, North Carolina

Website: [Link]

Summary: Customer base primarily North American oriented. A robust platform that supports
domestic and international modes of freight for companies of all sizes. Continues to add to its
capabilities. Cost of ownership is competitive. Buyers need to be aware of the flexibility and
maximize it versus custom coding. TMS supports 3PL, broker, shipper and private fleet
companies.
Oracle

Headquarters: Redwood Shores, California

Website: [Link]

Summary: Robust platform for large complex shippers and third party logistics companies,
although working its way into medium sized shippers and 3PL’s. Handles global supply chain
requirements very well. TCO is high in comparison to other TMS platforms.

SAP

Headquarters: Walldorf, Germany

Website: [Link]

Summary: Robust platform that has integration with its ERP and SCM product software.
Robust platform for medium and large complex shippers and 3PL’s. Handles global supply
chain requirements well. Partners with Descartes for some of its functionality with carrier
communication. TCO is high versus the various TMS platforms.

TMC - A Division of C.H. Robinson

Headquarters: Eden Prairie, Minnesota

Website: [Link]

Summary: TMS and TMC came about through building the software to support its brokerage
division. Robust TMS with plenty of capabilities to support all modes of domestic and
international freight. Both a standalone TMS and managed TM solution, although more
known for its strong managed TM service. Pricing can be confusing for standalone TMS
users, so ask the questions and vet thoroughly. Focused on medium to large shippers. TCO
is relatively mid to high range.

Trimble

Headquarters: Minnetonka, Minnesota

Website: [Link]

Summary: Robust TMS with an ability to support non-asset and internal fleet for shippers and
3PLs, although tend to find the solution more in carriers and brokers. Primarily North
American domestic focused.

Uber Freight TMS (formerly Transplace)

Headquarters: San Francisco, California

Website: [Link]

More known for their managed TM option, but moving quickly sell their TMS as a standalone
platform. North American focused with domestic and international capabilities, although
international is through a partnership. TCO is reported to be relatively competitive. Medium to
large shipper customer base. (Lagore, 2023)

What is transportation cost? What Are Its Types & How to Calculate It?

In the interconnected world of commerce, transportation is the backbone that keeps goods flowing
from point A to point B. However, behind this essential process lies a complex landscape of
transportation costs that can significantly impact businesses and consumers alike. In our blog,
"Demystifying Transportation Costs: Navigating the Financial Highway," we embark on a journey to
unravel the factors contributing to transportation expenses. From fuel prices and distance to carrier
rates and additional cost components, we explore the key elements that shape transportation costs
and provide insights into optimizing expenditure.

What Are Transportation Costs?

Transportation cost refers to the expenses incurred in the process of moving goods, services, or
people from one location to another. It encompasses various factors and expenditures associated
with transportation, including fuel costs, carrier rates, mode of transportation, distance, warehousing,
customs fees, insurance, and other related expenses. Transportation costs are a significant
component of supply chain management and logistics, impacting the profitability of businesses and
the pricing of goods and services. Effective management and optimization is essential for businesses
to ensure efficient operations, meet customer demands, and maintain competitive pricing.

Types of Transportation Costs

They can be categorized into several types based on different aspects of the transportation process.
Here are the key types:

Direct Transportation Costs: These costs directly relate to the physical movement of goods from one
location to another. They include expenses associated with fuel, vehicle maintenance, driver wages,
tolls, and any fees charged by transportation providers.

Freight Charges: Freight charges are the costs charged by carriers or logistics providers for
transporting goods. These charges are typically based on factors such as the weight, volume,
distance, and mode of transportation (e.g., truck, rail, air, or sea). Freight charges may also include
additional services like insurance, tracking, or specialized handling.

Packaging Costs: Packaging costs refer to the expenses associated with packaging materials, such
as boxes, crates, pallets, and protective materials. Proper packaging ensures the safety and integrity
of goods during transportation, but it can add to the overall transportation costs.

Warehousing and Storage Costs: Warehousing and storage costs include expenses associated with
storing goods before or after transportation. This includes rent or lease for warehouse space, labor
costs for handling and inventory management, security measures, and any additional services
required, such as temperature-controlled storage.

Customs and Duties: For international transportation, customs and duties costs come into play.
These costs encompass import and export duties, customs clearance fees, taxes, and any other
charges levied by customs authorities. Complying with customs regulations and fulfilling
documentation requirements can incur additional expenses.

Insurance Costs: Insurance costs cover the protection of goods during transportation against loss,
damage, theft, or other risks. Businesses may opt for cargo insurance or liability insurance to mitigate
potential financial losses associated with transportation-related incidents.

Administrative and Documentation Costs: Administrative and documentation costs include expenses
related to paperwork, documentation, and compliance with regulatory requirements. This can involve
costs associated with preparing shipping documents, permits, customs declarations, and any
administrative processes involved in transportation operations.

Inventory Carrying Costs: While not directly transportation costs, inventory carrying costs are relevant
as they are influenced by transportation lead times. These costs include expenses associated with
holding inventory, such as storage costs, depreciation, obsolescence, insurance, and financing
charges. Efficient transportation helps minimize lead times and reduce inventory carrying costs.

How to Calculate Transportation Costs?

The calculation involves considering various factors and variables specific to your business and
transportation needs. While the exact calculations may differ based on your circumstances, here is a
general approach to calculate them:

Identify Cost Components: Begin by identifying the key cost components involved in transportation.
This may include fuel costs, vehicle maintenance expenses, driver wages, freight charges, packaging
costs, warehousing costs, insurance costs, customs and duties, administrative costs, and any other
relevant expenses.

Gather Data: Collect the necessary data related to each cost component. This may involve reviewing
invoices, receipts, transportation contracts, carrier rates, fuel consumption records, maintenance logs,
labor costs, and any other relevant documentation.

Determine Quantity and Frequency: Assess the quantity and frequency of shipments you need to
transport within a given timeframe. This includes the number of shipments, the weight or volume of
each shipment, the distance traveled, and the mode of transportation used (e.g., truck, rail, air, or
sea).

Calculate Direct Transportation Costs: Calculate the direct transportation costs associated with fuel,
vehicle maintenance, driver wages, tolls, and any fees charged by transportation providers. This can
be done by estimating the fuel consumption and mileage for each shipment and multiplying it by the
applicable fuel costs and vehicle maintenance expenses. Consider the wages of drivers involved in
the transportation process and any additional fees or charges imposed by carriers or logistics
providers.

Calculate Freight Charges: Determine the freight charges based on the rates provided by carriers or
logistics providers. Consider factors such as shipment weight, volume, distance, mode of
transportation, and any additional services required (e.g., insurance, tracking, or specialized
handling). Multiply the applicable rates by the relevant variables to calculate the freight charges for
each shipment.

Include Other Cost Components: Factor in other cost components, such as packaging costs,
warehousing costs, insurance costs, customs and duties, administrative costs, and any other relevant
expenses. Calculate these costs based on actual or estimated values, depending on the information
available.

Summarize and Analyze: Sum up all the individual cost components to obtain the total transportation
costs. Analyze the cost breakdown to identify areas of high expenditure and potential areas for cost
optimization.

Factors That Affect Transportation Cost

There are several factors that influence and vary depending on the mode of transportation, distance,
shipment characteristics, market conditions, and other variables. Here are some key affecting factors:
Mode of Transportation: The choice of transportation mode, such as truck, rail, air, or sea,
significantly impacts costs. Each mode has its own cost structure based on factors like fuel
consumption, infrastructure requirements, labor costs, equipment availability, and transit times.

Distance: The distance to be covered plays a crucial role in determining transportation costs.
Generally, longer distances require more fuel, time, and resources, leading to higher costs.
Additionally, the type of transportation mode selected can influence cost variations over different
distances.

Shipment Volume and Weight: The volume and weight of the shipment directly impact transportation
costs. Heavier or bulkier shipments may incur higher charges due to increased fuel consumption, the
need for specialized handling equipment, or limitations on capacity.

Packaging and Dimensional Considerations: The size, shape, and packaging of the shipment can
influence transportation costs. Oversized or irregularly shaped items may require special handling or
may occupy more space, impacting costs based on factors like space utilization and dimensional
weight calculations.

Freight Class or Classification: For certain modes of transportation, such as trucking, shipments are
assigned freight classes based on factors like density, value, and handling requirements. Freight
class determines the rates and charges applied to the shipment, affecting transportation costs.

Fuel Prices: Fuel prices have a significant impact on transportation costs. Fluctuations in oil prices
can directly influence fuel surcharges or impact the overall rates provided by carriers, leading to cost
variations.

Carrier Rates and Contracts: The rates offered by carriers or logistics providers depend on various
factors, including market competition, demand, capacity, distance, service levels, and contractual
agreements. Negotiated contracts, volume discounts, and long-term relationships with carriers can
influence transportation costs.

Seasonal or Peak Periods: Seasonal fluctuations, holidays, or specific peak periods can affect
transportation costs. Increased demand during peak seasons may lead to capacity constraints, higher
rates, or surcharges imposed by carriers.

Geographical Factors: Geographical considerations such as terrain, road conditions, accessibility,

and distance from transportation hubs can impact transportation costs. Remote or hard-to-reach
locations may incur additional expenses due to limited infrastructure, longer travel times, or the need
for specialized transportation services.

Regulatory and Compliance Costs: Compliance with regulations and requirements imposed by
authorities or international trade agreements can add to transportation costs. Examples include
customs duties, taxes, permits, security measures, and documentation processes.
The Hidden Costs of Last Mile

Hidden last-mile transportation costs refer to the additional expenses incurred during the final leg of
the delivery process, from a distribution center or transportation hub to the end customer's location.
These costs are often overlooked but can significantly impact the overall transportation expenses.
Here are some hidden last-mile costs and how FarEye can help reduce them:

Route Inefficiencies: Inefficient routing can lead to unnecessary mileage, fuel consumption, and time
wastage. FarEye's last-mile delivery software optimizes routes in real-time, considering factors like
traffic conditions, delivery time windows, and vehicle capacity. By minimizing route inefficiencies,
businesses can reduce fuel costs and improve overall operational efficiency.

Failed Deliveries and Returns: Failed deliveries, missed time windows, or unsuccessful delivery
attempts can result in additional costs. FarEye provides real-time visibility and alerts, allowing
businesses to proactively manage exceptions and optimize delivery schedules. By minimizing failed
deliveries and returns, businesses can save on transportation costs associated with reattempts and
reverse logistics.

Manual Processes and Administrative Overhead: Manual processes, such as order assignment, route
planning, and proof of delivery, can be time-consuming and error-prone. FarEye automates these
processes, eliminating paperwork and reducing administrative overhead. By streamlining workflows
and reducing manual intervention, businesses can improve productivity and save on labor costs.

Customer Communication and Support: Providing timely and accurate communication to customers
about their deliveries can be challenging and resource-intensive. FarEye's software enables
automated customer notifications, real-time tracking, and self-service options, reducing the need for
manual customer support. This streamlines communication and enhances the customer experience
while reducing the costs associated with customer inquiries and support.

Urban Logistics Challenges: Last-mile delivery in urban areas presents unique challenges, such as
congestion, limited parking, and complex navigation. FarEye's software offers intelligent route
optimization that considers these factors and identifies the most efficient delivery paths. By reducing
time spent in traffic and optimizing parking, businesses can lower transportation costs in urban areas.

Dynamic Workforce Management: Managing a flexible workforce for last-mile deliveries can be
complex and costly. FarEye's software enables efficient workforce management by assigning tasks,
tracking performance, and optimizing work schedules. By optimizing workforce utilization, businesses
can reduce labor costs and improve delivery efficiency.

Asset Utilization: Efficiently utilizing delivery vehicles and assets is crucial for cost reduction. FarEye's
software enables better asset management by optimizing capacity utilization and load balancing. By
maximizing vehicle capacity and reducing empty miles, businesses can lower transportation costs
and improve resource utilization. ( Puri, 2023)

Value-of-Service Pricing

Value-of-service pricing is a pricing strategy where the price of a product or service is based on the
value that the company providing the product or service believes it provides to the customer. This
type of pricing is often used in the logistics industry, where companies charge according to the value
of the goods being transported.

Value-of-service pricing can be seen as a form of third-degree price discrimination, where prices are
set based on the different levels of willingness to pay among different groups of consumers.

Unlike first- and second-degree price discrimination, which aims to maximize revenue by charging
each consumer according to their individual willingness to pay, value-of-service pricing seeks to
match prices to the perceived value of the product or service.

This type of pricing is sometimes also referred to as demand-oriented pricing, as it takes into account
the different levels of demand for the product or service among different groups of consumers. By
matching prices to perceived value, companies using value-of-service pricing hope to increase
satisfaction among their customers, which may lead to repeat business and higher profits in the long
run.

Value-of-service pricing can be a controversial strategy, as it can be seen as a way of exploiting

consumers by charging them more than they would be willing to pay if they had full information about
the product or service. Critics also argue that this type of pricing creates a two-tier system, where
those who are willing and able to pay more for a product or service receive better quality and service
than those who are not. However, many companies still choose to use value-of-service pricing as
they believe it provides them with a competitive advantage over other businesses.

Whether you agree or disagree with the practice of value-of-service pricing in logistics, there is no
doubt that it continues to be an important part of how many companies set their prices today. As
such, understanding the principles behind this type of pricing strategy can be an important tool for
both producers and consumers alike.( scmedu)

Rate making

Rate making, or insurance pricing, is the determination of rates charged by insurance companies.
The benefit of rate making is to ensure insurance companies are setting fair and adequate premiums
given the competitive nature.

Fundamental rate-making definitions

The following are fundamental terms that are commonly used in rate making. A rate "is the price per
unit of insurance for each exposure unit, which is the unit of measurement used in insurance pricing".
The exposure unit is used to establish insurance premiums by examining parallel groups.[1]

The pure premium "refers to that portion of that rate needed to pay losses and loss-adjustment
expenses". The loading "refers to the amount of the premium necessary to cover other expenses,
particularly sales expenses, and to allow for a profit". The gross rate "is the pure premium and the
loading per exposure unit". Finally, the gross premium is the premium paid by the insured consisting
of the gross rate multiplied by the number of exposure units.[2]

Objectives in rate making

Rate making has several objectives under regulatory requirements regulated by the states and
business objectives due to the goal of profitability:[1] The goal of insurance regulation is to protect the
public and three regulatory objectives are placed to meet certain standards:

The first regulatory requirement is that rates must be adequate; meaning the rates the insurers
charge should be able to cover expenses.
The second regulatory requirement is that rates must not be excessive; meaning rates should not be
so high that policyholders are paying more than the actual value of their protection.

The third regulatory objective is the rates must not be unfairly discriminatory; meaning exposures that
are similar with respect to losses and expenses should not be charged significantly different rates.

The business objectives are set as a guide for insurers while designing the rating system. The rating
system should meet each of the four objectives:[1]

For producers to be able to quote premiums with a minimum amount of their time and expense, the
rating system should be easy to understand.

To maintain customer satisfaction, the rates should remain stable over short periods of time. The
rapid change of rates could lead to customer dissatisfaction.

To meet the objective of rate adequacy, the rates should be responsive over time in comparison with
changing economic conditions and loss exposures.

Finally, to reduce the frequency and severity of losses, the rating system should encourage loss
control activities. Loss control is important in insurance because it tends to keep insurance affordable.

Rate making methods

In property and casualty insurance, there are three basic rate-making methods:

Judgment Rating is used when the factors that determine potential losses are varied and cannot
easily be quantified.[2] There are no statistics regarding quantity of future losses and probability. This
means an underwriter rates each exposure individually.

The second rate making method is class rating, or manual rating. This rating means that exposures
with similar characteristics are placed in the same underwriting class, and each is charged the same
rate. The advantage of class rating lies with its easy application and ability to quickly be obtained.[1]

The third rate making method is merit rating. This rating means a plan which class rates, or manual
rates are adjusted upward or downward based on individual loss experience. Merit rating is based on
the assumption of loss experience will differ substantially from other loss experiences.

Rate making in life insurance

Life insurance actuaries determine the probability of death in any given year, and based on this
probability determine the expected value of the loss payment. These expected future payment are
discounted back to the start of the coverage period and summed to determine the net single
premium. The net single premium may be leveled to convert to installment premiums. A loading for
expenses is added to determine the gross premium.[1] With determining life expectancy, age is the
most important factor, other significant factors are sex of the individual and smoking. Thus, an actuary
can reasonably estimate the average age of death for a group of 25-year-old males, who don't
smoke.[2] ( Wikipedia)

Pricing in Transportation Management

Why is transport pricing needed?

Good accessibility is a prerequisite for modern societies since it enables specialization of production,
labor markets, and lifestyles. Increasing demand for specialization and hence for high accessibility
drives the long-lasting trends of increasing urbanization and increasing transport volumes, which
have shaped transport and location patterns since the beginning of industrialization. Specialization is
a fundamental source of both well-being and economic development and a hallmark of modern
societies. There are hence good reasons to expect that both urbanization and transport volumes will
continue to increase. However, both trends also contribute to increasing the drawbacks of
transportation: congestion, air quality problems, noise, carbon emissions, and so on (Heyer et al.,
2020; Qu and Wang, 2021).

Reaching a balance between the benefits and costs of transportation lies at the heart of transport
planning. While there is a lot of potential to increase the efficiency of the transport system through
digitalization (Gao et al., 2021; Xu et al., 2021), smart traffic control (Bie et al., 2020), optimization of
transport services (Daganzo et al., 2020), and improved infrastructure (Seki et al., 2018), the
fundamental tradeoffs between societal benefits and costs of transportation will remain.

The theoretical case for pricing transport is hence clear and well understood. Different externalities
call for different kinds of pricing instruments, targeting various externalities as precisely as possible.
For example, congestion pricing and parking pricing need to vary with time and place, while carbon
taxes on fossil fuels are simple add-ons to the fuel price. This is intuitively clear but worth stressing,
since it is not uncommon that confusing debates arise when pricing of different externalities are mixed
up. For example, a carbon tax on fuel will not have much impact on congestion, while a congestion
charge will not have much impact on total carbon emissions, because these pricing instruments need
to be designed in different ways. But surprisingly often, a single transport pricing instrument is
supposed or imagined to be a panacea – congestion pricing is supposed to be effective against
carbon emissions or vice versa – leading to confused debates and inefficiently designed pricing
policies.

In theory, this means that optimal transport pricing becomes immensely complex – but this is not
necessary in practice. Adding even rough approximations of the external social costs can often
deliver substantial net benefits. This is especially relevant for externalities that increase faster than
proportional to traffic volumes, such as road congestion and transit crowding. Moreover, the technical
possibilities to measure and price externalities precisely are now better than ever.

Despite this, efficient transport pricing is still rare. While some pricing instruments are relatively
common (such as fuel taxes and parking charges), they are rarely efficiently designed, and receive
much less attention from planners and decision makers than physical infrastructure investments get.
Other pricing instruments are still rare, for example, instruments that target air quality, noise,
accidents, and in particular, road congestion. There are examples of successful such instruments, but
this makes the general lack of efficient pricing even more puzzling: given the successful examples,
why have not more other cities and countries followed? My attempts at an answer to this question –
the main obstacles for efficient transport pricing – is presented in the last section of this paper.

What are the main obstacles?

Despite available technology and overwhelming evidence that congestion pricing works, the political
case for congestion pricing remains difficult. Based on both successful and failed attempts at
introduction, there seems to be two main obstacles.

First and most important by far: introducing new pricing instruments and revenue sources inevitably
leads to political power struggles between government levels, for example between city, regional and
national levels. Responsibility for the transport system is usually divided between different
government levels, and the levels often compete for revenues, power, and political credit (and
blame). For many politicians, the main obstacle is not so much the lack of public support but
uncertainties regarding political power – power over revenues, scheme design and exemptions. In
addition, introducing congestion pricing (and especially the resultant toll revenue stream) may upset
the delicate negotiations about financing responsibilities and allocation of funding between different
levels of government. An attempt at introducing congestion pricing must address all these questions
and ensure that there is sufficient political support on all political levels, and that responsibilities,
decision power and political credit and blame are aligned. Otherwise, it is highly unlikely that the
proposal will survive a drawn-out political process. Disagreements and failed negotiations between
political levels have put an end to congestion pricing proposals in many places, most visibly in
Copenhagen and New York, and less visibly in several cities where the idea has not even put forward
public for the reasons explained above. In all cities where congestion has been successfully
introduced, agreements between city, regional and national levels about revenues and design
decisions have been instrumental for achieving political acceptability.

Second, it is easier to identify the losers from congestion pricing than the winners. Losers are usually
easy to identify and organize in self-interested pressure groups. Winners tend to be more dispersed,
and perhaps only exist in the future, or may not realize that they will win ex ante. The other side of the
coin is that there are usually more winners than losers, which may sound as a favorable political
situation – but in fact, this is the case, since winners may not care enough to let the issue affect how
they vote, while losers may feel that it the decisive issue in an election. In addition, loss aversion and
status quo bias are hard-wired in human nature. Before introduction, the potential losses of paying
charges and having to adjust loom larger than the potential gains of travel time in the minds of voters
and decision makers. Even those who would not be directly affected tend to be subject to status quo
bias. This makes it difficult to build enough public and political support ex ante. Even if that can be
done, it needs to be maintained during the several years it takes to go from idea to implementation,
which can be extraordinary difficult in an unstable political landscape.

In the cities where congestion pricing has been successfully introduced, it is often because of an
alliance between three groups: traffic planners wanting the efficiency gains, environmentalists
wanting the environmental benefits and politicians looking for a revenue source. When this works it
can indeed be a powerful political strategy. However, congestion charges in the hands of politicians
merely looking for revenues is a dangerous tool. One of the most insightful (albeit a little cynical)
arguments against congestion pricing is that it is dangerous to open up a new source of tax revenues
which may be perceived as “free money” by politicians – especially if a large share of traffic comes
from other constituencies. There are clearly incentives for politicians to over-charge drivers from other
constituencies, and to over-spend tax money in the present by borrowing money against future toll
revenues, in essence catering to voters today and leaving the bill to future car drivers. Institutional
frameworks which enforce fiscal discipline and prevent tax exporting are virtually necessary.

Still, congestion pricing deserves to be used much more than it is. It has the potential to bring huge
social benefits at a comparatively low cost, and can also have desirable long-term consequences on
urban structure and overall travel patterns. The technology is available, there is experience and
evidence of how charges should be designed, and as long as benefits are delivered and revenues are
not squandered, it is possible to build public support for it. More cities should dare to make the leap.
(Elliasson, 2021)

Transportation

-the movement of people or goods from one place to another:

(UK transport)

-a vehicle or system of vehicles, such as buses, trains, etc. for getting from one place to
another:

Guide to Inbound and Outbound Logistics: Processes, Differences and How to Optimize

Strong inbound and outbound logistics are crucial to the success of a business. These processes
affect production, profits and customer service. There are many challenges in getting logistics right,
and the costs of not perfecting these processes can be enormous. But putting the right controls in
place can help your business achieve success.

What Is Logistics?

Logistics coordinates the movement and storage of resources such as goods, equipment and
inventory. For manufacturers, logistics starts with the incoming supply of raw materials and carries
through to the delivery of finished products to customers.

For example, a logistics department would receive supplies, give components to a production line,
move finished goods to a distribution center, manage inventory and ship products to a customer.

Logistics teams are responsible for making sure each of these steps run smoothly, including
purchasing, accepting inbound delivery, storage, packaging, inventory management, shipping,
outbound transportation and delivery. Choreographing these processes gets complicated when
volume grows and there are multiple products to manage. Companies that use several distribution
channels and operate facilities in different locations face another layer of complexity.

In 2019, U.S. businesses spent $1.63 trillion on logistics, equal to about 7.6% of GDP. To generate
the best returns, a company needs to have the right supplies at the right place at the right time. Its
manufacturing line cannot run unless it has all the necessary materials to build its product or items to
distribute in the requested amounts. If the company does not have enough stock to fill an order, it
may lose a sale or make a customer unhappy by forcing them to wait for the item.

Role of Logistics

Logistics is the foundation of the supply chain and is vital to a company’s success. Well-organized
logistics can reduce expenses, save time, help meet customer demands and enhance a brand’s
reputation.

Effective logistics is key to managing the supply chain, the complex network of organizations,
individuals, activities and resources required to supply a service or product.

In 2019, the average company spent 11% of revenue on logistics, with transportation and inventory
accounting for about 72% of that spending.

What Is the Difference Between Inbound and Outbound Logistics?

Inbound logistics brings supplies or materials into a business, while outbound logistics deals with
moving goods and products out to customers. Both focus heavily on the transporting of goods. But
inbound is all about receiving, while outbound focuses on delivery.

What Is Inbound Logistics?

Inbound logistics is the way materials and other goods are brought into a company. This process
includes the steps to order, receive, store, transport and manage incoming supplies. Inbound logistics
focuses on the supply part of the supply-demand equation.

Inbound Logistics Activities

 Sourcing and procurement: Identifying and evaluating potential suppliers, obtaining price
quotes, negotiating with and managing suppliers.
 Ordering/purchasing: Buying the goods and materials the company needs so the right quantity
arrives at the right time.
  Transportation: Deciding whether to use a truck, airplane, train or another method to move
goods. This activity also involves selecting delivery speed for incoming supplies, contracting
with third-party carriers and working with vendors on price and route.
 Receiving: Handling the arrival of new materials, unloading trucks and ensuring they match the
order.
 Material handling: Moving the received goods short distances within the facility and staging
them for later use.
 Putaway: Moving goods from the receiving dock to storage. Staff puts everything away in
assigned locations.
 Storing and warehousing: Managing the materials before they go to manufacturing or customer
fulfillment. This department is responsible for making sure items are placed in logical locations
for fulfillment and the right storage conditions are met.
 Inventory management: Deciding the type and amount of raw materials/items you should store
and where to locate them. Read the inventory management guide to learn more.
 Expediting: Managing the progress of and schedule for materials as they make their way to
your facility.
 Distribution: Sending supplies to their destination inside the business.
 Tracking: Checking on details about incoming orders, such as their location and documents
like receipts.
 Reverse logistics: Bringing goods back from customers for reasons such as returns, defects,
delivery problems, repair and refurbishment. Also, recycling and salvage firms that work with
used materials obtain their supply through reverse logistics.

How a company approaches inbound logistics varies depending on incoming goods, the industry and
the buyer-seller relationship. The company may handle its own inbound logistics or outsource it.

Challenges of Inbound Logistics

The primary challenges of inbound logistics are high costs, uncertain delivery dates and
unpredictable lead times. These make it hard for businesses to maintain ideal inventory levels and
improve warehouse efficiency and productivity.

Here are some specific inbound logistics challenges in more detail:

 Inbound shipping inefficiencies: Some companies spend too much of their budget on shipping.
To cut costs, you need to negotiate preferred rates with fewer carriers and consolidate inbound
shipments to make full truckloads. You can also set vendor inbound compliance standards
(VICS) on price and service. Analytics can help you identify any waste of time or money.
 Information vacuum: One frequent challenge is not knowing the exact location of a shipment,
when it will arrive and how much it will cost. This lack of knowledge causes some companies
to carry extra inventory, make purchases too early and suffer delays in production and
customer deliveries. Real-time information systems allow a company to track and trace
shipments and communicate with suppliers to make sure accurate data is captured when
entering materials.
 Surges in deliveries and receiving: Without proper planning, businesses can end up juggling
too many deliveries simultaneously. As a result, their yards become clogged with trucks,
causing confusion among drivers about which dock to use. Peaks and lulls in deliveries makes
it hard to effectively staff receiving personnel, as well. A weak receiving process leads to errors
and a backup of materials. Solutions include scheduling arrivals, routing deliveries to specific
docks and maintaining a consistent pace throughout the day. Warehouse management
software (WMS) can help with logistics. Another technique is cross-docking, where the
receiving department matches incoming inventory to open orders. When workers unload
products, they move them directly to another dock to load onto an outbound truck, without ever
storing them.
 Processing returns: Returns processing is an afterthought for some companies, leading to lost
sales when stock is not put back into inventory quickly. Inaccurate inventory counts and
reduced customer satisfaction are additional problems. Create clear, efficient processes for
returns and communicate the importance of returns management to staff to combat this issue.
 Supplier reliability: A company needs dependable suppliers that offer competitive pricing and
quality. However, reliable suppliers can be difficult to find and keep. To make this easier, try
steps such as:
  Build long-term relationships
 Pay suppliers on time
 Negotiate as necessary to make sure contracts align with your business goals
 Check supplier quality certifications
 Evaluate supplier risks such as political climate, weather and labor relations
 Forecast your growth patterns and pick suppliers that can scale
 Check supplier lead time and on-time delivery rate
 Assess their customer service
 Consistently evaluate alternative suppliers

 Balancing supply and demand: Ensuring there are enough incoming supplies to meet
customer demand can be difficult due to seasonality, competitive influences, economic
conditions, pricing volatility in raw materials, fluctuations in selling cycles and more. The best
way to balance supply and demand is through data. Software can compare incoming inventory
to your order pipeline. It can also monitor the status and location of inbound deliveries, predict
demand based on historical patterns, find opportunities to consolidate purchases and more.

How to Optimize Your Inbound Logistics?

Optimizing inbound logistics means making the operation faster, leaner, more cost-efficient and more
agile. Assess every process, identify strengths and weaknesses, and then make improvements.

1. Model your current process and measure performance.

Look for inefficiencies related to cost, waste, quality loss, duplicate work, information gaps and
delays. The presence of invisible or intangible costs in inbound logistics, such as inventory carrying
costs and the impact of poor customer service, can complicate matters. Compare your operation to
industry benchmarks and competitors.

2. Analyze your choices.

Understand how your decisions affect cost and efficiency. For example, if the procurement
department makes purchases in large quantities to receive volume discounts, are those savings
offset by the expense of holding and managing excess inventory? The major cost drivers for inbound
logistics are purchasing, supplier management, transportation, receiving, warehousing, material
handling and inventory management.

3. Develop strategies to address inefficiencies system-wide.

Account for trade-offs among activities. Investing in automation and analytics will enable more data-
driven decision-making.

Some of the most widely recommended actions to optimize inbound logistics include:

1) Build strong relationships with suppliers: Strong supplier partnerships can yield benefits such
as better terms, reduced lead time, cost savings and a sense of security during market
[Link] this relationship helps your supplier understand your business better. A
supplier compliance plan explains your requirements and penalties for mistakes such as late
delivery or not following route guidelines. Such a program can reduce freight and warehouse
costs, improve speed and accuracy, and increase customer satisfaction.
2) Use a transportation management system (TMS): This software automates, manages and
optimizes freight operations. A TMS compares shipping quotes and service levels among
carriers, schedules the shipment and tracks it through delivery. These details help a company
reduce costs, increase efficiency and gain full visibility into its supply chain.
3) Use a warehouse management system (WMS): WMS software optimizes warehouse
operations by streamlining receiving, putaway, inventory management, picking and more.
4) Combine deliveries: Less-than-truckload (LTL) shipments have higher shipping costs and
longer receiving times. Sometimes there are barriers to consolidating shipments, such as
different handling needs (some goods need refrigeration, for example). If a business struggles
to make full truckloads, a third-party logistics provider (3PL) can combine its partial loads with
those of other customers.
What Is Outbound Logistics?

Outbound logistics focuses on the demand side of the supply-demand equation. The process involves
storing and moving goods to the customer or end user. The steps include order fulfillment, packing,
shipping, delivery and customer service related to delivery.

Outbound Logistics Activities

 Warehouse and Storage Management: A company keeps a certain quantity of goods on hand
to meet demand. Outbound logistics processes store these goods securely in the right
conditions and organize them. Inbound and outbound logistics overlap in warehouse
management. But outbound logistics deals with outgoing finished products. For companies that
sell finished products they receive from suppliers, inbound logistics concentrates on product
acquisition and outbound logistics fulfills orders sent straight to customers and distributes the
products to retail outlets.
 Inventory Management: Software often plays a central role in inventory management, a
process that determines the best place to store goods in the warehouse for fast order
fulfillment and the order picking and packing operation. Inventory management goals include
inventory and order accuracy as well as maintaining product quality by preventing damage,
theft, obsolescence or spoilage.
 Transportation: The modes and methods of shipping products vary depending on the type of
goods. For example, huge items like heavy machinery may ship in small order quantities by
truck. Perishable items like fresh flowers may need to be transported by plane in refrigerated
containers.

 Delivery: On-time delivery is critical to success. Moreover, the customer’s order must have the
correct items and quantities, and the package can’t get lost or damaged in transit. Outbound
logistics takes responsibility for this step.
 Distribution Channels: The ways your product reaches the customer, called distribution
channels, affect how you organize outbound logistics. Distribution channels can be broadly
categorized into direct (when you sell directly to your customers) and indirect (when you sell
through an intermediary such as a wholesaler or retailer). There are many distribution
methods, including direct to consumer, value-added resellers, dealer networks, dual-
distribution, omnichannel and drop shipping. When choosing distribution channels, consider
logistics complexity, cost, speed, quality, customer satisfaction and control.

 Last-mile Delivery: The final step in

an order’s journey covers the last shipping leg and delivery. The last mile is usually the most
costly and inefficient part of delivery. The term comes from the early days of telephone service,
when wiring homes to the mainline was slow and expensive. Last-mile logistics includes
services such as home grocery delivery from a local store and package delivery by a common
carrier. Before the last mile, shippers can handle lots of orders at the same time in the same
way (for example, they can load dozens of orders going to the same city in one truck). But in
the last mile, each delivery requires individual handling because it goes to a single address.
Deliveries to addresses get spread over a suburban region or packed within a gridlocked city
center where parking is difficult—last-mile services account for 41% of overall supply chain
costs.
  Delivery Optimization: Optimizing delivery involves not only reducing costs but meeting ever-
increasing customer expectations for speed and visibility. Often, these two things go hand-in-
hand. Route planning software groups orders more efficiently for delivery, sorts packages by
route, plots the best course with an eye to traffic, fuel consumption and other variables, and
assigns routes to drivers.

Challenges of Outbound Logistics and How to Overcome Them

Outbound logistics challenges can hurt profits and customer satisfaction. Inventory and shipping
costs can rise quickly, while incorrect or late orders will drive customers away.

These are some specific outbound logistics challenges:

 Coordinating Operations: Outbound logistics teams must monitor production, storage and
distribution—coordinating the optimal movement of goods is no small task. If production rises,
the logistics team needs to free up more warehouse space, and as production increases to
meet customer demand, shipping and delivery need to scale. Software and automation can
help close the information loop by connecting production to storage capacity and demand.
 Achieving the Seven Rs: Coined by John J. Coyle, professor emeritus of logistics and supply
chain management at Penn State University, the seven Rs are: getting the right product, to the
right customer, in the right quantity, in the right condition, at the right place, the right time and
at the right cost. Consistently hitting these targets requires an integrated management process
that uses data to assess performance, identify areas of weakness, and track and foster
continuous improvement.
 Inventory Costs: Keeping enough inventory to meet fluctuating customer demand without
creating unnecessary holding costs requires careful planning. Keeping a close eye on
inventory planning metrics such as sell-through rate and inventory turnover and tracking
numbers like safety stock and shifts in demand is important. See the comprehensive list of
inventory management metrics for a list of key formulas.
 Transportation Costs: A major cost for outbound logistics is transportation. Companies can
control costs by analyzing past spending to spot inefficiencies. Try exploring different
strategies such as dynamic pricing, volume discounts with carriers, opening up bidding for your
products/services and looking at freight marketplaces.
 Rising Customer Expectations: Consumer demands continue to climb, and free, fast delivery is
now the expectation. Same-day and even two-hour delivery are the norms in some regions
and industries. Customers want real-time visibility into the status of their orders and to be able
to track them on a map. To meet this trend, logistics teams need to understand the role of
delivery as a competitive differentiator and the lasting effect of a poor customer delivery
experience.

How to Optimize Your Outbound Logistics

To optimize outbound logistics, put effort into relationships and negotiations. Use technology to figure out
delivery networks, plan routes, organize schedules and, ultimately, keep costs down.

1. Understand when fast delivery starts.

To meet carrier requirements for fast shipping, you may need to set up product staging at distribution
centers, sort shipments according to distribution center guidelines and tailor packaging to meet their
requirements. In some industries, like wholesale food supply, a distribution center may employ a lumper
service, which uses third-party workers to load or unload trailers. The aim is to speed up turnaround
and let the truck driver rest and depart faster. You need to know whether the distribution center will use
lumping so you can account for these extra costs.
2. Adapt to current inventory strategies.
Just-in-time (JIT) inventory and other rapid replenishment methods mean that large orders delivered to
customers at widely spaced intervals are no longer the norm. Most customers using JIT will not have
room to store a lot of excess product, so you need to adapt your outbound logistics to mesh with these
inventory trends. You may need to account for more LTL orders.
 3. Build and improve partner relationships.
Work closely with key partners in outbound logistics, including your customers and freight providers.
Depending on your industry, you may sell to major retailers that have deep insights into their complex
supply chains. With the right relationship, they may share data on how your product is selling so you
can fine-tune your production, order fulfillment and shipping. By working closely with freight carriers,
you can learn if dividing your business among just a few shippers gives you more control over price and
service level agreements.
4. Use smart route planning.
Automated route planning can reduce waiting and travel time for deliveries. The time savings can cut
fuel costs and boost customer satisfaction.
5. Investigate 3PL as an alternative.
For many companies, the cost and complexity of outbound logistics can make outsourcing to a 3PL a
smart move. The size of 3PLs gives them volume discounts and negotiating leverage, which can lead
to cost savings for you. 3PLs bring expertise, specialization and the opportunity to quickly scale your
operation up or down depending on business needs.

Inbound and Outbound Logistics as Part of Supply Chain Management (SCM)

Logistics is just one piece of supply chain management. Supply chain management manages all the links
among suppliers, producers, distributors and customers.

Other elements of supply chain management include manufacturing and delivery-related customer service.
Logistics helps synchronize the supply chain by controlling the flow of goods from the point of origin to the
point of consumption. Participants in the supply chain, like suppliers and buyers, find partnerships helpful. Two
firms work together for their mutual benefit. These partnerships are often open-ended, unlike strategic alliances
or project partnerships.

Supply chain partnerships require:

1. Frequent and open two-way communication

2. Cooperation on accurate, efficient order execution
3. Coordinated decision-making
4. Sharing of resources
5. Information and knowledge exchange
The most important partnerships include suppliers and vendors on the supply side. On the demand
side, the critical ties are among logistics providers, retailers, wholesalers, distributors and end
customers.

Suppliers may collaborate closely with important customers on product formulation, product size,
product mix, SKUs, inventory levels, supply forecasts, risk management, cost control, waste reduction
and ordering systems. The customer may want to work together with logistics providers on pacing,
packaging, scheduling and route efficiency.

Damage Liability in Logistics

Damage liability for goods lost and damaged while in transit or storage is one area of disputes in
logistics. Inventory represents a big cost for businesses, and buyers want protection against losses
while goods are in the supplier’s control. Suppliers also want to limit liability.
As a result, the contracts often state how to store and transport materials. Details cover temperature,
length of storage, shipping labels and other conditions. Contracts spell out needs for special handling,
such as protective packaging or having a particular end standing up. They also address if it is
acceptable to stack boxes or store goods underneath heavy items.

To prevent losses, the customer will ask the supplier to track the location of the goods and confirm
the correct quantity. If it’s feasible, the customer may want to double-check by visiting the supplier’s
warehouse and perform inbound quality inspection if it hasn’t been inspected before it leaves the
vendor. Some materials may not need to be inspected, such as low-cost and maintenance, repair &
operation supplies (MRO), but the quality department should provide the warehouse with instructions
for sampling, inspecting and rejecting failed materials.

The two sides use formulas for damage compensation based on actual value or a set amount per
pound. The supplier or customer may get insurance to cover this risk, and both parties may both
agree to share the risk by each obtaining partial insurance coverage.

Supply Chain Management vs. Logistics

Supply chain management looks collectively at multiple business activities to achieve a competitive
advantage. Logistics focuses on the flow of goods to meet customer needs.

Role of Logistics in Purchasing and Receiving

Purchasing/Selling Receiving/Shipping
Diagram showing the relationship between purchasing and selling and receiving and
shipping:

Purchasing → Brings materials into the business to meet its needs → Selling →
Moves goods out of the business, satisfying customer’s needs

Receiving → Accepts and handles incoming supply of raw materials or goods →

Shipping → Packages and transports outgoing product

Step-by-Step Inbound and Outbound Logistics Processes

Inbound and outbound logistics break down into many specific steps. Together, the steps help ensure
the smooth movement of goods and materials into and out of a business.

Steps in Inbound Logistics (Receiving)

1. Purchasing and Sourcing
The company finds vendors that provide the goods it needs, negotiates a price and buys the
materials.

2. Recording and Receipts

The company records the purchase order and receives a receipt once it makes payment.

3. Notification
When the supplier ships the materials, it electronically notifies the company and provides
tracking information for the shipment.

4. Load Arrival
The goods arrive at the company’s facility, pulling into the dock assigned by the business.

5. Receiving
Workers unload the incoming supplies, scan barcodes to count and identify the product. They
verify the quantity and condition against the purchase order and confirm acceptance. Goods
then move to their next location—manufacturing inventory at a factory, putaway at a
warehouse or a staging point for cross-docking.

6. Reverse Logistics
The receiving team handles products sent back from customers for returns and repair.

Steps in Outbound Logistics (Shipping)

 1. Customer Order
A customer places an order through one of the channels where a company sells its offerings.

2. Order Processing
The company validates the order, receives the requested quantity and products from inventory
and produces documentation.

3. Replenishment
Reserve inventory moves to primary storage, replacing the purchased product. This process
may trigger the production of more goods or ordering of raw materials from suppliers to
maintain adequate inventory levels.

4. Picking
Warehouse workers pick products from storage to fulfill the order.

5. Packing, Staging and Loading

Staff packages, labels and documents the order according to internal and customer needs.
Workers sort orders according to shipping mode, delivery speed or destination. The team
loads the orders onto outgoing trucks.

6. Shipping and Documenting

The order leaves the warehouse for distribution centers or partners. The company’s system
logs the shipment and sends the customer tracking details.

7. Last Mile Delivery

The order is delivered from the distribution center to the customer. This can be the most
expensive—and most important—step.

Examples of Inbound and Outbound Logistics

Every business that makes a product or provides a service has to figure out how to manage logistics.
For example, a company that turns silicon into computer chips or a farmer who grows wheat from
seeds both use logistics to get goods to their customers.

Inbound Logistics Example

A company’s inbound and outbound logistics depend on what it is selling and its business model. An
example can show how these processes work. Here is how logistics work for an apparel
manufacturer called Sorina Designs.

1. Purchasing and sourcing: Sorina Designs identifies how much fabric, thread, buttons,
zippers and other supplies it needs to make its upcoming fall fashion line to meet forecasted
sales volume. The procurement team works with the designers to find vendors for each
component that meet Sorina’s needs for price, color, style, quantity and delivery date. The
purchasing manager negotiates contracts with each vendor.

2. Recording and receipts: A procurement clerk generates purchase orders, sends these to
suppliers, logs the purchase orders and matches them with invoices and receipts.
 3. Notification: The vendors send electronic order acknowledgments along with shipment and
tracking information.

4. Load Arrival: Trucks carrying the supplies arrive at Sorina Designs’ facility.

5. Receiving: Sorina’s receiving staff unloads the incoming materials, scanning barcodes or
RFID tags to count and identify the products. They verify the quantity and condition against the
purchase order. The materials move to the warehouse, where they are ready to be
manufactured into clothing.

6. Reverse logistics: The receiving team also handles the return of unsold clothing from
retailers. Their contracts dictate that stores send back leftover inventory and receive partial
credit toward purchases of new season merchandise. Last-season apparel goes to a staging
area for use by the team that fulfills orders from discount stores and liquidators.

Outbound Logistics Example

1. Customer order: A national boutique chain, Picture Perfect, has 37 stores. The company
orders a collection of women’s pants, blazers, skirts, blouses, dresses and scarves in various
quantities in women’s sizes 0 to 18 on Sorina’s website. Picture Perfect uses internal data
about shopper preferences, past sales and trend forecasts to decide the quantities of each
product and size to purchase.

Sorina’s staff needs to pay close attention to the order’s details because of the variations in
patterns (paisley and chevron), colors (burgundy and blue) and sizes. Sending the wrong item
or quantity can result customer complaints and lost sales for products that did not arrive in time
for seasonal shopping.

2. Order processing: Sorina’s order processing team checks Picture Perfect’s order by
confirming Sorina has the right number, sizes, garment types and colors available. They send
an order confirmation to Picture Perfect. Sorina’s inventory management system allocates
these items so the clothes are no longer available for sale to anyone else. The system sends
an order manifest and picking tickets to the warehouse.

3. Replenishment: Workers move clothing from remote storage to the shipping warehouse to
replace purchased product as necessary. Sorina’s planners note that a particular blazer is
selling faster than expected and ask the garment makers to sew more.

4. Picking: Warehouse staff uses a zone strategy to pick garments for multiple orders. Workers
hang Picture Perfect’s blouses, for example, on electric garment racks along with blouses that
are part of orders from two other retailers. They use barcodes to distinguish the orders.

5. Packing, staging and loading: All the clothing items in Picture Perfect’s order come together
at the packing station. A staff member scans barcodes on the hangers to confirm the order is
correct. Packers box the order with tissue, so the garments do not wrinkle. They put boxes
together on pallets, shrink wrap the pallets and affix destination and manifest labels.

The packers split Picture Perfect’s order into two batches, one for its distribution center in the
West and the other for its distribution center in the East. Each one joins other orders heading
 in the same direction with similar service levels. Picture Perfect’s order will travel by ground
shipping since they’re not rush shipments. Workers load the pallets onto outgoing trucks.

6. Shipping and documenting: The order departs. Sorina’s system logs the shipment and
sends tracking information to Picture Perfect’s purchasing department. Sorina’s system also
sends arrival information to the chain’s distribution centers.

Importance of Inbound and Outbound Logistics

Inbound and outbound logistics are important because they help a business run smoothly. They also
have a direct and substantial impact on sales, costs, profits and customer satisfaction.

Below are some of the ways that logistics play a crucial role for companies:

 Control the flow of goods in and out of the business

 Maximize production and sales revenue
 Contribute to customer satisfaction, brand reputation and loyalty
 Influence profitability and ROI
 Help the company make the best use of its money and time
 Provide a competitive advantage when done well
 Contribute to inventory management and can reduce inventory costs
 Reduce wasted raw materials, damage and product returns
 Aid in warehouse management
 Increase order accuracy and delivery speed
Benefits of Inbound Logistics
Companies can take advantage of many benefits from inbound logistics, including more reliable
sources of supplies and lower costs for raw materials.

The following are more benefits of efficient inbound logistics:

 Predictable raw material costs

 Higher product quality
 On-time deliveries
 Steady production rates
 Lower costs for shipping and receiving
 Better inventory management
 Ability to spot supply chain problems
 Foundation for sales success
 Stronger vendor relationships
Benefits of Outbound Logistics
Outbound logistics help companies please customers. The process confirms nothing is missing,
broken or defective.

Among the specific benefits of well-run outbound logistics are:

 Faster deliveries
 Fewer order cancellations
 More on-time deliveries
 Reduced delivery failures or mistakes
 Less damage and loss in transit
 Lower costs for your company and the customer
 Decreased returns
 Higher customer satisfaction and loyalty
 Stronger company reputation
 Better business planning

Managing Inbound and Outbound Logistics With Software

Inbound and outbound logistics help you meet customer needs by delivering quality, service and
timeliness. Software systems put you in control with manufacturing, inventory and warehouse
management solutions.

With both inbound and outbound logistics management software running on the ERP platform
managing core financial processes, product-based businesses have visibility into all aspects of
operations and can quickly and easily run reports that demonstrate the impact of different scenarios
on profits, customer satisfaction and more.

Both inbound and outbound logistics can be a major cost center, but that also means they represent
an opportunity for major time and cost savings. That’s why companies should take a close look at
these aspects of their operations and see if there are more efficient, cost-effective ways to complete
these steps. It’s a key part of optimizing supply chain management as a whole and providing the
exceptional customer experience that will help your business excel. (Jenkins, 2023)

Incoterms in International Trade

The Incoterms are a set of commercial/trade rules established by the International Chamber of
Commerce (“ICC”) that are used in international sale contracts.[1] The Incoterms are not mandatory
rules – for them to receive legal effect, they must be explicitly incorporated by the parties into their
contract. In the following paragraphs, after outlining the classification of Incoterms, we will describe
basic features of Incoterms used for all modes of transport, as well as of those used only for sea and
inland waterway transport. We will also describe changes in the Incoterms 2020 rules.

Classification of Incoterms

The Incoterms are divided into four principal categories: E, F, C and D.

Category E (Departure), which contains only one trade term, i.e. EXW (Ex Works).

Category F (Main Carriage Unpaid), which contains three trade terms:

 FCA (Free Carrier)

 FAS (Free Alongside Ship)
 FOB (Free on Board)

Category C (Main Carriage Paid), which contains four trade terms:

 CPT (Carriage paid to)

  CIP (Carriage and Insurance paid to)
 CFR (Cost and Freight)
 CIF (Cost, Insurance and Freight)

Category D (Arrival), which contains three trade terms:

 DAP (Delivered at Place)

 DPU (Delivered at Place Unloaded)
 DDP (Delivered Duty Paid)

The four above-mentioned categories can also be classified as per the means of transportation:

 Incoterms for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP;
 Incoterms only for sea and inland waterway transport: FAS, FOB, CFR and CIF.

Each Incoterm contains a set of rules of interpretation for the obligations of both the seller (A1-A10)
and the buyer (B1-B10) covering the following issues:

 A1/B1 – General Obligations,

 A2/B2 – Delivery,
 A3/B3 – Transfer of risks,
 A4/B4 – Carriage,
 A5/B5 – Insurance,
 A6/B6 – Delivery/transport document,
 A7/B7 – Export/import clearance,
 A8/B8 – Checking/packaging/marking,
 A9/B9 – Allocation of costs, and
 A10/B10 – Notices.

Basic Features of Incoterms Used for All Modes of Transport

EXW Incoterm (Ex Works)

The EXW Incoterm imposes only minimum obligations on the seller. More particularly, the seller is
simply required to deliver the goods to the buyer at a named place of delivery which is usually the
seller’s place of business, but can be any particular location such as a warehouse, factory, etc., and
within the agreed time specified in the contract.[2] It is not required for the seller to load the goods on
any specific vehicle or to clear the goods for export. If the place of delivery is not specified in the
contract, or if several place of delivery can be envisaged, “the seller may select the point that best
suits its purpose.”[3] In principle, until the goods have not been delivered as specified in the sale
contract, the seller bears all risks of loss or damage to the goods. Once delivered, such risk is
automatically shifted to the buyer. The same is true for any costs relating to the goods – until the
delivery of the goods, the costs are to be borne by the seller; after their delivery, by the buyer.
Several authors suggest that the EXW Incoterm is better suited for domestic (and not international)
trade[4] and point out that it is “commonly used in courier shipments when the courier picks up the
shipment from client’s premises and loads courier’s own truck. Payment terms for EXW transactions
are generally cash in advance and open account.”

As mentioned in the ICC Guide to Incoterms 2010, parties sometimes insert a term “loaded” following
the reference to EXW Incoterm, i.e., EXW loaded, into their sales contract. Such an addition is
normally intended to extend responsibility to loading operations. However, without further clarification,
it is rather difficult to say whether such a term means “loaded at seller’s risk” or “loaded at buyer’s
risk”[6] and is subject to interpretation in case of dispute. In this respect, if “loaded” is meant to extend
the liability to the seller, the parties may consider inserting the FCA Incoterm (see below), and not
EXW, into their contract. However, they should bear in mind that the FCA Incoterm requires that the
obligation to clear the goods for export be borne by the seller as well.

FCA Incoterm (Free Carrier)

Under the FCA Incoterm, the delivery of goods occurs as follows:

 When the named place of delivery is the seller’s premises, the goods are deemed to be
delivered when they are loaded on the transportation vehicle arranged by the buyer;
 When the named place of delivery is elsewhere, e.g., a warehouse or factory, etc., the goods
are deemed to be delivered when the following requirements are met: after having been
loaded on the seller’s transportation vehicle, they reach the named place, are ready for
unloading from the seller’s transportation vehicle and are placed at the disposal of the carrier
nominated by the buyer.
Regarding the carrier, it is usually “a firm that itself transports goods or passengers for hire, rather
than simply arranging for such transport. Examples are a shipping line, airline trucking firm, or
railway. In the FCA term, however, the carrier can by any person who by contract ‘undertakes to
perform or procure’ such services”.[9]

In 2020, several new obligations were added to the FCA Incoterm. For example, the parties may
agree that the buyer instructs the carrier to issue the transport document (bill of landing) with the on-
board notation to the seller. In turn, the seller undertakes to send this document to the buyer, “who
will need the bill of landing in order to obtain discharge of the goods from the carrier.”[10]

The FCA Incoterm further requires the seller to clear the goods for export, where applicable.
However, the seller has no obligation to clear the goods for import. No insurance obligation is placed
either on the seller or the buyer.

CPT Incoterm (Carriage Paid to)

Under the CPT Incoterm, the delivery of the goods occurs when they are delivered by the seller to the
carrier at the agreed place or are procured by the seller so delivered. In this respect, the seller has an
obligation to contract, at its expense, for the carriage of the goods from the point of delivery to the
place of destination of the goods. The existence of the contract of carriage has no impact on the
transfer of risk from the seller to the buyer which occurs at the point of delivery, i.e., by handing over
the goods to the carrier.[11] However, if the seller incurs costs relating to unloading of goods at the
place of destination under the contract of carriage, it must bear them, unless otherwise agreed.
The CPT Incoterm also requires that the seller clear the goods for export, where applicable, and
assume all risk related thereto. However, the seller has no such obligation for import. Neither the
seller, nor the buyer, is required to conclude an insurance contract.

CIP Incoterm (Carriage and Insurance Paid to)

Under the CIP Incoterm, the seller has the same obligations as under the CPT Incoterm, i.e., to hand
over the goods to the carrier contracted by the seller and to clear the goods for export,[12] with the
addition of an obligation to contract for insurance in order to cover against the buyer’s risk/damage to
the goods from the place of delivery to, at least, the place of destination.

Regarding insurance, it shall be made in conformity with Clauses (A) of the Institute Cargo Clauses,
or similar clauses, and shall cover, at a minimum, the contractual price plus 10%. Prior to the 2020
revision of the Incoterms, only a minimum insurance coverage pursuant to Clauses (C) of the Institute
Cargo Clauses was required.[13] However, even today, the parties can agree on a lower coverage.
[14] Once contracted, the seller has an obligation to provide the insurance policy or certificate to the
buyer.

DAP Incoterm (Delivered at Place)

This Incoterm is normally used in cases when the parties do not wish that the seller bear the risk and
cost of unloading, contrary to the DPU Incoterm (see below). Under the DAP Incoterm, the goods are
deemed delivered by the seller to the buyer when they are put at the disposal of the buyer on the
transportation vehicle ready for unloading at the place of destination or an agreed point within such
place, if any.[15] Contrary to the CPT/CIP Incoterms, the place of delivery and the place of
destination are the same under the DAP Incoterm. Therefore, the seller bears the risk until it has put
the goods at the disposal of the buyer at the place of destination as described above.

Although it has an obligation to conclude a contract of carriage or arrange at its costs for the carriage
of the goods and to clear the goods for export (not import), the seller is not required to unload the
goods from the transportation vehicle at the place of destination. In addition, neither the seller, nor the
buyer, is required to subscribe an insurance contract.

DPU Incoterm (Delivered at Place Unloaded)

The DPU Incoterm represents a new feature of the 2020 Incoterms which has replaced the DAT
Incoterm (Delivered at Terminal) established under the 2010 Incoterms which, in turn, had replaced
DEQ Incoterm (Delivered ex Quay) established under the 2000 Incoterms.[16]

According to the DPU Incoterm, the delivery of the goods by the seller to the buyer occurs when the
goods are unloaded from the transportation vehicle and put at the disposal of the buyer at the place
of destination or at the agreed point within the place of destination, if any. It is the only Incoterm “that
requires the seller to unload goods at destination.”[17] Again, the place of delivery and the place of
destination are the same under the DPU Incoterm. Therefore, the seller bears the risk until it has
unloaded the goods at the place of destination.
In addition, the seller undertakes to conclude a contract for carriage or arrange carriage at its own
expense. It also has an obligation to clear the goods for export. However, no such obligation is
imposed for import. The buyer is required to assist the seller in obtaining relevant documentation for
export clearance formalities, at the seller’s expenses.

Contrary to the CIP Incoterm, the seller (or the buyer) has no obligation to contract insurance under
the DPU Incoterm.

DDP Incoterm (Delivered Duty Paid)

Under the DDP Incoterm, the goods are supposed to be delivered by the seller to the buyer if they are
placed at the disposal of the buyer, cleared for import, on the arriving transportation vehicle, ready for
unloading at the place of destination or an agreed point within such place, if any.[18] The DDP
Incoterm imposes the maximum responsibility on the seller as it is the only Incoterm requiring import
clearance by the seller.[19]

As in the case of the other Incoterms, the DDP Incoterm requires that the seller
conclude the contract of carriage or otherwise arrange the carriage at its
expense. No insurance contract is, however, required from the seller/the buyer.

Basic Features of Incoterms Used for Sea and Inland Waterway Transport
FAS Incoterm (Free Alongside Ship)

According to the FAS Incoterm, the seller delivers the goods when it either places them alongside the
ship/vessel nominated by the buyer at the named port of shipment or it procures the goods so
delivered.[20] The risk/damage to the goods is transferred from the seller to the buyer when the
goods are alongside the ship. The seller undertakes to clear the goods for export, not import.

The seller is under no obligation to conclude a contract of carriage. In turn, it is the buyer who bears
all expenses regarding the carriage of the goods from the named port of shipment. Consequently, the
FAS Incoterm is not suited for cases when the goods are only to be handed over to the carrier, e.g.,
at a container terminal, before they are placed alongside the ship. For this scenario, the above-
mentioned FAS Incoterm is more appropriate.[21]

Furthermore, the seller has an obligation to clear the goods for export (not import). It is not required to
conclude any insurance.

FOB Incoterm (Free on Board)

Under the FOB Incoterm, the goods are deemed to be delivered by the seller to the buyer when they
are delivered on board the ship nominated by the buyer at the named port of shipment or the seller
procures the goods so delivered.[22] Therefore, the risk of loss/damage to the goods is shifted onto
the buyer once the goods are placed on board the ship. The seller shall clear the goods for export,
not import.
As in the case of the FSA Incoterm, the seller has no obligation to conclude a contract of carriage. All
expenses regarding the carriage of the goods from the named port of shipment shall be borne by the
buyer.

No insurance is required under the FOB Incoterm to be concluded by the seller or the buyer.

CFR Incoterm (Cost and Freight)

According to the CFR Incoterm, the seller delivers the goods to the buyer by placing them on board
the ship or procuring them so delivered.[23] Therefore, the risk of loss of/damage to goods is shifted
on the buyer when the goods are place on board of vessel at the port of delivery, and not the port of
destination as in the case of the above-referenced FOB Incoterm.

Regardless of the transfer of risk at the port of delivery, the seller has an obligation to conclude a
contract of carriage of the goods until the port of destination. The seller also must bear all costs
related to unloading at the port of destination resulting from the the contract of carriage, unless
agreed otherwise. It also has an obligation to clear the goods for export, not import. No insurance
contract is required from the seller or the buyer.

CIF Incoterm (Cost, Insurance and Freight)

The regime of the CIF Incoterm is very similar to the one under the CFR Incoterm:

 the goods are to be delivered under the CIF Incoterm when the seller places them on board
the ship or procures them so delivered;[24]
 although the transfer of risk takes place at the port of delivery, the seller has an obligation to
conclude a contract of carriage of the goods until the port of destination;
 the seller must bear all costs related to unloading at the port of destination resulting from the
the contract of carriage, unless agreed otherwise;
 the seller has an obligation to clear the goods for export, not import.

The principal difference between CIF and CFR resides in the requirement under the CIF Incoterm for
the seller to conclude insurance covering against the buyer’s risk of loss of/damage to the goods from
the port of shipment to, at least, the port of destination. However, contrary to the CIP Incoterm (see
above), the seller is required to obtain a minimum insurance according to Clauses (C) of the Institute
Cargo Clauses, or other clause (not Clauses (A) of the Institute Cargo Clauses as required for the
CIP Incoterm).[25]

Conclusion

The use of Incoterms in international trade is a widespread phenomenon, and disputes frequently
arise due to confusion concerning them. Prior to inserting an Incoterm into a contract, it is essential
for the parties to make sure that the Incoterm meets all their expectations and needs regarding the
following issues:

 Is transport to be made by sea/inland waterway means or not?

 Who should bear the majority of the risk of loss/damage to the goods – the seller or the buyer?
At what point in time in the delivery to the place of destination should risk be shifted from the
seller onto the buyer?
 Is there a need to use the services of a carrier? If so, who should have an obligation to
conclude a contract of carriage – the seller or the buyer?
 Should the seller be responsible for the unloading of the goods?
 Is there a need to subscribe an insurance contract?
Reference:

1. Transportation Technology

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2. Lagore, R. (2023). 2024 Best Transportation Management System (TMS) Software Packages

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3. Puri, K.( 2023). What Is Transportation Cost? What Are Its Types & How to Calculate It?

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cost

4. Value-of-Service Pricing

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vides%20to%20the%20customer.

5. [Link]

6. Elliasson, J. (2021). Efficient transport pricing–why, what, and when?

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[Link]

7. Jenkins, A.(2023). Guide to Inbound and Outbound Logistics: Processes, Differences and How to
Optimize.

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[Link]
[Link]#:~:text=Outbound%20logistics%20focuses%20on%20the,customer%20service
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[Link] law LLC, (2020). Incoterms in International Trade.

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