Transport Logistics Management

Transport Logistics Management

1b. Outsourcing of Freight Distribution and the Role of Freight Forwarders

The UK has predominantly embraced the outsourcing of freight distributions as indicated by past statistics to ship goods to the right location within a stipulated time frame. For instance, Stojanović (2017, p.773) show an increment of 11 per cent in the UK’s use of outsourcing services within a period of two decades that is from 1980 to 2000. Several years later, the outsourcing of freight distribution was 75 per cent of the total volume of transport in tones measured on an annual basis. An example of a freight forwarder in the United Kingdom is Excel Europe Limited referred to as Exel. It primarily offers supply chain services supplementing Deutsche post AG in the UK. The primary responsibility of this organization is contract logistics encompassing distribution, warehousing, as well as freight forwarding (Government of UK, 2006).

The logistics industry in the United Kingdom is characterized by fierce competition. Well established logistics firms such as the DHL and the K&N experience significant competition from similar firms that charge low cost. Consequently, Markides and Holweg (2006, p.354) content that small freight forwarders in the UK also face pressure from new entrants into the logistics operations. The same can be said of the medium freight forwarders.  The key UK players in the logistics market are as illustrated in figure 1 below;

Figure 1: UK Logistics Companies

Multiple drivers can necessitate the outsourcing of freight distributions. Comprehensive specific drivers are provided by figure 2 below;

Figure 2: Drivers when selecting 3rd party logistics

Figure 2 above indicates that the leading driver for the outsourcing of freight distribution according to Eye for Transport is the reduction of freight charges. 3^rd party logistics have capabilities to make massive purchases and exercise economies of scale. As such, they charge significantly low prices on freight services by effective utilization of available resources. This means that they have the capacity of offering volume discounts. With the supply chain as the primary entity of 3^rd party logistics, they have a streamlined chain of operations, a team of experts, and the necessary resources to offer freight services. Other significant drivers for selecting freight forwarders include increasing consumer satisfaction, reducing the amount of time taken to deliver products, enhances the effectiveness of supply chain management, and bridges the gap created by the shortage of skilled personnel among others.

.Freight forwarders come into play when an entity decides not to handle the exportation or importation logistics directly. According to the Government of the UK (2013), freight forwarders play a significant role in the country’s trade. The specific expertise as well as valuable services that they provide include consolidation of smaller freights thus saving financial and time resources have an in-depth information regarding the regulations and policies that should be observed, provide intermediary services when conducting business in new territories, and offer (arranges and operates) multiple modes of transport means for the shipment of products as required. The freight forwarders have an insight into the necessary trade compliance as well as applicable tariffs, fill the necessary paperwork and make a follow up on the orders. The UK’s freight forwarders have endeavoured to diversify their services to expand their market niche, make more profits, and meet the additional needs of their customers (Markides and Holweg, 2006, p.345).

Freight forwarders offer transport services to firms and organizations that want to transport their products from one country to the next (“Department for Business, Innovation & Skills,” 2012).  They act as intermediaries for the traders for safe and timely delivery of goods to the right destination. Additional responsibilities of a freight forwarder according to the UK’s government is preparation and validation of carriage bills, preparation of insurance, warehousing, and levying minimal custom charges.

1c.The Cost of Freight Transportation

Over the years, freight transportation of goods is common in the United Kingdom. The transportation of goods involves all the available methods of transport in the country; air, sea, roads, and rail transportation. Freight transportation has a significant contribution to the productivity and economic growth of the country. However, freight transportation is experiencing several challenges causing a rise in the associated costs. Some of the common concerns include rising fuel prices, congestion, environmental concerns, and market factors.

Below is a graph showing various the price indices as of 2009.

Fuel Costs. Freight transportation in all modes applied significantly depends on the expensive and finite fossil fuels, primarily being the cost of diesel. The cost of crude oil is the principal factor affecting ng the changes in the price of diesel. The cost of highway diesel in the UK has increased by 126 per cent for the last 14 years (Mesa-Arango and Ukkusuri 2015). The cost of land and maritime transport depends on fuel costs. An increase in fuel prices compels carriers to pass the extra expenses to the owner of the goods. On the other hand, Labour costs are increasing at a faster rate due to the shortage of truck drivers in the UK. Railway transportation also faces problems in labour acquisition, as the trains require more labourers.

Operation costs. The cost is increasing significantly hence affecting Freight transportation.  Labour, fuel, vehicle and truck operating costs are often affected by repairs of damaged equipment because of damaged points on roads. Besides, Insurance payments are a considerable cost incurred in the transportation of goods. The Government of the United Kingdom requires that every transporter must have an insurance policy(Goodwill 2020)

            The Market of Labour for commercial vessel controllers. The increasing competition and wages among carriers for drivers have a hiking effect on transportation costs. With time, the operators retire, and the carriers hardly find new operators for the vehicles.  Recruiting of drivers is hard and requires a driver licence belonging to a different class. There is also a higher cost when it comes to acquiring labour for air and water transports.

Demand for Freight. The cost of freight transportation depends on the volume of goods under transportation other than the regular underlying costs. The effect of limited capacity is that the operators sell a smaller space at a premium.

            The effects of Information Technology. The information has varying impact on various transportation modes. In all the methods, carriers always rely on the continuous location updates and the status of aeroplanes, vehicles, trains and ships and the products in transportation. These requirements are compulsory and signify the increased cost of freight transportation.

            Logistics. There is an extra cost for follow up of raw materials of work and the goods sent from the seller to the customer. Besides, logistics are about inventory monitoring, warehousing, processing of orders and handling of materials. These processes are thus a significant contribution to the high costs of freight transportation.

Merchant reputation. The quoted price by a carrier reflects his expectations regarding the nature of packaging and the time to load. Merchants with the reputation of quick loading will be lesser.

1d. Performance measures used within the transport sector

Freight transport is significant for the development of the United Kingdom’s economy. Performance measurements in the United Kingdom allow for monitoring of the transport sector on how well it uses the resources that are allocated to it. At all levels of policymaking, the primary objective of the country’s transport sector is to boost the performance of the freight transport system. Criteria of performance measurements in the sector are interrelated and influenced by the government, as indicated in figure 1. Below.

According to Bozarth and Handfield (2019), there are different approaches to performance measurements. Looking at the UK transport sector, performance is measured using the Perfect Order and Landed Costs. Under Perfect Order, performance is determined by examining the delivery time of the shipment, any errors associated with shipments, and lastly, the condition of the delivered shipment. Under Landed Cost, performance is measured by examining all the costs related to logistics in the transport sector. For example, the UK transport sectors analyze factors such as warehousing and handling costs, packing costs per unit, transportation per unit and order processing per unit. The mentioned factors are analyzed after a specified duration, for example, monthly or annually.

Another approach for performance measurements is through the transport sector’s productivity. According to Venables et al. (2014), this approach is referred to as non-financial performance measurement. Here, the transport sector mainly examines the percentage of full journeys, time used in shipments, and the weight of craft fill.

Key performance indicators (KPIs) are utilized to evaluate the success, objectives and goals of the United Kingdom’s transport sector. Progressive KPIs fill in as apparatuses for change that will bring sustainable transportation management in the UK. Analysis of performance indicators in the transport sector will assist with recognizing the main issues that need attention. For the UK’s transport sector to have the ability to monitor and implement transport programme and performances in the country, there are various KPI’s put in place;

• Freight cost per unit. This performance indicator is determined by dividing cost by the number of units transported weekly and monthly. This performance measurement is utilized when shipped goods have standard units, for example, kilogram, tons or litres. The calculation also considers the mode of good transportation. For example, aeroplanes, trucks or boats.
• Percentage of truck capacity used: This is an excellent measure used for large loads and quantifies the success that the transport sector in the United Kingdom has in making sure it specifies vehicle capacity relative to the load going out.
• Time in transit: This performance indicator generally looks into how many days there transport sector in the up manages to deliver the new shipment. This performance indicator considers the time of transit for the shipment, depending on the mode of transport.
• Claims as a percentage of transportation costs: This indicator is used to measure operational excellence.
• Truck turnaround rate: An increase, in turn, overate indicates an improvement in performance.

References

Bozarth, C.C. and Handfield, R.B., 2019. Operations and Supply Chain Management.

Government of the UK. (2006, July 18). Exel Europe Ltd / NHS Logistics Authority / NHS Purchasing and Supply Agency. Retrieved February 23, 2020, from https://www.gov.uk/cma-cases/exel-europe-ltd-nhs-logistics-authority-nhs-purchasing-and-supply-agency

Department for Business, Innovation & Skills. (2012, August 23). Freight forwarding: managing risk. Retrieved February 23, 2020, from https://www.gov.uk/guidance/freight-forwarding-managing-risk

Government of the UK. (2013, June 13). Transport and distribution for international trade. Retrieved February 23, 2020, from https://www.gov.uk/guidance/transport-and-distribution-for-international-trade

Markides, V. and Holweg, M., 2006. On the diversification of international freight forwarders. International journal of physical distribution & logistics management. Pp.336-359.

Stojanović, Đ., 2017. Road freight transport outsourcing trend in Europe–what do we really know about it?. Transportation research procedia, 25, pp.772-793.

Goodwill, D. (2020). The Basics of Freight Transportation Financial Management – Canadian Shipper. [online] Canadian Shipper. Available at: https://www.canadianshipper.com/blogs/basics-freight-transportation-financial-management/ [Accessed 23 Feb. 2020].

Mesa-Arango, R. and Ukkusuri, S. (2015). Demand clustering in freight logistics networks. Transportation Research Part E: Logistics and Transportation Review, 81, pp.36-51.

Venables, A., Laird, J.J. and Overman, HG, 2014. Transport investment and economic      performance: Implications for project appraisal.