The important aspects in traffic and transportation management are choice of mode of transport, route selection, rate verification and auditing, management of claims as well as application of linear programming minimise transportation costs. Let us consider the various transport avenues that are open to the materials managers viz., Shipping, Rail, Road and others.
Transport by Shipping:
This is generally resorted to in case of imports. At times method is used for movement of materials from one part to another within the country. Shipping transport is used for carrying such vital commodities as food grains, oil, etc.
The increased use of shipping calls for more birthing facilities at our ports viz., Ports of Mumbai, Kolkata and Chennai. The materials handling facilities at ports also require improvement as at present unloading process is slow due to inferior handling device and labour problems at ports.
The Railway network is Asia’s largest and the world’s fourth largest system. There has been a continuous modernising of the track locomotives, signalling equipment and other devices for monitoring and control. However, over the years the percentage of freight traffic handled by road has steadily increased.
Railways are ideally suited for long distance over 800 kilometer freight transportation with in the country. Quick Transport Service has been introduced to overcome the consumers’ apprehension about undue delay in the transport of goods by introducing a guaranteed Quick Transit Service on payment of a small surcharge which is refundable in case of consignments do not reach destination within the target time.
In order to compete with the door-to-door service of road transport, the Railways introduced a scheme of road-cum-rail transport in containers of five tonnes capacity ensuring door to door delivery as catered for by road transport.
Recently the Railways have introduced Parcel service for collection of small parcel from specified points through Mobile Booking Service. The introduction of an increased number of parcel expresses for quicker transport of perishable and other consignments at low freight rates in coaching vans is receiving the attention of the Railways.
This is an important mode of transportation of material. There are a large number of transport organisations in the country having a fleet of trucks. They are suited for transporting freight of the order of 5 to 10 tonnes usually over distances of 300 to 500 kms. There are many constraints to the movement of freight through road. Some of them are octroi, interstate permits, check posts.
There are other areas of movement of materials viz., through inland waterways, pipelines and air etc. Shippers of bulky relatively inexpensive raw materials try to ship by water or pipeline whenever possible in order to keep transportation, costs at a minimum.
In fact, chemical, aluminium, steel and power plants often are intentionally located at deep water ports or on inland waterways in order to reduce the cost of inbound raw materials. Water-shipment is slow but the rates always are low.
Routing and Delays:
Once the carrier is selected, the traffic manager’s job would seem to be complete but it rarely is. The carrier does not necessarily carry out its part of the bargain. Trucking companies do not always have trucks immediately available and, if they are busy, do not maintain their committed schedules.
The supplier’s traffic department may trace shipments for its customers. The buyers follow up with the supplier’s sales department. The sales department may give the appropriate bill of lading or way bill number to the buyer so that his own traffic department could trace the shipment or it might do the tracing for the customer.
Packaging and Materials Handing:
It is often practical to equip company trucks with special racks or other materials handling devices to cut packaging and materials handling cost. Since carriers are responsible for damage of goods in transit, they naturally insist that shipments be securely packaged.
In some cases, it is possible to ship in lighter, cheaper containers with little increase in damage. Experience has shown that damage losses can be reduced if merchandise is handled more gently in company- operated trucks
Common carriers are forced to pay huge amount in damage claims. Even if the skipper is reimbursed in full, damaged shipments cause production delays, and the processing of claims is a huge burden on the firm’s traffic department.
Not all claims are the carrier’s fault, rather carrier’s maintain that most of the claims occur as a result of inadequate packaging. The exact cause of damage is not clear cut in many cases. The shipment would certainly not have been damaged if it had been handled with sufficient care and merchandise been packed more carefully in costlier containers.
Traffic departments spend a great deal of time investigating damaged shipments and making claims against carriers. Similarly the traffic department work with company’s other departments such as packaging engineers etc. to reduce damages. The procedure for claiming damages is fairly straight forward, where the skipper presents the carrier with claim.
Skipper gives him his bill of lading, the paid freight bill and a copy of supplier’s invoice or other evidence that establishes the value of the damaged merchandise. The claimant may include photographs of the damage to serve as a basis for the development of ways to prevent future damage.
The carriers must include an allowance for damage claims in their tariffs and it is to everyone’s interest to help minimise such claims.
Demurrage charges are penalties assessed by carriers on vessels held by or for a consignor or consignee beyond a stipulated free time provided for loading or unloading. Most business concerns operate under what is known as an “average agreement” with respect to demurrage charges.
The gist of such an agreement is that a receiver is given a credit for each vessel released before the expiration of the first 24 hours or 48 hours as the case may be as free time. This credit can be used to off-set a debit of one or two day’s demurrage.
The materials manager has to arrange insurance of materials in transit and in stores scientifically, so that the possibility of catastrophic and profit shattering loses either to the organisation or to those dealing with the organisation like the suppliers and purchasers is avoided. The responsibility for decision making and management of insurance is handled by an insurance department headed by a specialist in insurance.
This aspects of insurance management that affect materials management are:
(a) Arranging an adequate insurance cover for materials in transit and storage;
(b) Claims management; and
(c) Reduction of insurance costs.
The insurance department deals with insurance of transit of incoming material; storage; and transit of outgoing materials including finished goods. Insurance of transit of materials is known as marine insurance and the same holds true for air consignment and inland transit by road or rail or other means of transport.
The marine policy for covering ocean voyage is issued in a standard form and the terms and conditions of the standard policy are modified by a set of clauses known as Institute Cargo clauses which have also been standardised by the Institute of London Underwriters. The marine policy is a valued policy; that is the sum at which cargo is to be valued is left at the discretion of the insured.
The cardinal principle of insurance law is that a contract of insurance is a contract of indemnity and so the law does not permit the insured to make a profit out of an insurance claim but in case of marine policy, it is possible for insurance to be taken for the invoice value of the cargo plus the amount of import duty and a reasonable amount of profit and incident expenses. All marine policies are issued subject to the transit clause which is part of all Institute cargo clauses.
The various clauses impose the following limitation:
(a) The insurance cover cease as soon as the goods are delivered to the consignee or place of storage at the destination named in the policy.
The cover ceases on expiry of 60 days after completion of discharge of goods from the overseas vessel at the final port of discharge.
Some of the important considerations are:
(i) The sum insured take care of invoice value, duty, incidental expenses and reasonable profits.
(ii) The scope of the cover should be clearly defined.
(iii) Where the value of the container is high, it is better to be clear as to whether the cost of the container has to be paid or not even when the contents are not damaged.
(iv) Where importing is a continuous process it is advantages to take a floating policy or an open policy instead of a specific policy for each consignment.
The same policy form is used for covering internal transit but the clause attached to the policy is different and the scope of the cover is also different. The term of the cover should be as wide as an “all risks” policy or as restricted as “road risks or rail risks policy”.
The nature of packing, the mode of transport and the extent of care exercised in materials movement have a bearing on the probability of losses occurring and on the quantum of such losses.
A systematic and periodic, preferably an annual review of the existing insurance arrangement of the organisation, should be undertaken. The insurance cover designed with care today may not remain a perfect fit for the future after 2 years.