The Flow Equation · Appendix C

Supply Chain glossary

77 terms, defined the way the book uses them.

#

3PL: Third-party logistics provider: a company that runs warehousing, fulfilment, transport management or other logistics for its customers, such as GXO, DHL Supply Chain or Ryder.

A

Adjusted gross profit: C.H. Robinson's term for its net revenue: gross revenue less purchased transportation and related services.
Alliance: A vessel-sharing agreement among container lines that pool ships on shared services but set prices separately; from February 2025 the main ones were Gemini, Ocean and Premier, with MSC sailing alone.

B

Backhaul and headhaul: The weaker and stronger directions of a trade lane; ships and trucks are priced and filled on the headhaul and often run light or empty on the backhaul.
Bill of lading: The document a carrier issues for cargo it has received, serving as a receipt, the evidence of the contract of carriage and, in ocean shipping, often a document of title.
BMC-84: The surety bond, of at least $75,000, that a US freight broker must file with the FMCSA; a BMC-85 trust fund is the alternative.
Break-bulk: In LTL trucking, a hub where freight from many terminals is unloaded, sorted and reloaded for its destinations; in shipping, cargo carried loose rather than in containers.
Bullwhip effect: The amplification of changes in demand as orders move up the supply chain from consumers to retailers, wholesalers, factories and carriers.

C

Capital matched to the cycle: The fourth factor of the flow equation: balance sheets, leases, charters and working capital that survive the trough of the freight cycle and the swing of the inventory cycle.
Cash conversion cycle: Inventory days plus receivable days less payable days: the number of days a company finances its own operations; negative when suppliers finance it.
Cass indices: The Cass Freight Index of shipments and expenditures and the Cass Truckload Linehaul Index, built from freight bills actually paid by shippers.
CBP: US Customs and Border Protection, which collects duties, enforces admissibility rules and licenses customs brokers.
Chapter 11 and Chapter 15: US bankruptcy reorganisation, under which a company keeps operating while it restructures; and recognition in a US court of a foreign insolvency, used by Hanjin Shipping in 2016.
Chargeback: A deduction a retailer takes from a supplier's invoice for a compliance failure, such as a late or early delivery, a missing label or a short shipment.
Charter: The hire of a ship from its owner by a carrier, for a period (time charter) or a voyage; carriers charter roughly half of the world's container fleet.
Cost to serve: The first factor of the flow equation: the full cost of moving, storing, sourcing or fulfilling a unit, including empty miles, idle capacity, returns, claims and inventory carried, compared with what the customer will pay across the freight cycle.
Customs broker: A person or company licensed by CBP to file entries and pay duties on behalf of importers.
Cycle service level: The probability of not running out of stock during one replenishment cycle; distinct from the fill rate, the share of units ordered that are delivered from stock.
Cycle stock: The inventory that runs down between deliveries, on average half an order quantity.

D

DAT: DAT Freight & Analytics, the load board and rate-data company whose spot and contract truckload rates per mile are widely used benchmarks.
De minimis: The US exemption under Section 321 of the Tariff Act that let shipments worth up to $800 to one person on one day enter duty-free with minimal data; ended for China and Hong Kong on 2 May 2025 and suspended for all countries from 29 August 2025.
Demurrage and detention: Charges for leaving a container at a terminal beyond the free time (demurrage) or keeping the carrier's equipment outside it too long (detention); regulated more closely after the Ocean Shipping Reform Act of 2022.
Density: The second factor of the flow equation: enough volume on the right lanes, routes and nodes that a network's fixed assets run full and each extra shipment costs less than the last.
Drayage: The short truck move of a container between a port or rail ramp and a warehouse.
Drewry WCI: Drewry's World Container Index of spot container rates, quoted weekly in dollars per FEU for eight east–west lanes and as a composite.
DSP: Delivery Service Partner: one of the small contracted delivery companies that employ drivers to deliver Amazon parcels from its delivery stations, a programme launched in 2018.

E

ELD: Electronic logging device: the equipment US interstate truck drivers must use to record hours of service, required from 18 December 2017.

F

FCL and LCL: Full-container load and less-than-container load: an ocean shipment that fills a container for one shipper, and one consolidated with others' cargo.
FEU and TEU: Forty-foot and twenty-foot equivalent units: the standard measures of container capacity and freight rates. One FEU equals two TEU.
Flow equation: This book's claim that a supply-chain business creates durable value only when four factors are all present, cost to serve, density, reliability and capital matched to the cycle, and that they multiply rather than add.
FMC: The Federal Maritime Commission, which regulates ocean carriers' service contracts, demurrage and detention practices, and licenses ocean transportation intermediaries.
FMCSA: The Federal Motor Carrier Safety Administration, which regulates truck safety, grants operating authority to carriers and brokers and enforces hours-of-service rules.
FOB: Free on board: an Incoterm under which the seller delivers goods onto the vessel at the port of shipment and the buyer bears the cost and risk from there; also the value on which US duty is normally charged.
Freight forwarder: A company that arranges transport for shippers by buying space from carriers, and usually handles documents and customs; an ocean forwarder that issues its own bills of lading is an NVOCC.
Fuel surcharge: A charge added to a freight rate that moves with a published diesel price; rates and yields should be read with and without it.

G

General average: The maritime rule under which all parties with an interest in a voyage share the cost of a sacrifice or expense made to save it, as cargo owners did after the Ever Given grounding.
GMV: Gross merchandise volume: the total value of goods sold through a marketplace, which is not the marketplace's revenue.
Goods-to-person: Warehouse automation that brings stored items to a stationary worker, such as Kiva's mobile robots or AutoStore's cube storage.
Gross revenue and net revenue: For brokers and forwarders, gross revenue includes the money passed on to the carriers they hire; net revenue, after purchased transportation, is their own business. Gross revenue should never be compared with an asset carrier's revenue without saying so.

H

HMF and MPF: The harbor maintenance fee, charged on the value of imports arriving by sea, and the merchandise processing fee, charged on the value of formal entries within a minimum and maximum.
HTS: The Harmonized Tariff Schedule of the United States, which sets the classification and the MFN duty rate of every imported product.

I

IEEPA: The International Emergency Economic Powers Act of 1977, under which the "fentanyl" and "reciprocal" tariffs of 2025 were imposed; the Supreme Court held on 20 February 2026, in Learning Resources v. Trump, that it does not authorise tariffs.
Importer of record: The party named on a customs entry, responsible for paying duties and for the accuracy of the classification, value and origin declared.
Incoterms: The International Chamber of Commerce's standard trade terms, such as FOB and DDP (delivered duty paid), that allocate cost and risk between seller and buyer.
Intermodal: Freight moved in containers or trailers by more than one mode, usually rail for the long haul and truck at each end, without handling the cargo itself.

J

Jones Act: The section of the Merchant Marine Act of 1920 that reserves shipping between US ports for US-built, US-flagged and US-crewed ships.
Just-in-time: Toyota's system of producing and delivering parts only as they are needed, which cuts inventory and makes reliability the condition of production.

L

Landed cost: The full cost of a product delivered to the buyer's location: factory price plus freight, duties, fees, insurance, handling and the cost of the inventory in transit.
LTL and truckload: Less-than-truckload carriers consolidate shipments of a few pallets from many shippers through terminal networks; truckload carriers move a whole trailer for one shipper from origin to destination.

M

MFN rate: The ordinary "most-favoured-nation" duty in the US tariff schedule, applied to imports from members of the World Trade Organization without a trade agreement or other preference.
Multi-employer pension plan: A pension fund to which many unionised employers contribute; an employer that leaves owes a share of the plan's unfunded liability, its withdrawal liability.

N

Nearshoring and friend-shoring: Moving production closer to the market, as from China to Mexico for the United States, or to allied countries.
NVOCC: Non-vessel-operating common carrier: an ocean intermediary that issues its own bills of lading and buys space from ship-operating carriers; licensed in the United States by the FMC as an ocean transportation intermediary.

O

On time in full (OTIF): The share of orders delivered on the agreed day with the full quantity; definitions of "on time" differ, so the measure must be defined before it is compared.
Operating ratio: Operating expenses as a percentage of revenue, the standard efficiency measure for railroads and trucking companies; lower is better.
OSRA: The Ocean Shipping Reform Act of 2022, signed on 16 June 2022, which gave the FMC new powers over demurrage and detention charges and over carriers' refusals of export cargo.

P

Perfect order: An order delivered on time, in full, undamaged and with the correct documents and invoice.
Pipeline stock: Inventory in transit that a buyer already owns, equal to the lead time multiplied by the rate of demand.
PSR: Precision scheduled railroading: the operating model, associated with Hunter Harrison, that runs fewer, longer trains on fixed schedules and cuts assets and crews to lower the operating ratio.

Q

Quick pay: A broker's offer to pay a carrier within a day or two instead of the normal terms, in return for a fee.

R

Reliability: The third factor of the flow equation: a service promise customers can plan around, on time, in full, undamaged and visible, kept in an ordinary week and in a disruption.
Revenue per hundredweight: LTL revenue divided by the weight carried in hundreds of pounds; the industry's measure of yield, read with and without fuel surcharge.
RFID: Radio-frequency identification: tags read by radio rather than line of sight, used by Inditex from 2014 to count every garment in stores and warehouses.
Routing guide: A shipper's ranked list of carriers for each lane; a load is offered to the primary carrier at the contract rate and moves down the list if rejected.
Rules of origin: The tests, such as a change in tariff classification or a share of regional value content, that a product must meet to count as originating in a trade-agreement country.

S

Safety stock: Inventory held to cover variation in demand and lead time, set by the service level a company chooses.
Schedule reliability: The share of ships arriving within a set window of their scheduled time, measured for carriers and alliances by Sea-Intelligence and others.
Section 122: The balance-of-payments provision of the Trade Act of 1974, which allows a tariff of up to 15% for 150 days; used for a 10% tariff on most imports from 24 February to 24 July 2026.
Section 232: The national-security provision of the Trade Expansion Act of 1962, used for tariffs on steel and aluminium from 2018 and on autos, copper, trucks, certain chips, pharmaceuticals and other goods in 2025–26.
Section 301: The provision of the Trade Act of 1974 under which the trade representative can act against unfair foreign practices; used for tariffs on Chinese goods in four lists from 2018–19 and for the regime that replaced the Section 122 tariff from 24 July 2026.
Spot and contract rates: The price for a single shipment at the market rate of the day, and the price agreed in advance for a lane or a volume over a period, usually a year.
STB: The Surface Transportation Board, which regulates US freight railroads' rates, service and mergers.

T

Tender rejection: A carrier's refusal of a load offered under contract, a leading indicator of a tightening truckload market.
TMS and WMS: Transportation-management and warehouse-management systems: the software that plans and executes freight moves and runs the inside of a warehouse.

U

UFLPA: The Uyghur Forced Labor Prevention Act, signed on 23 December 2021, which from 21 June 2022 presumes that goods made wholly or partly in Xinjiang, or by listed entities, are made with forced labour and may not enter the United States.
USMCA: The United States–Mexico–Canada Agreement, in force from 1 July 2020, whose rules of origin decide which North American goods enter duty-free; at its first joint review, on 1 July 2026, the United States declined to confirm its extension.

W

Working capital: For a broker, receivables less payables; more generally, current assets less current liabilities, the cash a business ties up in operating.