Appendix B: The Role of Consolidated shipments and Service Quality
For long distance consolidated haulage, the haulier will employ large vehicle-
vessels carrying large consolidated consignments, whereas for short distances, small
vehicle-vessels carrying small consignments are used. Haulage contractors dealing
with many clients will realise this principle by ‘break bulk’ logistics methods. Here,
individual small deliveries from firms are picked up using various small vehicle-
vessels, carrying small total shipments. These travel a short distance to a consolidation
depot. These individual shipments are then grouped together to form a single very
large consignment, which travels the long-haulage length to a similar distribution
depot. From here, small individual consignments travel the short distances to the
various customers. The vast majority of the haulage operation is carried out by having
a large volume consolidated consignment batch travelling the long distance using a
large vehicle-vessel, which will be calculated according to Economic Order Quantity
principles described here. The structure of the logistics-costs faced by the haulage firm
is the same as that of our logistics-costs expressions here, except that unless the firm
is a bonded carrier, it will not pay capital finance costs on its inventory, only insurance
plus space handling costs. In the case where the haulage firm has control over the
logistics operation involving the consolidation of deliveries to and from a variety of
firms, the total transport costs facing an individual customer firm rise in proportion to
the square root of the haulage distance, but will be more or less linear with respect to
the haulage weight. There are two reasons for this. First, where third party hauliers
control the logistics operation, they organise a standard timetable of shipments
according to the overall expected level of demand for their services between various
locations per time period. The concern of the haulier here is to fill each individual
vehicle shipment capacity so as to maximise the revenue per shipment, and so be able
to charge as low a rate as possible. As the shipment contains goods from many firms,
all individual units of goods will be charged the same per ton-mile rate as each other.
Therefore, for any distance of haulage, the transport rate will be invariant with respect
to the weight of material being moved for an individual client (Bayliss and Edwards
1970), except for discount. Similarly, in order to cover the insurance costs of their
shipments the haulier will charge each customer a fixed rate per individual shipment
per customer, which when consolidated with those from other customers, will cover
the shipment insurance costs of the consolidated shipments (Chisholm 1971).
The second reason why haulage transport costs should be invariant with
respect to the haulage weight of any particular customer is the quality of the delivery
service (Allen and Liu 1995; Allen et al. 1985). The quality of the delivery service can
be defined as the probability that any individual unit of good carried between two
points will be delivered within a particular time period. If m rises unexpectedly, if Q*
is proportional to the square root of m, as m increases, the delivery frequency falls
with respect to 1 / Jm , and the transport cost per ton-mile falls in proportion to
1 / -Jm . What this means is that for a particular single unit of m, the probability of this
being delivered within a particular time period falls in proportion to 1 / -Jm . In the
case of a haulage firm carrying consolidated consignments containing individual units
of m from many customers, in order to ensure that the particular service level between
two points is maintained whatever the level of m, the delivery batch size must be
proportional to m while still being proportional to 1 / -Jd. In this case, the transport
cost per ton-mile will be constant for any level of m . However, this form of delivery
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