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Question 3: What are the economic or commercial factors
underlying thechoice of transport mode in this type of
Business?
Bulk commodities mode of transport is determined by both
commercial andeconomic factors. Commercial factors include the
transit time, predictability and
costs of the transport mode chosen; economic factors include
economies of scale,government restrictions and policies, and
infrastructure. 1 Due to bulk commoditiesbeing of high volume and
low value commodities which are subject to transporteconomies,
costs are a highly important factor to consider when determining
thechoice of transport mode.
The mode of transport chosen is an important factor as bulk
commodities aretransported in large quantities (usually in tonnes)
to a number of different locations.Economies of scale are
advantageous as it lowers transportation costs when largequantities
are transported at one time. Bulk commodities choices of
transportationinclude water, rail, air, or pipeline. 2 However, the
type of transport is also
determined by the type of commodity being transported, for
example, commoditiessuch as gases and liquids are transported in
modified pipeline ships which containtanks to hold liquid
commodities.
Furthermore, the type of commodity involved usually determines
the mode oftransport. For example, transport through sea is used
for commodities such as coal,ore and grain. If the business choice
of transport is shipment, then the shipper mustcompare the service
desired with the rate or cost of service.3 This service includesthe
transit time in which the consignor makes the goods accessible for
dispatch tothe time the carrier delivers the goods to the
consignee. 4 All transportation aspectssuch as pick up and
delivery, terminal handling and the transportation from place
oforigin to the destination are included in the transit time.The
firm must alwaysconsider the costs involved in the chosen mode of
transport. Costs include theservice rate charged, minimum weight
requirements, loading and unloading facilitiesand other services
required. However, in the case of bulk commodities, transit time
isnot important as consumer goods and high tech products as bulk
commoditiesmaintain a regular supply and are unlikely to run out of
these commodities.
Another commercial factor to consider is in the mode of
transportation ispredictability. This factor is highly important in
relation to the time period required forbulk commodities to leave
their origin and reach their final destination. If delays
occur when delivering these commodities in terms of loading and
unloading, terminalhandling, storage and possible damage to the
goods during transit, then it will result
1Scott, N., Lecture 6: Transport &Logistics (1): Nature of
the Industry & Choice of Mode, accessed
2nd
April 2013.2Scott, N., Lecture 6: Transport & Logistics (1):
Nature of the Industry & Choice of Mode, accessed
2nd
April 2013.3R.A. Inman, (2013), Logistics and Transportation
Reference for Business Encyclopedia of Business
2nd
Ed., accessed 9th
April
2013.http://www.referenceforbusiness.com/management/Log-
Mar/Logistics-and-Transportation.html#b4
R.A. Inman (2013), Logistics and Transportation Reference for
Business Encyclopedia of Business
2nd
Ed., accessed 9th
April
2013.http://www.referenceforbusiness.com/management/Log-
Mar/Logistics-and-Transportation.html#b
http://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#bhttp://www.referenceforbusiness.com/management/Log-Mar/Logistics-and-Transportation.html#b
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in demurrage costs as a result of delays in port issues and lack
of speed inequipment used to unload the commodities. In the case of
this business type,predictability is critical as a steady supply of
these commodities is vital as countriesare unable to wait for some
commodities, e.g. iron ore or coal. For example,Australias
second-largest export commodity is back coal and it exports to the
five
largest coal users China, USA, India, Russia and Japan.5
Japan takes 39.3% ofAustralias black coal exports, which is the
largest share. 6 Without a steady supplyof black coal from
Australia, Japan would not be able to continue functioning
withoutelectricity generation, steel production and liquid fuel.
7
In terms of economical factors, government restrictions and
policies also affect thechoice of transport mode for bulk
commodities. Australia must comply with thepolicies, restrictions
and regulations provided by the International MaritimeOrganisation
when transporting bulk commodities to overseas locations.
Theserestrictions, policies and regulations Policies regarding the
IMO include theInternational Maritime Solid Bulk Cargoes Code
(IMSBC Code) which is a mandatory
code outlining the procedures of safe stowage and shipment of
solid bulk cargoesand also information in regards to the dangers
linked with some bulk cargos anddirections on how the deal with
such issues. 8 Also, the international Code of SafePractice for
Solid Bulk Cargoes (BC Code) also contains suggestions
forGovernments, shipmasters and ship operators with the aim of
providinginternationally accepted procedures of dealing with risks
to safety that may occurwhen carrying bulk commodities. 9 The IMO
have also developed regulationsgoverning the carriage of chemicals
in bulk, on chemical tankers, and chemicalscarried in packaged form
which all ships must adhere to when transporting bulkcommodities to
distant locations.
To conclude, infrastructure is an important factor as many
destinations in which bulkcommodities are exported to may not be
equipped with rail or roads. In such cases,inland waterways (rivers
and canals) are used to transport the goods to theirdestinations.
This impacts on the mode of transport chosen as the transporting
shipmust be chosen in terms of size and carrying capabilities or
the commodities will notreach their destination either due to
transport difficulties or the ship capsizingbecause it is unable to
carry or balance the load.
5Australian Coal Association. (2013). Export. accessed 12
thApril 2013
http://www.australiancoal.com.au/exports.html6 Australian Coal
Association. (2013). Export. accessed 12
th April 2013
http://www.australiancoal.com.au/exports.html7
World Coal Association. (2013). Use of Coal. Accessed 12th
April 2013
http://www.worldcoal.org/coal/uses-of-coal/8
International Maritime Organization (2013) Bulk Carrier Safety.
Accessed 12th
April 2013
http://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspx9
International Maritime Organization (2013) Bulk Carrier Safety.
Accessed 12th
April 2013
http://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspx
http://www.australiancoal.com.au/exports.htmlhttp://www.australiancoal.com.au/exports.htmlhttp://www.australiancoal.com.au/exports.htmlhttp://www.australiancoal.com.au/exports.htmlhttp://www.worldcoal.org/coal/uses-of-coal/http://www.worldcoal.org/coal/uses-of-coal/http://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspxhttp://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspxhttp://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspxhttp://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspxhttp://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspxhttp://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspxhttp://www.worldcoal.org/coal/uses-of-coal/http://www.australiancoal.com.au/exports.htmlhttp://www.australiancoal.com.au/exports.html
