CHAPTER III

TRAFFIC MANAGEMENT
Traffic management is typically the transportation-operating arm of the logistics function. It
has the major responsibility for seeing that the transportation operations are carried out
efficiently and effectively on a daily basis. Given the background on transportation provided in
the previous chapter, this chapter concentrates on the typical decisions and concerns facing the
traffic manager.
3.1 Carrier Selection
Perhaps the first major problem confronting the traffic manager is the selection of the carrier to
move the company’s goods. The choices usually are between for-hire services and privately
owned vehicles. The for-hire services, especially those of common carriers, must be evaluated
on the basis of costs for the service balanced against delivery performance. There are typically
multiple services offered within the multiple modes. That is, a trucking company may offer
common-carrier and contract carrier service. Choice is not a simple matter of selecting the
minimum cost carrier or one that is the cheapest given certain performance requirements. The
traffic manager must look at the indirect effects of the choice. That is, the cheapest mode is
frequently the slowest mode with the largest shipping-size requirement. Use of such a transport
mode results, in high level of inventory at both ends of the shipment. The best choice is to
balance the inventory costs against the transportation costs to find the minimum total cost.
When selecting between for-hire and private carriage, additional considerations come into play.
The reasons for taking on the investment administrative burden of private transportation
ownership would include:
A. Lower costs of transportation
B. Better transit times
C. Better control over loss and damage.
In general, private (or leased) transportation becomes an attractive alternative when an adequate
volume of freight is to be moved on a regular basis so that at least 80% of the vehicle’s capacity
(in the case of trucking) is utilized on a regular basis.
Of course, carriers may be selected based on a number of factors not directly related to their
cost and performance. These include:
 Goodwill
 Credit
 Reciprocity and
 Long-term relationship with the shipper
3.2. For –Hire Carrier Management
The management of the transportation function is different depending on whether the carriers
used are some form of for-hire or privately controlled types. Rate negotiation, documentation,
freight-bill auditing, and shipment consolidation are just a few of the concerns when the method
of transportation is for-hire. Dispatching, load balancing, and routing and scheduling are some
of the concerns when a privately controlled fleet must be managed. Often the traffic manager
must manage a mixture of both. Consider for-hire carrier management first.
Rate Negotiation—negotiating favorable rates with carriers is an activity that is likely to
consume a major portion of the traffic manager’s time. Published rates by common and

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contract carriers should never be considered as firm. Many of them are average rates derived
from average conditions. There are at least four typical circumstances under which lower rates
might be negotiated with for-hire carriers.
Competition—when there are significant rate differences between competing transport
modes or competing services within the same mode, the traffic manager may use the threat of
switching carriers to gain a more favorable rate. The carrier may be willing to take a lower
margin in order to retain the business.
Similar Products—where there is a difference in rates between essentially similar
products moving between the same points even by the same carrier, the traffic manager may
argue that his or her product deserves the same rate. The products should be similar as to
weight, cube, fragility, and risk. Comparing similar products is also a useful way of setting a
rate where one doesn’t otherwise exist.
Increased Volume—when the traffic manager can argue that a lower rate will result in
increased volume for the carrier because the company is in a better competitive position, the
rate reduction may be granted if the total profits for the carrier will be higher than at the
previous rate.
Large Volume—one of the convincing arguments for rate reduction is that the company can
offer the carrier a substantial volume in trade for a lower-than-average rate. The rate reduction
is usually argued on the basis of a high volume flowing between specific points. The carrier
may grant the rate reduction if it can be demonstrated that all costs can be covered and it does
not create a problem with other customers that may want the same low rate but do not have the
high movement volume to justify it.
DOMESTIC DOCUMENTATION
Three documents play a key role in the movement of domestic freight. These are:
1. The bill of lading,
2. The freight bill, and
3. The freight claim form.
These documents facilitate the movement of freight, as well as establish liability for it. Bill of
lading and freight bill were discussed in the previous chapter; here we see the freight claim
form.
Freight claims—generally, two types of claims are made on for-hire carriers. The first arises
from the carrier’s legal responsibilities as a common carrier, and the second occurs because of
overcharges.
Loss, damage, and delay claims—a common carrier is responsible for moving freight with
“reasonable dispatch” and without loss or damage. The bill of lading specially defines the
limits of carrier responsibility.
Overcharges—a claim against a carrier for overcharges results from some form of misbilling.
A number of reasons for misbilling have been cited:
1. application of incorrect classification,
2. failure to use the correct rates,
3. use of incorrect distance factors or basing points,
4. simple arithmetic errors,

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 5. carrier misrouting of joint-line shipments,
6. duplicate collection of freight charges,
7. errors in determining item weights, and
8. differences in interpretations of rules and tariffs.
Normal bill auditing may detect these errors before payment is made, and a corrected freight
bill may be issued. Otherwise, up to 3 years is allowed for overcharge claims on inter-region
shipments.
The reparation claim results from a type of overcharge. Because common carriers are required
by law to charge reasonable rates, the published rate paid by the shipper may later be declared
by the regulatory agency or the court to be unreasonable.
INTERNATIONAL DOCUMENTATION
Importing and exporting goods requires many more documents than domestic shipments since
multiple carriers, languages, governments, and currencies are often involved. A listing of the
more popular documents and their purposes follows:
Exporting
Bill of lading—receipt for the cargo and a contract for transportation between the shipper and
the carrier.
Dock receipt—used to transfer accountability for cargo between domestic and international
carrier.
Delivery instructions—provide specific instructions to the inland carrier regarding delivery of
the goods.
Letter of credit—financial document guaranteeing payment to the shipper for the cargo being
transported.
Consular invoice—used to control and identify goods shipped to particular countries.
Commercial invoice—bill for the good from the seller to the buyer.
Certificate of origin—used to assure the buying country precisely in which country the goods
were produced.
Insurance certificate— A document issued by an insurance company/broker that is used to
verify the existence of insurance coverage under specific conditions granted to listed
individuals. Insurance certificate issued by an insurer to a shipper as evidence that a shipment of
merchandise is covered under a marine policy.
Transmittal letter—a list of the particulars of the shipment and a record of the documents
being transmitted, together with instructions for disposition of the documents.
Importing
Arrival notice—informs the party receiving the shipment of the estimated arrival time of the
shipment along with some details of the shipment.
Customs entries—a number of documents describing the merchandise and its origin and duties
that aid in expediting clearance of the goods through customs, with or without the immediate
payment of duties.
Carrier’s certificate and release order—certifies to customs the owner or consignee of the
cargo.
Delivery order—issued by the consignee to the ocean carrier as authority to release the cargo
to the inland carrier.

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Freight release—evidence that the freight charges for the cargo have been paid.
Preparation of this paperwork is facilitated by the many foreign-trade specialists who can aid
the shipper and the receiver of goods moving internationally.
Auditing Freight Bills
For-hire carriers have a responsibility not to overcharge or undercharge shippers for their
services. The traffic manager is especially concerned that his company not be overcharged.
Errors in computing rates can occur due to incorrect rates, product descriptions, weights, and
routing.
Traffic departments may audit their own freight bills. They justify this effort based on the
projected rebates that can be found. Companies are now aided in this effort by elaborate rating
and routing computer programs. Alternately, companies may contract with an outside agency
to audit the bills. The outside firm will typically work on a percentage of the overcharges that
are found.
Tracing and Expediting
At times the traffic manager may have a need to know where a shipment is while in transit. A
common reason is that a shipment has not arrived by a promised delivery time and a customer is
anxious for delivery. Many common carriers now have extensive computer networks to locate
shipments anywhere within their transport systems. Tracing is usually part of the regular
service offered by common carriers to their customers.
Expediting is an action taken by a traffic department to move a shipment through the
transportation system more rapidly than normal. Carriers may either provide rush service on
shipments free of charge or offer expedited service for premium.

Small Shipments
The traffic manager is usually looking for ways that he or she can reduce the total transportation
bill for the company. Small shipments represent an area of opportunity. As small shipments
are consolidated into large shipments, substantial cost reductions can be achieved. The smaller
the shipment size, the greater the benefit from consolidation. However, there is typically a
disadvantage to consolidating shipments. That is, in order to build large quantities to ship at
one time, orders must be held. This may degrade customer service and cause some loss in
revenue to the company.
3.2 PRIVATELY CONTROLLED TRANSPORTATION
A company typically acquires the means of transportation by outright equipment ownership or
through leasing. Not all modes are likely to be privately controlled. Few companies would
consider owning or leasing a pipeline or a railroad. Some companies do have their own ships or
aircraft that are used primarily for freight movement. Usually the firm that controls its own
transportation is controlling a fleet of trucks. Because of this, our attention will mainly be
directed at the problems associated with trucking operations.
One of the primary reasons for fleet ownership or leasing is to realize lower costs and better
delivery performance than is possible through the use of common carriers. Decision problems
of the traffic manager generally focus on fleet utilization. Improved utilization translates into
fewer trucks and lower fleet-operating costs.

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Routing--is the problem of directing vehicles through a network of highways, rivers, or
airways. Movement is by the shortest distance, time, or combination of these. Although
various route combinations can be tested by manual methods, when the problem involves many
possible routes and/or the problem must be solved frequently, mathematical approaches that can
be computerized are attractive. One popular method is called the shortest-route method, and it
lends itself to either hand calculation or computer programming.
The routing problem may also involve multiple origin and destination points. It then must be
solved considering the supply-capacity restrictions of the origin points, the demand
requirements of the destination points, as well as the costs associated with the various routes.
Vehicle Scheduling--when a firm owns transport equipment, it frequently encounters the
problem of dispatching the equipment from a home-base point to a series of stop off points and
then returning to the home base. Such a problem is common to local-airline freight-delivery
operations, school-bus routing, and replenishment deliveries to supermarkets from a central
warehouse.
The planning problem involved is one of determining:
1. The number of vehicles needed,
2. Their sizes,
3. The stop off/pick up points on a given vehicle's route, and
4. The sequences of stop off/pick up points.
For the typical scheduling problem involving many points and many vehicles, the number of
ways in which the vehicles can be used is enormous. Because of this, principles that result in
good solutions can be very useful.
Practical designs can usually be achieved by applying the following rules:
1. Begin with the points farthest from the depot.
2. Find the next available point that is nearest to the center of the points in the cluster. Add
this point to the cluster (vehicle) if the vehicle capacity is not exceeded.
3. Repeat step 2 until the vehicle capacity is reached.
4. Sequence the stops in the form of a teardrop.
5. Find the next farthest unassigned stop from the depot and repeat steps 2-4.
6. Continue until all points are assigned.
Forming routes in this manner can give consistently good route designs.
Dispatching--dispatching trucks to make pickups and deliveries might be considered the
same problem as vehicle scheduling. The primary difference is that in vehicle scheduling it is
assumed that the volume and the stops are known before the schedule is developed. In practice,
this is not always the case.
Route Sequencing--at times the traffic manager may be less concerned about the route
design than about minimizing the number of trucks needed to meet a schedule. This requires
sequencing routes in a manner that will minimize the idle time in the schedule and therefore the
number of trucks needed.
Load Balancing--a common concern when managing a private fleet is the balancing of the
forward hauls with back haul. A truck may be loaded to full capacity outbound from its depot
to make deliveries and return empty once deliveries are made. For better utilization of

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equipment, traffic managers have become aware of using the back haul to move goods back to
the depot, usually from the company's own vendors.

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