Physical Distribution

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Physical Distribution

Economists and business people talk about the movement of goods in and out of business operations as "physical distribution"; it has its counterpart in "materials management," the movement of materials through a plant during production. When these materials movements are considered as part of a system which is planned and managed by people, it is called "logistics." In the commercial sector logistics involves sourcing of materials and marketing of goods, managing the distribution system, and planning and rationalizing materials flow in production.

Physical distribution costs money. The cost of incoming transportation tends to be hidden in the price, but the business owner will feel the price directly if he or she has to ship product any distance or deliver it locally to the consumer. Jean-Paul Rodrique, Claude Comtois, and Brian Slack, in their book titled The Geography of Transportation Systems, estimated that logistics accounts for 10 to 15 percent of worldwide Gross Domestic Product.

MODES AND NODES

Physical distribution, narrowly considered, is based on modes of transport that connect important nodes where goods are temporarily held. The major modes are air, water, rail, and road; to these must be added the highly specialized mode of transporting oil and gas in pipelines. The nodes are warehouses situated in close proximity to major systems of distribution. In the pipeline industry tank farms serve the same role; in gas distribution pumping stations are needed to boost the pressure of gas being moved at intervals.

In pre-industrial times the only effective long-distance mode of transportation was by water; early on ships "coasted" ocean shores, keeping them always in sight until navigation developed and sailors discovered nearby lands either by exploration or by storm-tossed accident; later they crossed oceans; inland they followed rivers, and in part access to water almost determined where major communities were formed. Canals were dug all over the world as this mode developed; their traces are still around but used largely for recreational travel today. In America George Washington was involved in canal construction before making his name as a soldier and father of his country. In current times waterborne shipping carries all imaginable goods in bulk and container vessels; in inland river transportation barge traffic mainly carries commodities—grains, gravel, coal, cement.

The development of the steam engine in the 18th century first influenced water transportation by providing an engine for ships—and in the 19th century led to the almost explosive development of rail as a major mode of transportation. Rail captured the bulk of long-distance goods distribution, of which a very substantial part was coal, the black gold that fueled the industrial revolution. Well into the 20th century the U.S. landscape was overlaid by a system of rails not unlike a fairly tight hairnet. Rails reached most towns of any size—and towns formed along the rails as before they'd formed around waterways. Much of the 19th century rail system has since been abandoned. In 1876 the first practical internal combustion engine saw the light of day.

Long-distance land transportation today is dominated by trucking, made possible by that combustion engine (modified into the diesel engine), the extensive development of a highway network, itself suggested by national defense needs, and the development of a major new oil and gas sector which, these days, itself heavily relies on water transportation to bring us fuel. In many areas oil moves by pipeline. Tonnage moved by truck overtook tonnage moved by rail in the last quarter of the 20th century. Much as rivers and rails stimulated location of businesses and people, so did the development of the Interstate Highway System. Its important interchanges became locations of choice for warehousing nodes.

Air transportation was the last major mode to develop. It expanded after World War II in the second half of the 20th century as a people-transport system, which it largely remains, but air freight eventually emerged and has a small share of air tonnage. Air shipment is used for small packages and, occasionally, for larger products that must be delivered in a hurry.

With the maturing of transport systems came combined modes generally referred to as "intermodal" transportation. Typical examples of it are "container ships" that carry boxes which can be placed directly on semi tractor trailers and trucked to their final destinations. Within these boxes goods are packed on pallets ready for unloading by forklift trucks. These same containers can be transported by rail for long-distance hauls and then transferred to trucks for the final leg of the trip.

In terms of costs, the lowest cost is associated with water, then with rail, then with trucking, and finally with air transportation.

EVERYTHING IS RELATIVE

What Einstein held to be true for bodies moving in space and time is true for physical distribution generally. In pre-industrial times physical distribution could be understood by simply looking at such factors as price of product, its size, weight, and its distance from the buyer; using such factors the cost of "sourcing" products could be readily calculated. In early days, however, labor costs were largely the same everywhere and most goods moved were raw materials rather than highly processed or manufactured goods. Labor costs and technology have changed all that so that physical distribution is today greatly influenced by factors external to physical movement. It is quite possible, for instance, to buy a heavy cast-iron outdoor umbrella stand at a lower cost from China—the stand itself made from scrap metal shipped to China from Los Angeles—than a functionally identical product made somewhere in Louisiana or Ohio. The driving force is the production cost of the item moved—itself based on the producer's raw material, energy, and labor costs. If the product has a low production cost, it can "carry" a high transportation cost and arrive at our door more inexpensively than an item traveling a short distance but having a higher production cost.

FIGURING IT OUT

Physical distribution is sometimes a problem for the small business if it is located in outlying areas poorly served by modes. Until the 1970s, transportation was regulated by the federal government under the laudable principle that transportation was, in a sense, a utility which should serve all locations—with the most cost-effective points subsidizing service to distant and less profitable points. Deregulation began in 1977 across the board of all "utilities" and continues in the mid-2000s with energy distribution. Airlines were deregulated first. Most small business, however, is located in or near major hubs. And distribution, running at somewhere around 15 to 20 percent of GDP, is a very big industrial sector and fairly competitive. Discovering the right match of modes to serve a business's markets is, of course, part of initial business planning.

Small businesses rarely have the resources to become experts in physical distribution and therefore converge on typical modes of distribution used in their industry by discovering how others do the job. Occasionally the small business is required to come up with something new and innovative as the consequence of an unusual contract, a new product launch, or the appearance of a new customer. An alternative to doing heavy homework is to make use of transport brokerage, freight forwarding, and transport service organizations that specialize in designing optimal methods of getting the goods where they belong. A Google search with the words "freight forwarding" followed by the name of the state will typically produce a large number of hits or a directory from which the business can select companies to call for initial discussions.

see also Distribution Channels; Transportation