Ch. 3:

  • Rate: Carrier’s charge

    • Transportation regulation at its peak; use “rate”

    • Found in the rate book

  • Regulation

    • Before the 90s, all traffic was published by law

    • Changing a rate required regulatory approval

    • Rate is made carrier costs only and not by market

  • Post-deregulation, prices are driven by market price

    • Carrier cost still a major force

    • Between customer demand and carrier supply conditions

    • No more regulations

Market Considerations

  • Behaviour

    • Number of competitors

    • Degree of prod. differentiation

    • Barriers to entry

  • Principal models

    • Perfect (Pure) competition: large range of sellers, no influence over prices/supply, unrestricted, homogeneous product.

    • Monopolistic Market: One seller, no alts, restricted entry, max profits

    • Oligopoly market: Few large sellers, alts, competitor reaction

      • Transportation in general, but modes varies

    • Monopolistic Competition: few small sellers, some differentiation, single firm can’t control market

  • Airlines

    • Mix of pure and oligopoly

    • Contestable (challenge it)

  • Market Areas

    • Mode-specific

    • Route-specific

    • Commodity-specific

    • Shipment size-specific


Pricing

  • Cost of Service Pricing: Customer covers all costs, seller has degree of prices (to max profit), only one group of customers with similar service, transport service output is homogeneous

  • Don’t really consider

    • Value of prod

    • Risks

    • Marginal Cost: producing each unit of output, not good for small quantities, may fluctuate

    • Average: Cost divided by total output, common costs are high

  • Value of Service Pricing

  • According to product value

  • : Lambo vs Toyota

  • More risk

  • Understand between market and demand

  • AKA third degree price discrimination and differentiation pricing

    • Same service, but separation because of value of goods

  • Segmentation: By commodity, time (season), place and individual person (legal)


Rates Making in Practice

  • Class:

  • Geographic locations

    • Proximity, distance

  • Interstate Commerce Commission

  • Commodity: Similar characteristics assigned to classification/rating

    • ICC: develops rate per dollar per hundred weight

  • Classification factors

    • Prod density

    • Handlng

    • Liability

  • Class Rate:

  • 1. Determine rate basis points for origin/destination
    2. Determine rate basis number (rate basis number tariff)
    3. Determine commodity classification rating
    4. Determine rate from class rate tariff
    5. Multiply class rate by shipment weight in cw

  • So the computation for the total shipping charges as follow:

  • Shipment weight per 100 weight (cwt)=11,000/100 = 110 cwt

  • Shipping charges at class rate= $8.46/cwt x 110 cwt = $93.06

  • Exception Rate: Individual carriers modifies national class based on diff factors

    • Competition, prod specification

  • Commodity Rate: Most common for frequent large volume route

    • Not part of commodity classification system

    • Takes precedence over class and exception rates

  • Other kinds of rates

    • Zip code

    • Mileage

  • Character of Shipment Rates

  • LTL/TL Rates (motor carriers)

  • Multiple-Car Rates (rail carriers)

  • Incentive Rates (usually apply only to weight or units loaded over and above the normally shipped quantities)

  • Unit-Train Rates (often used by rail carriers for trailer on flatcar [TOFC] or container on flatcar [COFC] movements)

  • Per-Car and Per-Truckload Rates

  • Any-Quantity Rates (usually found with large, bulky commodities)

  • Density Rates (common in air container shipments)