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Question 3: What are the economic or commercial factors underlying the choice of transport mode in this type of Business?

Bulk commodities mode of transport is determined by both commercial and economic 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 commodities being of high volume and low value commodities which are subject to transport economies, costs are a highly important factor to consider when determining the choice of transport mode. The mode of transport chosen is an important factor as bulk commodities are transported in large quantities (usually in tonnes) to a number of different locations. Economies of scale are advantageous as it lowers transportation costs when large quantities are transported at one time. Bulk commodities choices of transportation include water, rail, air, or pipeline. 2 However, the type of transport is also determined by the type of commodity being transported, for example, commodities such as gases and liquids are transported in modified pipeline ships which contain tanks to hold liquid commodities. Furthermore, the type of commodity involved usually determines the mode of transport. 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 must compare the service desired with the rate or cost of service.3 This service includes the transit time in which the consignor makes the goods accessible for dispatch to the time the carrier delivers the goods to the consignee. 4 All transportation aspects such as pick up and delivery, terminal handling and the transportation from place of origin to the destination are included in the transit time. The firm must always consider the costs involved in the chosen mode of transport. Costs include the service rate charged, minimum weight requirements, loading and unloading facilities and other services required. However, in the case of bulk commodities, transit time is not important as consumer goods and high tech products as bulk commodities maintain a regular supply and are unlikely to run out of these commodities. Another commercial factor to consider is in the mode of transportation is predictability. This factor is highly important in relation to the time period required for bulk commodities to leave their origin and reach their final destination. If delays occur when delivering these commodities in terms of loading and unloading, terminal handling, storage and possible damage to the goods during transit, then it will result
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Scott, N., Lecture 6: Transport & Logistics (1): Nature of the Industry & Choice of Mode, accessed 2nd April 2013. 2 Scott, N., Lecture 6: Transport & Logistics (1): Nature of the Industry & Choice of Mode, accessed 2nd April 2013. 3 R.A. Inman, (2013), Logistics and Transportation Reference for Business Encyclopedia of Business nd 2 Ed., accessed 9th April 2013. http://www.referenceforbusiness.com/management/LogMar/Logistics-and-Transportation.html#b 4 R.A. Inman (2013), Logistics and Transportation Reference for Business Encyclopedia of Business 2nd Ed., accessed 9th April 2013. http://www.referenceforbusiness.com/management/LogMar/Logistics-and-Transportation.html#b

in demurrage costs as a result of delays in port issues and lack of speed in equipment 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 countries are 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% of Australias black coal exports, which is the largest share. 6 Without a steady supply of black coal from Australia, Japan would not be able to continue functioning without electricity generation, steel production and liquid fuel. 7 In terms of economical factors, government restrictions and policies also affect the choice of transport mode for bulk commodities. Australia must comply with the policies, restrictions and regulations provided by the International Maritime Organisation when transporting bulk commodities to overseas locations. These restrictions, policies and regulations Policies regarding the IMO include the International Maritime Solid Bulk Cargoes Code (IMSBC Code) which is a mandatory code outlining the procedures of safe stowage and shipment of solid bulk cargoes and also information in regards to the dangers linked with some bulk cargos and directions on how the deal with such issues. 8 Also, the international Code of Safe Practice for Solid Bulk Cargoes (BC Code) also contains suggestions for Governments, shipmasters and ship operators with the aim of providing internationally accepted procedures of dealing with risks to safety that may occur when carrying bulk commodities. 9 The IMO have also developed regulations governing the carriage of chemicals in bulk, on chemical tankers, and chemicals carried in packaged form which all ships must adhere to when transporting bulk commodities to distant locations. To conclude, infrastructure is an important factor as many destinations in which bulk commodities 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 their destinations. This impacts on the mode of transport chosen as the transporting ship must be chosen in terms of size and carrying capabilities or the commodities will not reach their destination either due to transport difficulties or the ship capsizing because it is unable to carry or balance the load.

Australian Coal Association. (2013). Export. accessed 12th April 2013 http://www.australiancoal.com.au/exports.html 6 Australian Coal Association. (2013). Export. accessed 12th April 2013 http://www.australiancoal.com.au/exports.html 7 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.aspx 9 International Maritime Organization (2013) Bulk Carrier Safety. Accessed 12th April 2013 http://www.imo.org/OurWork/Safety/Regulations/Pages/BulkCarriers.aspx