Transportation enterprises provide two major services

  • Product movement - moving inventory (in-transit inventory). 60% of total logistics costs in the US are related to transportation.

  • Product storage - includes storage in transportation vehicles, warehousing and inventory management.
Economies of scale in transportation - the cost per unit of weight decreases as the size of a shipment increases. This is due to the use of larger capacity vehicles (rail/water) and the allocation of fixed costs over a larger base. Economy of distance - the cost per unit of weight decreases as distance increases. Also due to spreading the fixed costs across more weight miles (also known as the tapering principal).

Transportation Participants

  1. The shipper / the consignor
  2. The destination / the consignee
  3. Carriers and agents - uses shipment consolidation and coordinated pickup & delivery times to reduce cost to increase profit. Brokers and freight forwarders facilitate carrier and customer matching.
  4. Government
  5. Internet - marketplace for carriers, and matching freight capacity
  6. The public - wants a safe, environmentally responsible system


Economic Regulation

Economic regulation controlled entry, rates and services, treating each type of transportation independently. The degree of US government control over economic regulation was reduced significantly during the 1980's.

Social Regulation

  • The Federal Department of Transportation (DOT) controls the transport and handling of hazardous material and rules related to driver hours and safety. The Transportation Safety Act of 1974 formally established safety and social regulation.
  • The Hazardous Material Transportation Uniform Safety Act of 1990 established control over equipment design, hazardous material classification, packaging, and handling.
  • The Interstate Commerce Commission (ICC) was formed in 1887. The ICC rules that shipments from warehouses to markets in the same state could be deemed interstate movement if the commodity had originally been shipped from out of state.
  • The Electronic Signatures in Global and National Commerce Act of 2000 gave electronic documents signed by digital signature the same legal status as paper documents.
  • The US Department of Defense (DoD) mandated that its suppliers attach Radio Frequency Identification (RFID) tags to any goods sold to the military.
  • The Jones Act mandates that only US built ships operating under a US flag and with a US crew can ship goods directly from a US port to another US port.