Costing & Pricing in Transportation

Transportation Pricing
Character-of-Shipment Rates
• Special rates related to the size or character of the
• Carriers generally have certain fixed costs for each
• 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, materialshandling 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
Empty car drop-off
Delivery efforts
– 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
• 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
– 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
– 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
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
• 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