Transportation PricingTransportation Pricing

Character-of-Shipment Rates• Special rates related to the size or character of the

shipment• Carriers generally have certain fixed costs for each

shipment• Includes:

– LTL/TL Rates– Multiple-car Rates– Incentive Rates– Unit-train Rates– Per-car & Per-truckload Rates– Any-quantity Rates– Density Rates

Character-of-Shipment Rates

• LTL/TL Rates– LTL shipments require multiple handlings– Each handling requires dock personnel, materials-

handling equipment, terminal investment & additional communications/tracking efforts

– Thus, higher rates for LTL shipments– TL shipments are generally loaded by the shipper, moved

intact to destination, & unloaded by consignee.– No intermediate handlings required– No intermediate terminals required– Thus, lower rates for TL shipments

Character-of-Shipment Rates• Multiple-car Rates

– Railroad special rate

– Volume discount for moves of more than one carload that are shipped as a single string of cars from one point to another

– Cost of moving multiple cars in single shipment proportionally less than cost of each car moved singly

– Multiple cars can be handled by same effort as a single-car shipment

• Empty car drop-off

• Pickup

• Delivery efforts

• Documentation

– Only basic difference is the additional weight moved

Character-of-Shipment Rates• Incentive Rates

– Rate designed to induce shipper to load existing movements and equipment more fully

– Usually apply only to weight or units loaded over and above normally shipped quantities

– Fewer cars and moves are required over the course of a year, though same actual volume is shipped

– Example• Appliance manufacturer typically ships carload quantities that

only fill car to 80% of capacity• Minimum carload rate is 40,000 lbs; capacity 60,000 lbs• Manufacturer normally only loads 48,000 lbs.• Incentive rate would apply to the additional 12,000 lbs.

Character-of-Shipment Rates

• Unit-train Rates– Integrated movements between an origin & destination– Trains usually avoid terminals & do not require

intermediate switching or handling of individual cars– Shipper or consignee typically provides the railcars

Character-of-Shipment Rates

• Per-car & Per-truckload rates– Single-charge rates for specific origin-destination moves

regardless of shipment commodity or weight– Also apply to container movements where carriers’ costs

of movement dominated by moving the equipment & not specifically by shipment weight

Character-of-Shipment Rates

• Any-quantity Rates– AQ rates provide no discount or rate-break for larger

movements• LTL rates exist but no TL rates for large shipments

– Apply to any weight in a shipment– Usually used for shipment of large, bulky commodities

such as boats, suitcases, and cages where no economies are realized by the carrier for larger shipments

Character-of-Shipment Rates

• Density Rates– Rates published by density of the shipment and its

weight, not by commodity or weight alone

– Common in air carrier shipments

– Applied when carrier assesses rates on basis of weight, but does not experience fewer costs for lighter-weight containers

Area, Location, or Route Rates

• Includes:– Local rates– Joint rates– Proportional rates– Differential rates– Per-mile rates– Terminal-to-Terminal rates– Blanket or Group rates

Area, Location, or Route Rates

• Local Rates– Apply to any rate between 2 points served by the

same carrier

– Include full-cost factors for pickup, documentation, rating, billing, and delivery

• Joint Rates– Single rates published from a point on one

carrier’s route to another carrier’s destination

– Usually lower in total charges than the combination of local rates

Area, Location, or Route Rates

• Proportional Rates– Some carriers at competitive disadvantage

when they compete with other more direct lines

– Carrier might publish a proportional or lower rate than its regular local rate that applies only to through moves to certain destination points beyond its line

Area, Location, or Route Rates

• Differential Rates– Published rate by a carrier that faces a

service time disadvantage compared to a faster carrier or mode• Water carriers often publish differential rates

lower than regular rates of railroads

– Lower rate offsets somewhat the longer transit time disadvantage

Area, Location, or Route Rates

• Per-mile Rates– Rates based purely upon the mileage

involved

– Generally used in situations in which weight of shipment of lower significance

• Terminal-to-Terminal Rates– Ramp-to-ramp rates that require shipper and

consignee to perform the traditional pickup and delivery functions

Area, Location, or Route Rates

• Blanket or Group Rates– Apply to or from whole regions rather than points

– All shipments coming from (going to) a region are treated as coming from (going to) the same point of origin (destination)

– Example• All lumber shipments from Oregon & Washington are

treated as having the same origin• Food shipments from California & Florida treated

similarly

Time/Service Rates

• Generally dependent on the transit time performance of the carrier in a particular service

• Shipper pays a higher rate for faster service & lower rate for slower– Reduced rates offered for certain minimum tonnage

shipped over a specified period– Deferred delivery contracts in which carrier charges

lower rate for privilege of deferring arrival time of shipment

• Air expresses companies offer 25% discount or more for second- or third-day delivery as opposed to next-day delivery

• Gives carrier more operating flexibility

Other Rate Structures

• Corporate Volume Rates– Discounted rate for each LTL shipment that

is related to the total volume of LTL shipments that a firm ships via a specific carrier from all shipping points

– More volume shipper tenders to a particular carrier, the greater the discount

– Not widely used today

Other Rate Structures• Discounts

– LTL shipments of a specific commodity class moving between given origins and destinations

• Loading Allowances– Reduced rate or discount granted if shipper loads LTL

shipments into carrier’s vehicle

• Aggregate Tender Rates– Reduced rate or discount granted if shipper tenders 2 or

more class-rated shipments to the carrier at one time– Aggregate usually must equal 5000 lbs minimum– Tender of 2 or more reduces number of times carrier goes

to shipper’s facility to pickup cargo

Other Rate Structures

• FAK Rates– All-commodity rates expressed in cents per

hundredweight or total cost per shipment

– Rate based on cost of service, not the commodity hauled

– Involves mixed commodities shipments

– Generally used in shipment of groceries

Other Rate Structures• Empty-haul Rates

– Charge for moving empty rail or motor equipment that is owned or leased by or assigned to a particular shipper

– Induces shipper to fully load all miles of the equipment movements

• 2-way or 3-way Rates– Apply to rates that are constructed and charged

when backhaul or triangular moves can be made– Intent is to tie a fronthaul move with what would

have been another firm’s backhaul.

Other Rate Structures• Spot-Market Rates

– Special rate offered to facilitate movement of equipment or product

– Generally used if excess supply of empty trailers begins accumulating in a geographic region

• Menu Pricing– Allows a shipper to pick and choose those

services the carrier should perform– Requires the carrier to understand and know its

costs of providing various services on the “menu.”