Transportation Pricing

1. Transportation Pricing

2. 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

3. 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

4. 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

5. 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.

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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.

21. 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.”