TRANSPORTATION MANAGEMENT

Transportation Economics and PricingTransportation EconomicsCost structuresCarrier pricing strategyTransportation rates and ratings

Transportation Economics…

• DistanceDistance is a major influence on transportation cost since it directly contributes to variable expense, such as labor, fuel, and maintenance.

• Weight

scale economies exist for most transportation movements.

• Density

refers to the ratio between the weight of a good and the volume of a container that it consumes for transport.

It is more common than not that a container will cube out more often then it will weight out.

• Stowabilityrefers to how goods being shipped fit into the dimensions of the container that is used to ship the product across the various transportation modes.

Factors Effecting Stowability√ Package Size√ Package Shape√ Odd-Shaped Items√ Ability to be Nested√ Excessive Size/Length of Shipped Items

• Handling

Special handling equipment may be required to load and unload trucks, railcars, or ships. The manner in which products are physically grouped together in boxes or on pallets for transport and storage will impact handling cost.

• Liability

Carriers must either have insurance to protect against potential damage or accept financial responsibility. Shippers can reduce their risk, and ultimately transportation cost, by improved packaging or reducing susceptibility to loss or damage.

• Market

A transport lane refers to movements between origin and destination points. Since transportation vehicles and drivers typically return to their origin, either they must find a back- haul load or the vehicle is returned or deadheaded empty.

Transportation Costing...

• Variable Cost… the variable category includes direct carrier cost associated with movement of each load.

• Fixed Cost… the fixed category includes costs not directly influenced by shipment volume.

• Joint… expenses created by the decision to provide a particular service

• Common… this category includes carrier costs that are incurred on behalf of all or selected shippers.

Carrier Pricing Strategy...• Cost-of-Service

The cost-of-service strategy is a buildup approach where the carrier establishes a rate based on the cost of providing the service plus a profit margin.

• Value-of-ServiceAn alternative strategy that charges a price based on value as perceived by the shipper rather than the carrier cost of actually providing the service.

• Combinationpricing strategy establishes the transport price at an intermediate level between the cost-of-service minimum and the value-of-service maximum

• Net-Ratethe net rate is an all-inclusive price. The goal is to drastically reduce a carrier’s administrative cost and directly respond to customer demand to simplify the pricing process. Shippers are attracted to such simplification because it promotes billing accuracy and provides a clear understanding of how to generate savings in transportation.

Transportation Rates…• Class Rates

evolved from the fact that all products transported by common carriers are classified for pricing purposes.

• Classificationproducts transported are typically grouped together into uniform classifications. The classification takes into consideration the characteristics of a product or commodity that will influence the cost of handling or transport.

• Rate DeterminationThe rate per hundredweight is usually based on the shipment origin and destination, although the actual price charged for a particular shipment is normally subject to a minimum charge and may also be subject to surcharges.

• Cube Ratesare determined for the weight contained in each category of freight.

• Commodity Ratesare special or specific rates published without regard to classification. The terms and conditions of a commodity rate are usually indicated in a contract between the carrier and shipper.

• Exception RatesSpecial rates published to provide prices lower than the prevailing class rates

• Special Rate and ServicesA number of special rates and services provided by carriers are available for use in logistical operations.