Transportation Economics and Pricing1. Factors that drive transport costs;2. Cost structures or classifications;3. Carrier pricing strategy;4. Transportation rates and ratings.
1. Economic DriversDistance CostVolumeDensity DistanceStowability Cost per pound Product case dimensions w.r.t. transportation equipmentHandling Weight of Load Physical groupingLiability Cost per poundMarket ‘Lane volume’ and ‘balance’ Product Density
2. Cost StructureVariable Costs Change in a predictable direct manner in relation to some level of activity e.g. labor, fuel and maintenance costs.Fixed Costs Expenses that do not change in short run and must be serviced even when the company is not operating e.g. vehicles, terminals, rights- of-way, information systems, and support equipment.Joint Costs Expenses unavoidable when providing a particular service e.g. back- haul costs.Common Costs Expenses that are incurred on behalf of all or selected shippers e.g. terminal or management expenses.
3. Carrier Pricing StrategiesCost-of-Service Price based on cost + profit basis; Suitable for low value goods or in highly competitive situations;Value-of-Service Price based on value perceived by the shipper; Suitable for high-value goods or when limited competition exists;Combination Pricing A price in between cost-of-service minimum & value-of-service maximum;Net-Rate Pricing Established discounts and accessorial charges are built into the net rates that result into an all-inclusive price.
4. Rates and RatingsClass Rates Rate ($/CWT) for a class of products; A two-step process: 1. Product Classification for transportation purposes 2. Rate Administration Product Classification Products with similar density, stowability, handling, liability, and value characteristics are grouped together into a ‘class’. A number of different classifications may apply to the same product depending on where it is being shipped, shipment size, transport mode, and packaging.
4. Rates and Ratings (contd.)Rate Administration Is usually based on the shipment origin and destination, although the actual price is normally subject to a minimum charge and a surcharge assessment; The origin and destination rates are obtained from the published tables for a particular shipment in the form of $/CWT or $/mile; Then two additional charges are added namely: minimum charges (fixed costs) and surcharges (anticipatory expenses);
4. Rates and Ratings – Special RatesCommodity Rates Special rates for commodity products without regard of classification.Exceptional Rates Under competitive and large volume conditions, discounted rates are provided by lowering the class of a product. Aggregate Tender Limited ServiceSpecial Rates and Services Freight-All-Kind Rates To simplify paper work associated with the movement of mixed commodities to lower the costs.
4. Rates and Ratings – Special RatesSpecial Rates and Services Local Rate Commodity movement under tariff of one carrier. Joint Rate Commodity movement under tariff of multiple carriers. Proportional Rate Special price incentives to utilize a published tariff that applies to only part of the desired route. Combination Rate A rate that combines multiple rates when no single-line or joint rate exist between origin and destination.
Traffic Department AdministrationResponsible for:1. Operations Management2. Freight Consolidation3. Rate Negotiation4. Freight Control5. Auditing and Claims6. Logistical Integration
Operations ManagementEquipment SchedulingLoad PlanningRoutingCarrier Administration Carrier Selection – core carrier strategy Carrier Integration – assessing the level of integration needed with carriers Carrier Evaluation – assessing relative capabilities
Freight ConsolidationReactive Consolidation Does not attempt to influence the composition and timing of transportation movements. Seeks to combine freight into larger shipments for line-haul movements. Can be achieved by three ways: (1) market area, (2) scheduled delivery, and (3) pooled delivery. Market Area: Consolidation for a specific market area. Volume deficiency for an area can be addressed by: Intermediate break-bulk point for line-haul transportation savings; Consolidated shipments on specific days; Small shipments by 3rd party logistic providers
Freight Consolidation Scheduled Delivery: Shipments to specific markets on selected days each week. The plan is communicated to customers in order to manage their expectations. Pooled Delivery: Freight forwarder, public warehouse, or transportation company arranges consolidation for multiple shippers serving the same geographical market area.Proactive Consolidation To achieve responsive logistics by active participation of shippers, carriers, and consignees to realize consolidation savings. Requires Preorder Planning, and Multi-firm Consolidation.
DocumentationBill of Lading Acts as a receipt and documents products ad quantities shipped. Specifies terms and conditions of carrier liability and documents responsibilities for all possible causes of loss or damage except those defined as acts of God. Types of Bill of Lading may be: Uniform, Order-Notified, Export, and Government Uniform: or Bill of Lading Order-Notified: a credit instrument used during international shipments Export: allows shipper to use export rates Government: used when shipping Government products
Documentation (contd.)Freight Bill A method to charge for transportation services performed. Can be Prepaid or CollectShipment Manifest Lists individual stops or consignees when multiple shipments are placed on a single vehicle.