Significance of Transportation in the Supply Chain

Transportation 

Transportation refers to the movement of goods and persons from one place to another, as well as the various means by which such movements are accomplished. Technological progress has always been measured by the growth of the ability to efficiently and effectively transport large quantities of commodities and individuals over long distances at high speed safely and comfortably (Brandenburg et al., 2014). It is important to realize that transportation is instrumental in allowing economic development to occur because it is a basic prerequisite for anything human. 

Generally, the requirement for transportation differs from industry to industry. As such, many options of transportation systems are available for product or raw material movement in a particular logistical system. 

Transportation is very important in the supply chain because it links the different fixed facilities and markets, neutralizing the spatial separations of facilities and markets. For producers, transportation plays a critical role in moving raw materials and other components from the vendors to the plants and warehouses. Additionally, consumers benefit from transportation as producers and retailers deliver goods directly to them. 

There are various modes of transportation: water, rail, road, pipeline and air. Rail transport specializes in transporting large and heavy shipments over long distances. Water transport involves transport by ships and barges. It is the second most popular mode of transportation. Road transport is the transportation of choice for many industries because of its premium flexibility. It involves transportation through lorries, cars, and trucks. Pipeline transportation involves the transportation of fluids like gases and liquids, particularly petroleum. Air transport is common where speed is priority. It is the most expensive of all modes of transportation. 

Supply Chain 

Supply chain refers to the network of all the organizations, individuals, resources, activities and technology involved in the creation and sale of a given product. Many supply chains are normally developed, planned and facilitated through a process called supply chain management. The supply chain management encompasses a wide range of functions, right from sourcing of raw materials to delivering finished products to the market. 

Overview of Modern Transportation 

Basically, transportation influences many aspects of human life. For instance, the location of transportation networks has significant effects on the lives of the surrounding communities. the location of railroads and superhighways determines the location of manufacturing, distribution and retailing operations. It is important to note that consumers make decisions based on the availability, cost and adequacy of transportation services. In fact, product decisions are determined by the availability and adequacy of transport services in a given locality. 

Transportation interacts with three groups in the society: providers, users and the government. Therefore, transportation policy makers are expected to consider all aspects of the society before developing and implementing policies that border on transport. The power of the user normally lies on his ability to demand and pay for specific forms of transportation. On the other hand, the providers, both private and public, must consider the demands of the systems and the services to be subsequently offered. 

Regulation of Transportation 

In many countries, particularly the United States, the government influences the activities of all the industries in the economy in a number of ways. The level of influence on industry activity by government ranges from providing the legal foundation and framework in which industries operate to government control and ownership of firms in some particular industries. In some instances, the degree of government regulation is met with strong opposition from the firms operating in those industries. 

The growth and prosperity in the United States has been characterized by a significant increase in the amount of government regulation and control. A comparison between government control and regulation 150 years ago and now would reveal that the former was to a great extent insignificant. The expansion of government influence on industries can be attributed to the increase in the scope of activity, size and complexity of the individual firms in the various industries (Sheffi, 2001). The economy of the United States is often viewed as one huge private enterprise. This is because competition is considered a necessary requirement for a free market economy. 

The United States’ legal system is based on common law and statutory law. It is important to realize that common law relies heavily on judicial precedent. For instance, when a given court decision establishes a rule for a particular situation, then that particular rule is admitted as part of the law. One of the most significant features of common law system, however, is that it changes and evolves as the society changes. Thus, the common law approach fits very well with a free market economy like that of the United States. 

Role of the Independent Regulatory Commissions 

The federal government of the United States is subject to a system of checks and balances in three distinct branches: judicial, executive and legislative. An independent regulatory commission in the United States of America refers to an administrative body created by the legislative authority (Aguezzoul, 2014). One such independent regulatory commission is the Interstate Commerce Commission (ICC), which was the first federal independent regulatory commission under the Act to Regulate Commerce of 1887. The Act gave the Interstate Commerce Commission the authority to regulate the United States’ railroad industry. Initially, the Interstate Commerce Commission had limited powers. In 1995, after 108 years, the Interstate Commerce Commission (ICC) was replaced by the Surface Transportation Board (STB). 

The Federal Maritime Commission was created in 1961. The commission was created to play a primary role in administering regulations imposed on international water carriers. The commission exercises control over the practices, rates, services and agreements of common carriers operating in international trade and domestic to points beyond the continent of the United States. 

The Federal Energy Commission was created with the main aim of administering the regulations surrounding rates and practices of natural gas and oil pipelines in the United States. However, it is important to realize that the Federal Energy Commission is semi-independent as it reports to the Department of Energy. 

Antitrust Laws in Transportation 

The antitrust regulations were initially established in 1890 when the Sherman Antitrust Act was passed. The Sherman Act was intended to outlaw the practice of price fixing among competing firms in the United States. As such, the act served to do away with business practices that that tended toward monopolization, hence protecting the consumers from exploitation. The law was further buoyed by the passing of the Clayton Act in1914. The act gave specific description to some other practices that would be interpreted as an attempt to monopolize. The practices include exclusive dealing arrangements, and tying contracts. However, collective rate making by transportation carriers was made to be exempt from antitrust laws through the passage of the Reed Bulwinkle Act of 1948. 

Costing for Transportation 

Cost of Service Pricing 

Basically, there are two alternative concepts relating to cost of service pricing in transportation: basing prices on average cost and basing prices on marginal cost. In order to make appropriate treatment for each alternative, various assumptions need to be made. First, it should be assumed that the product or the service of the firm is homogenous (Aguezzoul, 2014). Secondly, it should be assumed that only a group of customers is involved. Thirdly, it should be assumed that the particular group of customers is responsible for all costs. Finally, it should be assumed that the firm possesses a given degree of monopoly power. 

However, there are some theoretical and practical problems associated with cost of service pricing. Concerns have been raised over whether cost of service pricing has any relevance for establishing prices. It is important to realize that prices charged by transportation firms are actually one of the important criteria used by shippers to select the most appropriate mode of transportation or carrier. Normally, shippers balance between the price charged and the characteristics of the service offered. Therefore, for a proper pricing decision to be made, emphasis should be put on ensuring that the price charged reflects the cost of providing the service. 

Generally, the railroads and pipelines require large and indivisible capital inputs because of their terminals and right of way. In such situations, adherence to an average cost does not actually make any sense in such a situation. 

Value of Service Pricing 

This particular approach to pricing is frequently mentioned and often criticized. Value of service pricing is commonly associated with the rail road industry. The main problem associated with value of service pricing is that numerous definitions of it are offered by various sources. 

Value of price has widely been defined as third degree price discrimination. In this case, the seller charges two different prices for two or more separate groups of buyers in the market. However, it is important to note that three conditions must exist before a seller can practice third degree price discrimination (SteadieSeifi et al., 2014). The first condition is that the seller must be able to separate buyers into submarkets according to their different elasticities of demand. Secondly, the seller must be able to prevent the transfer of sales between the submarkets. The third condition is that the seller must possess some degree of monopoly power. The conditions of the third degree price discrimination can actually be fulfilled in the transportation industry. 

Modes of Transportation 

Road Transport 

Road transportation is the most popular mode of transportation in the United States. Road transportation facilitates that motor carrier industry. The first division of the motor carriers is between the for hire and private carriers. Road transport is the most flexible of all the modes of transportation. It is important to realize that road transport provides the bridge between pick-up and delivery destination. Road transport is relatively a faster mode of transport. Although air transport is widely considered the fastest mode of transport, it has fixed schedules and shippers are required to wait before they can travel hence increasing the total transit time. the lower transit times associated with road transportation makes the most convenient mode. 

Railroad Transport 

Railroad transportation is also commonly known as train transport. It is one of the commonly used modes of transport in the supply chain. It is a very cost effective way of transporting good, particularly over long distances. 

Rail transport has emerged as one of the most reliable modes of transport in terms of safety. One of the most important advantages of rail transportation is that it is the least affected by usual weather turbulences such as rain and fog. Additionally, railroad transportation is considered one of the most organized modes of transport (SteadieSeifi et al., 2014). Its services are often more certain, regular and uniform compared to other common modes of transport. Rail transport is considered a great enabler of economic progress in any given country due to the economies of scale associated with it. 

Air Transport 

Air transport is the most recent of the modes of transport. Air transportation is the gift of the 21 st century to the world. It has revolutionized transport across the world as one can travel from one continent to another within hours. It is important to realize that the two world wars played a significant role in the development of air transport in almost all the countries around the globe (Bhattacharya et al., 2014). One outstanding characteristic of air transportation is that it does not need a specific surface track for its operations. Additionally, this mode of transport has no physical barriers as in other modes of transport. Air transportation is the fastest mode of transport. It has the capability of facilitating the transport of factors of production from one point to another. It is well fitted for transport of perishable and valuable goods. 

Water Transport 

Water transportation has remained the most viable mode of transport for the movement of products, particularly those of basic raw materials. Generally, domestic water carriers compete with railroads for the movement of bulk commodities and with pipelines for the movement of bulk petroleum, petroleum products and chemicals (Bhattacharya et al., 2014). Water carriers are generally considered medium to long haul carriers. It is important to realize that water carriers are best suited for carrying large and bulky commodities. As such, carrying commodities for short distances is uneconomical for water carriers. 

Pipeline Transport 

With some few exceptions, oil companies have always been the owners of the oil pipelines. Some of the oil pipelines are joint ventures among two or more pipeline companies due to the high capital requirement during installation (Bhattacharya et al., 2014). It is worth realizing that the pipeline industry recorded significant growth after the Second World War. The main advantage offered by the pipeline transport is low rates. The mode of transportation can be very efficient, as large diameter pipelines operate near capacity. This mode of transportation is efficient for firms that deal in oil and oil products. 

Transportation Risk Management 

Risk is a very important factor in transportation. In order to address the risks inherent in transportation, it is important to conduct risk management strategy in place. There are very many potential risks in the transportation industry (Chopra & Sodhi, 2014). Risk management refers to the process of forecasting and evaluating the financial risks, along with the identification of procedures necessary for avoiding or minimizing their impact. There are various steps involved in the risk management process: risk identification, risk assessment, identification of risk management strategies, and risk review and monitoring. 

Risk identification is the first step in developing an effective transportation risk management program. An effective risk management program helps to minimize losses and disruptions in the supply chain. Risk identification involves efforts aimed at discovering, describing, defining, documenting and communicating risks before they become problems and affect freight flows adversely. 

Risk assessment is the second step in the risk management process. Risk assessment involves evaluating the risks identified in order to determine the potential impact of each risk on the organization (Scholten et al., 2014). There are two parameters used in risk assessment: probability and impact. 

Developing risk management strategies is the third step in the risk management process. Developing risk management strategies involves identifying specific action and procedure changes that must be taken to reduce high priority risks. 

Risk review and monitoring is the last step in the risk management process. In this step, risk managers conduct tests and reviews aimed at ensuring that the existing risk mitigation efforts work as intended. 

Transportation Planning 

Transport planning refers to the planning required in the provision, operation and management of facilities and services for the respective modes of transport to achieve comfortable, safer, faster, economical and convenient movement of goods and people. As such, transport planning is basically the prediction of usage demand in future travel, as well as the process of ensuring the availability of all the necessary facilities and services to cater for that demand. Transaction channels, communication channels, distribution channels are some of the most important aspects of transportation planning. Additionally, mode selection, carrier selection and route planning are some of the important activities in transportation planning. 

Third Party Logistics 

A third party supplier refers to an external supplier that performs all or part of a company’s logistics functions. There are three types of third party logistics providers: transportation based, distribution based, forwarder based, financial based and information based (Senthil et al., 2014). Transportation based third party logistics providers have their origins traced to freight movement through truck, rail or air. The distribution based third party logistics providers originated from the contract or public warehousing business and have expanded to broader ranges of logistics services (Aguezzoul, 2014). The forwarder based ones refer to agents, brokers and freight forwarders. The financial based 3PLs help customers with monetary assistance in the supply chain flow. Information based third party logistic providers are business with digitized activities that were previously done manually. 

References 

Brandenburg, M., Govindan, K., Sarkis, J., & Seuring, S. (2014). Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research , 233 (2), 299-312. 

Sheffi, Y. (2001). Supply chain management under the threat of international terrorism. The International Journal of logistics management , 12 (2), 1-11. 

Chopra, S., & Sodhi, M. S. (2014). Reducing the risk of supply chain disruptions. MIT Sloan Management Review , 55 (3), 73. 

SteadieSeifi, M., Dellaert, N. P., Nuijten, W., Van Woensel, T., & Raoufi, R. (2014). Multimodal freight transportation planning: A literature review. European journal of operational research , 233 (1), 1-15. 

Bhattacharya, A., Kumar, S. A., Tiwari, M. K., & Talluri, S. (2014). An intermodal freight transport system for optimal supply chain logistics. Transportation research part C: Emerging technologies , 38 , 73-84. 

Aguezzoul, A. (2014). Third-party logistics selection problem: A literature review on criteria and methods. Omega , 49 , 69-78. 

Senthil, S., Srirangacharyulu, B., & Ramesh, A. (2014). A robust hybrid multi-criteria decision making methodology for contractor evaluation and selection in third-party reverse logistics. Expert Systems with Applications , 41 (1), 50-58. 

Scholten, K., Sharkey Scott, P., & Fynes, B. (2014). Mitigation processes–antecedents for building supply chain resilience. Supply Chain Management: An International Journal , 19 (2), 211-228.