Transportation and Distribution Management
Domain 6 tests mode and carrier selection, load planning, Incoterms, and freight cost management.
Mode and cost rules
Road offers flexibility, rail suits heavy long-haul, air is fast and expensive, ocean is slow and cheap, and intermodal combines modes. Compare total logistics cost: freight, inventory in transit, handling, duties, and service failure cost. Load utilization can be weight-limited or cube-limited. Route optimization, milk runs, and consolidation reduce cost but can increase lead time. Incoterms 2020 define cost and risk transfer, not payment terms: EXW, FCA, FOB, CIF, DAP, and DDP are common.
Worked example
Ship 1,000 kg of product worth $100/kg; carrying cost is 25% per year. Air costs $5/kg and takes 2 days; ocean costs $0.50/kg and takes 30 days. Inventory cost per kg by air is 100×0.25×2/365 = $0.137, total $5.14/kg. By ocean it is 100×0.25×30/365 = $2.055, total $2.56/kg. Ocean is cheaper on total cost, but the 30-day transit may fail a 5-day service requirement, so air is justified by service, not by freight rate alone.
Traps that cost marks
Comparing freight rate only; misunderstanding where risk transfers under Incoterms; ignoring accessorials, detention, and demurrage; assuming a load cubes out when it weighs out; treating Incoterms as payment terms.