The Logistics Industry
Table of Contents
The resources in a society are distributed by the logistics industry or system. This has the following components:
- Transportation
This moves goods between locations via various modes (road, rail, air, sea, pipeline).
- Warehousing
The storage and management of inventory at strategic points.
- Inventory Management
Determining the optimal levels and locations for stock.
- Information Flow
The seamless exchange of data (orders, tracking, delivery status) to ensure coordination.
Essential Industry Players
- Carriers
These are the companies that physically own and operate the transport assets:
- Air Carriers: Airlines (e.g., FedEx, Lufthansa Cargo) that transport goods via air freight.
- Ocean Carriers: Shipping lines (e.g., Maersk, COSCO) that own and operate container ships.
- Road Carriers: Trucking companies and hauliers.
- Freight Forwarders
Freight Forwarding is the coordination and shipment of goods via a single or multimodal carrier. The forwarder handles all necessary paperwork, customs clearance, and insurance on behalf of the shipper.
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Third-Party Logistics Providers (3PLs): a 3PL provides outsourced logistics services for part, or all, of a company’s supply chain management functions. Services can include warehousing, transportation, cross-docking, and inventory management.
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The Last Mile: the final leg of the delivery process—the movement of goods from a transportation hub (like a distribution center or port) to the final destination, typically the consumer’s home or a retail store.
This stage is disproportionately important and costly. While it is the shortest distance, it often accounts for over 50% of the total shipping cost due to:
Low Density: Delivering one package to one customer at a time.
Congestion: Dealing with urban traffic and parking restrictions.
Failed Deliveries: The need for re-delivery attempts if the recipient is unavailable.
The optimization of last-mile delivery is a primary focus for e-commerce and retail logistics today.
- Critical Documentation in Transport
Bill of Lading (B/L or BoL)
This document is issued by a carrier (or forwarder) to acknowledge receipt of cargo for shipment. It serves 3 main purposes:
- Contract of Carriage: Evidence of the terms under which the goods are transported.
- Receipt of Goods: Proof that the carrier received the goods in acceptable condition.
- Document of Title (Negotiable B/L): Allows the holder to claim ownership of the goods.
Air Waybill (AWB)
This is a non-negotiable document used for air freight.
It:
- is issued by the carrier or the freight forwarder
- specifies the contract between the shipper and the carrier
- serves as a receipt for the shipper and includes tracking and destination details
Unlike a Bill of Lading, it is NOT a document of title.
Incoterms
Incoterms (International Commercial Terms) are a globally recognized set of 11 rules published by the International Chamber of Commerce (ICC).
They define the responsibilities, costs, and risks associated with the delivery of goods between sellers and buyers.
The terms clearly state:
- Who pays for what (transportation, insurance, duties)
- Where the risk transfers from the seller to the buyer
- Where the seller delivers the goods
| Incoterm | Seller’s Responsibility (Delivery & Risk Transfer) | Buyer’s Responsibility (Risk starts) |
|---|---|---|
| EXW Ex Works | Minimal: Make goods available at seller’s premises | Takes risk from the moment goods leave seller’s premises. |
| FOB Free On Board | Deliver goods on board the vessel at the named port of shipment. | Takes risk once goods are on the ship; pays main carriage. |
| DDP Delivered Duty Paid | Maximal: Deliver goods to the buyer’s named destination, ready for unloading, cleared for import, and all duties paid | Takes risk only when goods arrive at the final destination. |
Tariffs and Non-Tariff Barriers
Tariffs are taxes or ‘customs duties’ paid on specific categories of imports or exports. These require documentation and payment must be managed at the border (unless DDP is used).
Non-Tariff Barriers (NTBs) are Non-tax regulations that restrict trade, such as quotas, import licenses, specific safety or technical standards (e.g., labeling or electrical certifications), and sanitary requirements.
Increases compliance costs, potentially requires specialized handling or packaging, and can cause significant delays at customs checkpoints if documents are missing.
Penalties and Operational Charges
When a shipment encounters delays, specific fees are levied to compensate carriers or facility owners for the use of their equipment or space beyond the agreed free time.
| Term | Definition | Impact on Supply Chain |
|---|---|---|
| Demurrage | A charge payable to the shipping line for delaying their container past the “free time” while it is still inside the port terminal | Delays cargo pickup from the port, increasing import costs |
| Detention | A charge payable to the shipping line for delaying the container past the “free time” while it is outside the port terminal (e.g., at the consignee’s warehouse for loading/unloading) | Extends the time the container is out of circulation, impacting carrier fleet capacity. |
| Storage | A charge imposed by the port authority (terminal operator) for using their space to store a container past the “free time.” | Increases terminal operating costs and congestion. |
Multimodal vs. Intermodal Transport
These terms describe how goods are moved using multiple modes of transport.
Multimodal Transport is where a single contract of carriage is used for a journey involving multiple modes (e.g., road, rail, sea). The carrier (often a forwarder) is responsible for the entire journey. This has one Contract, One Operator.
Intermodal Transport uses 2 or more modes of transport, but each leg of the journey is covered by a separate contract with a separate carrier. This has Multiple Contracts, Multiple Operators.