1 / 55

Rate Determination/Negotiation Mode Choice/Carrier Selection Documentation: Bill of Lading

Functions of the Traffic Manager. Rate Determination/Negotiation Mode Choice/Carrier Selection Documentation: Bill of Lading Freight Bill Loss & Damage Claims Vehicle Load Planning Determining Shortest Routes Managing the Private Fleet Handling Small Shipments

tadita
Download Presentation

Rate Determination/Negotiation Mode Choice/Carrier Selection Documentation: Bill of Lading

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Functions of the Traffic Manager Rate Determination/Negotiation Mode Choice/Carrier Selection Documentation: Bill of Lading Freight Bill Loss & Damage Claims Vehicle Load Planning Determining Shortest Routes Managing the Private Fleet Handling Small Shipments Shipping Hazardous Materials Handling International Shipments Appearing Before Rate Bureaus,Commissions,and Courts Planning/Evaluation

  2. Functions of the Traffic Manager Rate Determination/Negotiation Mode Choice/Carrier Selection Documentation: Bill of Lading Freight Bill Loss & Damage Claims Vehicle Load Planning Determining Shortest Routes Managing the Private Fleet Handling Small Shipments Shipping Hazardous Materials Handling International Shipments Appearing Before Rate Bureaus,Commissions,and Courts Planning/Evaluation

  3. Rate Determination/Negotiation FOB vs Delivered Pricing Value of Service/Differential Pricing Optimal Pricing Factors that Affect Rates Weight Breaks Rate Negotiation

  4. FOB vs Delivered Pricing Free on Board FOB Origin (Buyer Owns Goods in Transit) FOB Destination (Seller Owns Goods in Transit) Prepaid vs Collect/Allowed vs Charged Back Delivered Pricing Seller Retains Ownership in Transit Seller Arranges Transportation Seller Files Freight Claims Average Transportation Market Expansion Phantom Freight Freight Absorption

  5. . C2 C1 FOB vs Delivered Pricing Delivered Price to all = $13/cwt FOB Plant= $10/cwt C1 pays more than fob Rate to C1= $2/cwt C2 is subsidized Rate to C2 = $4/cwt

  6. Forms of FOB Pricing FOB Destination, Freight Allowed: Buyer is allowed to deduct the freight charges from the invoice. FOB Origin, Charged Back: Seller is allowed to add freight charges to the invoice. FOB Destination, Collect and Allowed: Buyer pays freight but deducts it from the invoice. FOB Origin, Prepaid and Charged Back: Seller pays the fright but adds it to the invoice.

  7. Value of Service/Differential Pricing What is it? Why Use it? High Fixed Costs Excess Capacity Opportunity Competition When is it Profitable? When Above Full Cost When Below Full Cost If: Above Variable Cost Excess Capacity Elastic Demand

  8. Value of Service/Differential Pricing Unwise Truck Lines The Unwise Truck Lines Company operates five pieces of equipment daily over five routes with end points in common. The company just hired a new comptroller who is studying the profitability in order to determine which, if any, of the routes are not covering full costs, and, thus, not contributing to profits. He found that each route incurred $500 per day in variable operating expenses and earned the following revenue per day: Route 1 = $1,440; Route 2 = 1,220; Route 3 = 960; Route 4 = 800; Route 5 = 640. The new comptroller has stated that any route showing a loss after variable costs and a prorated share of overhead will be eliminated. Presently, the daily overhead is $1,500, or $300 per route. If any run is eliminated, overhead will decline by $50. Equipment will be sold to payoff any outstanding debt.

  9. Value of Service/Differential Pricing Unwise Truck Lines Should any routes be eliminated? Revenue Variable Over- Route per Run Cost/Run Gross head Net 1 1,440 (500) 940 (300) 640.00 2 1,120 (500) 620 (300) 320.00 3 960 (500) 460 (300) 160.00 4 800 (500) 300 (300) 0.00 5 640 (500) 140 (300) (160.00)

  10. Value of Service/Differential Pricing Unwise Truck Lines Eliminate Route 5 Revenue Variable Over- Route per Run Cost/Run Gross head Net 1 1,440 (500) 940 (300) 640.00 2 1,120 (500) 620 (300) 320.00 3 960 (500) 460 (300) 160.00 4 800 (500) 300 (300) 0.00 5 640 (500) 140 (300) (160.00)

  11. Value of Service/Differential Pricing Unwise Truck Lines Eliminate Route 4 Revenue Variable Over- Route per Run Cost/Run Gross head Net 1 1,440 (500) 940 (362.50) 577.50 2 1,120 (500) 620 (362.50) 257.50 3 960 (500) 460 (362.50) 97.50 4 800 (500) 300 (362.50) (62.50)

  12. Value of Service/Differential Pricing Unwise Truck Lines Eliminate Route 3 Revenue Variable Over- Route per Run Cost/Run Gross head Net 1 1,440 (500) 940 (466.67) 473.33 2 1,120 (500) 620 (466.67) 153.33 3 960 (500) 460 (466.67) (6.67)

  13. Value of Service/Differential Pricing Unwise Truck Lines Eliminate Route 2 Revenue Variable Over- Route per Run Cost/Run Gross head Net 1 1,440 (500) 940 (675.00) 265.00 2 1,120 (500) 620 (675.00) (55.00)

  14. Value of Service/Differential Pricing Unwise Truck Lines Eliminate Route 1 Revenue Variable Over- Route per Run Cost/Run Gross head Net 1 1,440 (500) 940 (1,300) (360.00)

  15. = 1 = Unitary Elasticity % % % Q Q Q E = E = E = % % % P P P > 1 = Elastic < 1 = Inelastic Price Elasticity of Demand Elasticity = Response in Quantity Sold to a Change in Price

  16. P Elastic Unitary Inelastic Q Price Elasticity of Demand

  17. Price Elasticity of Demand Changing Prices Increase price in an elastic market and decrease revenue Decrease in price in an elastic market and increase revenue Increase in price in an inelastic market and increase revenue Decrease in price in an inelastic market and decrease revenue

  18. Optimal Pricing To Maximize Profit: Price Where Marginal Cost Equals Marginal Revenue Which Financial Statement has Marginal Cost? Which Financial Statement has Marginal Revenue?

  19. 8 Zero Price, Large Q, 0* = 0 High Price, Zero Q, P*0 = 0 * Optimal Pricing Optimal Pricing Maximizing Revenue $ Inelastic Range Elastic Range Revenue Curve Price

  20. Optimal Pricing Profit = Revenue - Cost (p = R - C) Revenue = Price * Quantity (R = P * Q) Cost = Fixed Cost + Variable Cost * Q (C = F + VQ) Quantity = a + bP (Q = a + bP) (p = R - C) (R = P * Q) (C = F + VQ) (Q = a + bP)

  21. Optimal Pricing General Form of a Straight Line (Quantity Sold is Dependent upon Price) Y Y = a + bX b (Slope) Intercept a X

  22. Optimal Pricing General Form of a Straight Line (Quantity Sold is Dependent upon Price) Q Q = a + bP b (Slope) Intercept a P

  23. Optimal Pricing General Form of a Straight Line (Quantity Sold is Dependent upon Price) Q = a + bP However, the slope (b) is probably negative, but that must be determined)

  24. Optimal Pricing p = [PQ - (F + VQ)] Q = a + bP p = [P(a + bP) - (F + V(a + bP))] p = [aP + bP2 - (F + aV + bVP)] p = aP + bP2 - F - aV - bVP To maximize Profit, set 1st derivative = zero, solve for P

  25. -a V P* = + 2b 2 Optimal Pricing p = aP + bP2 - F - aV - bVP First Derivative = p' = [aP + bP2 - F - aV - bVP] To maximize Profit, set 1st derivative = zero, solve for P p' = a + 2bP - bV = 0 2bP = -a + bV

  26. Slope = Zero Slope Negative * Optimal Pricing Profit = aP + bP2 - F - aV - bVP $ Profit Curve Slope Positive Price

  27. -a V P* = + 2b 2 Optimal Pricing What does Theory Explain? What happened to Fixed Costs? Relate this to Differential Pricing. Are Fixed Costs relevant? -a/2b = price that will maximize revenue (check back in derivation). Add half your variable costs (or anything), and you are in the elastic range. Relate to Differential Pricing. Lower price to expand revenue, “only if demand is elastic.”

  28. Factors that Affect Rates Cost Related   Commodity Factors Route Factors Demand Related   Commodity Factors Route Factors

  29. Factors that Affect Rates Cost Related Commodity Factors Loading Characteristics Susceptibility to Loss and Damage Volume of Traffic Regularity of Movement Equipment Requirements Route Factors Distance Operating Conditions Traffic Density Backhaul

  30. Factors that Affect Rates Demand Related Commodity Factors Value of Commodity Economic Conditions of User Industry Competing Rates Route Factors Competition with Other Carriers Competition in Shipper Industry Competition in Receiver Industry Traffic Density

  31. LTL $ TL Volume Weight Breaks A point of indifference between a given rate and a rate charged for a larger volume

  32. Weight Breaks TL * MW = LTL * X Example: TL = $8.00/cwt MW = 40,000 LTL = $20.00 8*400 = 20* X 3200/20 = X X = 160 or 16,000 lbs If shipment is less than 16,000 lbs, ship LTL If shipment is over 16,000 lbs, ship TL as full TL (40,000lbs)

  33. Rate Negotiation New Business Threat of Loss of Old Business Rule of Analogy (Protests) Bases of Power Reward Coercive Legitimate Referent Expert Know the Cost of Your Next Best Alternative

  34. Functions of the Traffic Manager Rate Determination/Negotiation Mode Choice/Carrier Selection Documentation: Bill of Lading Freight Bill Loss & Damage Claims Vehicle Load Planning Determining Shortest Routes Managing the Private Fleet Handling Small Shipments Shipping Hazardous Materials Handling International Shipments Appearing Before Rate Bureaus,Commissions,and Courts Planning/Evaluation

  35. Carrier Selection Available Modes Selection Criteria Carrier Competition Total Cost

  36. Available Modes Motor Carriers ‑ Express, LTL, TL, Contract, Private, Exempt Railroads ‑ Carload, Unit Train, TOFC/COFC, Contract, Private Airlines ‑ Express, All Cargo, Combination, Private Water Carriers ‑ Trades, Barge, Private, LASH, RORO Pipelines ‑ Crude, Products, Private Intermediaries - Brokers, Freight Forwarders, Shipper Assn, IMC, 3PL

  37. Carrier Selection Available Modes Selection Criteria Carrier Competition Total Cost

  38. Carrier Selection Criteria Importance Selection Criteria Score Rank Transit Time Reliability/Consistency 1.301 1 Door to Door Transport Rates/Cost 1.405 2 Total Door to Door Transit Time 1.551 3 Willingness to Negotiate Rates 1.611 4 Financial Stability of Carrier 1.807 5 Equipment Availability 1.878 6 Frequency of Service 1.892 7 Pickup and Delivery Service 1.899 8 Freight Loss and Damage 2.037 9 Shipment Expediting 2.054 10

  39. Carrier Selection Criteria (Continued) Importance Selection Criteria Score Rank Quality of Operating Personnel 2.108 11 Shipment Tracing 2.118 12 Willingness to Negotiate Services 2.162 13 Scheduling Flexibility 2.267 14 Line Haul Service 2.389 15 Claims Processing 2.338 16 Quality of Carrier Salesmanship 2.635 17 Specialized Equipment 3.476 18

  40. Carrier Selection Available Modes Selection Criteria Carrier Competition Total Cost

  41. $ MC RR Distance Carrier Competition RR= Higher Fixed Costs, Lower Variable Costs MC= Lower Fixed Costs, Higher Variable Costs

  42. Motor Carrier Competition Basic Competition Express Carriers: Traditionally restricted to shipments under 150 lbs LTL: Defined by the ICC as shipments up to 10,000 lbs TL: Full truckloads of 40,000 lbs Actually a lot of competition between segments

  43. Motor Carrier Competition Express vs LTL Small shipments are a problem of long standing. Express Carriers do well with shipments under 150 lbs. LTL does well with shipments over 500 lbs. Shipments between 150 lbs and 500 lbs are a problem. FedEx and UPS moving into LTL, but not set up for it.

  44. Express vs LTL $ Express LTL ? Express Market LTL Market ~ 150 lbs 500 lbs 6k 10k Volume Motor Carrier Competition

  45. Motor Carrier Competition Express vs LTL Small Shipment Specialists (SSS)? Opportunities for new carriers with specialized equipment? Focus on shipments form 150 to 500 lbs? Focus on service?

  46. Express vs LTL $ Express LTL SSS* ? Express Market LTL Market ~ 150 lbs 500 lbs 6k 10k Volume Motor Carrier Competition

  47. Motor Carrier Competition LTL vs TL LTL vs TL Weight Breaks Between Modes Many traffic managers use TL for shipments of 6K to 10K Some competition between LTL and TL, but also a gap in service: LTL prefers 1,000-5,000 lbs; TL will try to re-sell the capacity remaining.

  48. $ LTL TL V* Volume Motor Carrier Competition LTL vs TL Weight Breaks A point of indifference between a given rate and a rate charged for a larger volume

  49. Motor Carrier Competition LTL vs TL Weight Break Example TL Cost[1] = LTL rate * Volume (V) Ship 6,000 lbs from Fayetteville, AR to Phoenix, AZ (1,200 Miles) Actual Rate via ABF = 60.58; with 60% Discount = $24.23/cwt TL Cost = $1.25/Mile * 1,200 Miles = $1,500.00 LTL rate for 5,000 to 10,000 lbs = $25.00/cwt $1,500 = 25.00 * V 1,500/25.00 = V V = 6,000 lbs If shipment is less than 6,000 lbs, ship LTL If shipment is over 6,000 lbs, ship TL (pay for the entire truck) [1] TL Volume at 40,000 lbs

  50. LTL vs TL $ LTL TL ? LTL Market TL Market ~ 150 lbs 500 lbs 6k 10k Volume Motor Carrier Competition

More Related