The flows of materials, products, inventories, and other goods in logistics networks, are referred to as physical flows, the main direction of which is considered to be from the point of origin to the point of consumption. However, physical flows also include the backward or reverse flows of materials; therefore, they involve the entire process and activities of logistics systems. To explore the concept of physical flows systematically, the major components and functional areas of logistics systems, which are more involved with this concept, are investigated in this chapter. The first functional area of logistics systems which is discussed in this chapter is transportation. The different transportation modes, their intermodal combinations, and other transport options are explored in this regard. Physical nature of the product, and different distribution channels are then explained in this chapter. The chapter ends with the investigation of warehousing and storage, as another functional area of logistics systems, which is totally involved with physical flows. Warehousing functions, packaging and unit loads, and both palletized and non-palletized storage and handling systems are explored in this regard.