Jean-Paul Rodrigue (2013), New York:
Routledge, 416 pages.
Logistics and Freight Distribution
Authors: Dr. Jean-Paul Rodrigue and Dr. Markus Hesse
1. The Nature of Logistics
The growing flows of freight have been a fundamental component
of contemporary changes in economic systems at the global,
regional and local scales. These changes are not merely
quantitative with more freight in circulation, but also structural
and operational. Structural changes mainly involve manufacturing
systems with their expanded geography of production, while
changes mainly concern freight transportation with its geography
of distribution, namely intermodal transport systems. As such, the fundamental question does
not necessarily reside in the nature, origins and destinations
of freight movements, but how this freight is moving.
New modes of production are concomitant with new modes of
distribution, which brings forward the realm of logistics;
the science of physical distribution.
Logistics involves a wide set of activities dedicated
to the transformation and distribution of goods, from raw
material sourcing to final market distribution as well as
the related information flows. Derived from Greek logistikos
(to reason logically), the word is polysemic. In the Nineteenth
century the military referred to it as the art of combining
all means of transport, revictualling and sheltering of
troops. Today it refers to the set of
for goods to be made available on markets or to specific
The application of logistics enables a greater efficiency
of movements with an appropriate choice of modes, terminals,
routes and scheduling. The implied purpose of logistics
is to make available goods, raw materials and commodities,
fulfilling four major
requirements related to order, delivery, quality and
cost fulfillment. Logistics is thus a multidimensional
value added activity
including production, location, time and control of elements
of the supply chain. It thus enables a better managerial
level of space-time relations and as such an important
aspect of transport geography. Logistics acts as the material and organizational
support of globalization requiring a
complex set of decisions
to be made concerning an array of issues such as the location
of suppliers, the transport modes to be used and the timing
and sequencing of deliveries.
Logistics and supply chain
management are becoming increasingly blurred and are
often used interchangeably. Previously, logistics tended
to focus on transportation and warehousing
aspects, while supply chain management would
consider sourcing and well as final distribution. In
recent years the meaning of both has converged.
Thus, we consider logistics and supply chain
management as similar. Activities comprising logistics
include physical distribution; the derived transport
segment, and materials management; the induced transport
Physical distribution is the collective term for
the range of activities involved in the movement of goods
from points of production to final points of sale and consumption.
It must insure that the mobility requirements of supply
chains are entirely met. Physical distribution includes
all the functions of movement and handling of goods, particularly
transportation services (trucking, freight rail, air freight,
inland waterways, marine shipping, and pipelines), transshipment
and warehousing services (e.g. consignment, storage, inventory
management), trade, wholesale and, in principle, retail.
Conventionally, all these activities are assumed to be derived
from materials management demands.
Materials management considers all the activities
involved in the manufacturing of commodities in all their
stages of production along a supply chain. It includes production
and marketing activities such as production planning, demand
forecasting, purchasing and inventory management. Materials
management must insure that the requirements of supply chains
are met by dealing with a wide array of parts for assembly
and raw materials, including packaging (for transport and
retailing) and, ultimately, recycling discarded goods and
commodities. All these activities are assumed to be inducing
physical distribution demands.
The close integration of physical distribution and materials
management through logistics is blurring the reciprocal
relationship between the derived transport demand function
of physical distribution and the induced demand function
of materials management. This implies that distribution,
as always, is derived from materials management activities
(namely production), but also, that these activities are
coordinated within distribution capabilities. The functions
of production, distribution and consumption are difficult
to consider separately, thus recognizing the
integrated transport demand
role of logistics. Distribution centers are the main
facilities from which logistics are coordinated.
Distribution Center. Facility or a group of facilities
that perform consolidation, warehousing, packaging, decomposition
and other functions linked with handling freight. Their
main purpose is to provide value-added services to freight,
which is stored for relatively shorts periods of time (days
or weeks). DCs are often in proximity to major transport
routes or terminals. They can also perform light manufacturing
activities such as assembly and labeling. A warehouse
is a facility designed to store goods for longer periods
of time. Therefore, a distribution center tends to focus
on the demand while a warehouse is more driven by the
Since it would be highly impractical to ship directly goods
from producers to retailers,
centers essentially act as a buffer where products are
assembled, sometimes from other distribution centers, and
then shipped in batches. Distribution centers are established
in part to deal with to different forms of
asynchronisms in freight
distribution such as different paces of production and
consumption. Distribution centers commonly have a market
area in which they offer a service window defined by delivery
frequency and response time to order. This structure looks
much like a hub-and-spoke network.
The wide array of activities involved in logistics, from
transportation to warehousing and management, have respective
costs. Once compiled, they express the burden that logistics
impose on distribution systems and the economies they support,
which is known as the total logistics
costs. Costs are however not the only consideration
in supply chain management since supply chains can also
by time, reliability and risk level. The nature and efficiency
of distribution systems is strongly related to
the nature of the economy
in which they operate.
Worldwide logistics expenditures
represent about 10-15% of the total world GDP. In economies
dependent on the extraction of raw materials, logistical
costs are comparatively higher than for service economies
since transport costs account for a larger share of the
total added value of goods. For the transport of commodities,
logistics costs are commonly in the range of 20 to 50% of
their total costs.
The emergence of logistics in contemporary supply chains
is based upon continuous
improvements in transport and inventory management costs,
leading to lower cycle and lead times.
Cycle time. The amount of time required
from the receipt of an order to when this order is completed
(assembled) and ready for delivery. Often labeled as the
completion rate and is mostly linked with the function of
production in the manufacturing sector; its level of responsiveness.
Lead time. The time it takes for an order
to be fulfilled, which includes preparation, packing and
delivery to a designed location. Often labeled as the arrival
rate and is mostly linked with the function of distribution,
mainly its efficiency and reliability; its level of responsiveness.
Before the emergence of online purchases, customers were
rarely exposed to the concepts of cycle times and lead times
since goods were directly purchased at a store. The customer
was seeing the outcome of cycle and lead times, but not
the process. An
particularly if it concerns a complex and customizable good
(e.g. a computer) commonly includes the time it takes for
the order to be ready for shipment and the delivery time
from the distribution center to the customer's address.
2. Driving Forces in Supply Chain Management
Lean supply chains, as a managerial concept,
is often labeled as seminal in the emergence of modern supply
chains where inventory levels are kept at a minimum and
where a large share of the inventory is in constant circulation.
Typically, the manufacturing sector has 6 to 8 inventory
turns per year. In the electronics sector, this can even
be more frequent with 10 to 20 inventory turns per year. During
the 1980s, the application of flow control
permitted to reduce inventories in time-sensitive manufacturing
activities from several days' worth to several hours. Much
of these efforts initially took place within the factory,
while supply and output flowed as batches from suppliers
and to distributors. In the 1990s, with the convergence
of logistics and information and communication technologies
(ICT), this principle was increasingly applied to the whole
supply chain, particularly to the function of distribution.
Another important requirement was containerization,
which conferred substantial flexibility to production systems
in addition to the container being its own storage unit.
The expansion of standard transport infrastructure such
as highways, terminals and airports was also essential for
the development of modern logistics. Logistics and integrated
transport systems are therefore related, particularly because
of the container which has concomitantly become a unit of
(transport), production and distribution. The technological
dimension of logistics can thus be considered from six
is within a paradigm shift
from inventory-based logistics (push) to replenishment-based
logistics (pull). Demand, particularly in the retailing
sector, is very difficult to anticipate accurately and
is prone to cycles. A closer
integration between supply and demand enables a more efficient
production system with fewer wastes in terms of unsold inventory.
Logistics is thus a fundamental component of efficiency
improvements in a market economy.
In a broader sense distribution systems are embedded in
a changing macro- and microeconomic framework, which can
be roughly characterized by the terms of flexibility and
- Transportation modes. Modes have been the object
of very limited technological changes in recent decades.
In some cases, modes have adapted to handle containerized
operations such as road and rail (e.g. doublestacking).
It is maritime shipping that has experienced the most
significant technological change, which required the
construction of an entirely new class of ships and the
application of economies of scale to maritime container
- Transportation terminals. The technological changes
have been very significant with the construction of new
terminal facilities operating on a high turnover basis.
Better handling equipment lead to improvements in the velocity
of freight at the terminals, which are among the most significant
technological changes brought by logistics in materials
movements. In such a context, the port has become one of
the most significant terminals supporting global logistics.
Port facilities are increasingly being supported by an array
of inland terminals connected by high capacity corridors.
- Distribution centers and distribution clusters.
Technological changes impacted over the location, design
and operation of distribution centers; the facilities handling
the requirements of modern distribution. They serve
depending on the combination of fabrication, storage and
distribution functions they perform within their supply
chains. Modern distribution centers tend to consume more
space, both from the site they occupy and the building area.
From a locational standpoint, distribution centers mainly
rely on trucking, implying a preference for
suburban locations with
good road accessibility supporting a constant traffic. They
service regional markets with a 48 hours service window
(lead time) on average, implying that replenishment orders
from their customers are met within that time period. They
have become one floor facilities designed more for throughput
than for warehousing with specialized loading and unloading
bays and sorting equipment.
Cross-docking distribution centers represent one of
the foremost expressions of a facility that handles freight
in a time sensitive manner. Automation is also pushing forward
the productivity level of distribution centers. For instance,
it is possible to fully automate the sorting, storing and
palletizing processes in a distribution center. Another
trend has been the setting of
clusters where distribution activities agglomerate
to take advantage of shared infrastructures and accessibility.
This tends to expand the added-value
performed by logistics.
- Load units. Since logistics involves improving
the efficiency of flows, load units have become particularly
important. They are the basic physical management unit in
freight distribution and take the form of pallets, swap
bodies, semi-trailers and containers. Containers are the
privileged load unit for long distance trade, but the growing
complexity of logistics required a more specific level of
load management. The use of bar codes and increasingly of
RFID (Radio Frequency Identification Device) enables a high
level of control of the load units in circulation.
- Information technologies. Consider
the vast array of information processing changes brought
by logistics. The commodity chain is linked with physical
flows as well as with information flows, notably through
Electronic Data Interchange (EDI). Producers, distributors
and consumers are embedded in a web of reciprocal transactions.
Standardization of Internet-based applications enabled
corporations to establish interfaces with their
While these transactions mostly take place virtually, their
outcomes are physical flows. The commercial diffusion of
Global Positioning Systems (GPS) is now allowing for the
identification and routing of vehicles and therefore a
better utilization of these assets. The outcome is often
more efficient production and distribution planning with
the additional convenience of tracking modes, shipments
and inventories and thus giving a greater visibility for
- Ecommerce. Ecommerce offers
advantages for the whole commodity chain, from consumers
being exposed to a wider range of products to
manufacturers and distributors being able to adapt
quickly to changes in the demand. Ecommerce generates a
lot of home deliveries parcel movements that are carried
by conventional postal services as well as specialized
parcel carriers. In the United States, about 70% of home
deliveries are made by the United States Postal
Services, while the remaining 30% is carried by private
parcel companies. Fulfillment (warehousing, packaging)
costs account for 10 to 12% of the revenue of ecommerce,
while shipping and delivery costs added up another 10%. Ecommerce is also
inciting shifts in
retail freight distribution with the setting of new
fulfillment and sortation centers. As retail sales
get partially replaced by online sales the need for
conventional retail space declines while the
footprint occupied by distribution center increases.
The flow-oriented mode affects almost every single activity
within the entire process of value creation. The core component
of materials management is the supply chain, the time- and
space-related arrangement of the whole goods flow between
supply, manufacturing, distribution and consumption. Its
major parts are the supplier, the producer, the distributor
(e.g. a wholesaler, a freight forwarder, a carrier), the
retailer, the end consumer, all of whom represent particular
interests. Compared with conventional freight transport systems,
the evolution of supply chain management and the emergence
of the logistics industry are mainly characterized by three
- Flexibility implies a highly differentiated,
strongly market and customer driven mode of creating added-value.
Contemporary production and distribution is no longer subject
to single-firm activity, but increasingly practiced in networks
of suppliers and subcontractors. The supply chain bundles
together all this by information, communication, cooperation,
and, last but not least, by physical distribution.
- Globalization means that the spatial frame for
the entire economy has been expanded, implying the spatial
expansion of the economy, more complex global economic integration,
and an intricate network of global flows and hubs.
While many manufacturing corporations may have own
transportation, increasingly the complex needs
of the supply chain are being contracted out to third parties.
Depending on the strategy and costs corporations can outsource
in whole or in part their transport and supply chain operations.
Third party logistics providers (3PL) have emerged
from traditional intermediaries such as the forwarders,
or from transport providers such as FEDEX or Maersk. Both
groups have been at the forefront of the intermodal revolution
that is now assuming more complex organizational forms and
importance. In offering door to door services, the customer
is no longer aware or necessarily concerned with how the
shipment gets to its destination, namely the modes used
and the routing selected. The preoccupation is with cost,
reliability and level of service. This produces a paradox,
that for the customer of intermodal services geographic
space becomes meaningless; but for the intermodal providers
routing, costs and service frequencies have significant
geographical constraints. The effectiveness of intermodal
transport systems is thus masking the importance of transportation
to its users.
Logistics is thus concomitantly concerned by distribution
costs and time. In addition, many dimensions are added
to the function of distribution. While in the past it was
a simple matter of delivering an intact good at a specific
destination within a reasonable time frame, several components
have become linked with distribution:
- Integration. A fundamental restructuring of goods
merchandising by establishing integrated supply chains with
integrated freight transport demand. According to macro-economic
changes, demand-side oriented activities are becoming predominant.
While traditional delivery was primarily managed by the
supply side, current supply
chains are increasingly managed by the demand.
- Time mitigation. Whereas transport was traditionally
regarded as a tool for overcoming space, logistics is concerned
with mitigating time. Due to the requirements of modern
distribution, the issue of time is becoming increasingly
important in the management of commodity chains. Time is
a major issue for freight shipping as it imposes inventory
holding and depreciation costs, which becomes sensitive
for tightly integrated supply chains.
- Specialization. This was achieved by shifts towards
vertical integration, namely subcontracting and outsourcing,
including the logistical function itself.
are becoming complex and time-sensitive to the point that
many firms are now sub-contracting
parts of their supply chain management to what can be called
third-party logistics providers (3PL; asset based).
More recently, a new category of providers, called fourth-party
logistics providers (4PL; non asset based) have emerged.
4. Geography of Freight Distribution
Logistics has a distinct geographical dimension, which is
expressed in terms of flows, nodes and
networks within the supply chain. Space / time
convergence, a well known concept in transport geography
where time was simply considered as the amount of space
that could be traded with a specific amount of time,
including travel and transshipment, is being transformed
by logistics. Activities that were not previously
considered fully in space / time relationships, such as
distribution, are being integrated. This implies an
organization and synchronization of flows through nodes
and network strategies.
The traditional arrangement of goods flow included the processing
of raw materials to manufacturers, with a storage function
usually acting as a buffer. The flow continued via wholesaler
and/or shipper to retailer, ending at the final customer.
Delays were very common on all segments of this chain and
accumulated as inventories in warehouses. There was a limited
flow of information from the consumer to the supply chain,
implying the producers were not well informed (often involving
a time lag) about the extent of consumption of their outputs.
This procedure is now changing, mainly by eliminating one
or more of the costly operations in the supply chain organization.
Reverse flows are also part of the supply chain, namely
for recycling and product returns. An important physical
outcome of supply chain management is the concentration
of storage or warehousing in one facility, instead of several.
This facility is increasingly being designed as a
flow- and throughput-oriented
distribution center, instead of a warehouse holding
cost intensive large inventories.
Due to new corporate strategies,
a concentration of logistics functions in certain facilities
at strategic locations is prevalent. Many improvements in
freight flows are achieved at terminals. Facilities are
much larger than before, the locations being characterized
by a particular connection of regional and long-distance
relations. Traditionally, freight distribution has been
located at major places of production, for instance in the
manufacturing belt at the North American east coast and
in the Midwest, or in the old industrialized regions of
England and continental Europe. Today, particularly the
large-scale goods flows are directed through major gateways
and hubs, mainly large ports and major airports, also
highway intersections with access to a regional market.
The changing geography of manufacturing and industrial production
has been accompanied by a changing geography of freight
distribution taking advantages of
The spatial structure of contemporary transportation networks
is the expression of the spatial structure of distribution.
The setting of networks leads to a shift towards larger
distribution centers, often serving significant trans-national
catchments. However, this does not mean the demise of national
or regional distribution centers, with some goods still
requiring a three-tier distribution system, with regional,
national and international distribution centers. The structure
of networks has also adapted to fulfill the requirements
of an integrated freight transport demand, which can take
many forms and operate at different scales. Most freight
distribution networks, particularly in retailing, are facing
the challenge of the "Last
Mile" which is the final leg of a distribution
sequence, commonly linking a distribution center and a customer
Since cities are at the same time zones of production, distribution
and consumption, the realm of
is of growing importance. This issue is made even more complex
by a growing dislocation between production, distribution
and consumption, brought by globalization, global production
networks, and efficient freight transport systems and logistics.
This dislocation has incited a growing emphasis on issues
chain integration so that in spite of acute geographical
separation physical and managerial processes have minimal
friction. How challenging individual countries are perceived
to be in the setting and management of supply chains can
be assessed, as done by the Logistic
Performance Index. It underlines that
logistical costs in developing countries tend to be
higher, which undermines economic development for the main
- Distribution time, notably the possibility to
set a very specific ETA for deliveries and a low tolerance
- The reliability of distribution measured in terms
of the availability of the ordered goods and the frequency
at which orders are correctly serviced in terms of quantity
- The flexibility of distribution in terms of possible
adjustments due to changes in the quantity, the location
or the delivery time.
- The quality of distribution concerns the condition
of delivered goods and if the specified quantity was delivered.
In such a context, reforms have been advocated to promote
the effectiveness of logistics services and therefore
vicious cycle in which several developing countries
are entangled in. This involves a series of reform, pending
the capacity to overcome political constraints and the inertia
(and commonly rent seeking behavior) of established stakeholders,
concerning service providers, infrastructure investment
as well as the administrative and regulatory environment.
- The regulatory complexity of distributing
goods in developing countries involves higher logistic costs
and is inciting distributors to maintain higher inventory
levels to cope with uncertainty. Custom regulations are
complex and prone to delays and road transportation can
be subject to
arbitrary tolls and inspections. This is reflected in
higher final goods or component prices that are assumed
directly or indirectly by consumers.
- Labor and infrastructure productivity
in developing countries tend to be lower, which in many
cases doubles logistics costs. The advantages of cheap labor
can often be counterbalanced by lower levels of productivity.
This also impacts the reliability of freight distribution
with unreliable lead times and deliveries.
- Modal and intermodal capacity is inconsistent.
While several terminal facilities, particularly ports, are
modern with capacity on par with global standards, hinterland
transportation can be problematic with road segments unable
to effectively handle trucks of standard capacity.