Transportation Economics and Pricing
Carrier pricing strategy
Transportation rates and ratings
Distance is a major influence on transportation
cost since it directly contributes to variable
expense, such as labor, fuel, and maintenance.
scale economies exist
for most transportation
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.
refers to how goods being shipped fit into the dimensions of the
container that is used to ship the product across the various
Factors Effecting Stowability
√ Package Size
√ Package Shape
√ Odd-Shaped Items
√ Ability to be Nested
√ Excessive Size/Length of Shipped Items
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.
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.
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
• Variable Cost
… the variable category includes direct carrier cost associated with movement of each
• Fixed Cost
… the fixed category includes costs not directly influenced by shipment volume.
… expenses created by the decision to provide a particular service
… this category includes carrier costs that are incurred on behalf of all or selected
Carrier Pricing Strategy...
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.
An alternative strategy that charges a price based on value as
perceived by the shipper rather than the carrier cost of actually
providing the service.
pricing strategy establishes the transport price at an
intermediate level between the cost-of-service minimum and the
the 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.
• Class Rates
evolved from the fact that all products transported by common carriers
are classified for pricing purposes.
products 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 Determination
The 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 Rates
are determined for the weight contained in each category of
• Commodity Rates
are 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 Rates
Special rates published to provide prices lower than the prevailing class
• Special Rate and Services
A number of special rates and services provided by carriers are
available for use in logistical operations.