Freight Transportation Fundamentals and Rates Overview

Freight Transportation Fundamentals

Importance of an Effective Transportation System

• Greater competition
• Economic Scale
• Reduced price

Service Choices and Their Characteristics

• Price
• Transit time and variability
• Loss and damage

Transportation Rate Profile

1. Volume related rates
2. Distance-related rates
   • Uniform rates
   • Proportional rates
   • Tapering rates
   • Blanket rates: meet the rates of competitors
3. Demand-related rates: Transportation rate is set by competitor

Transportation Charges

• Line-haul rate
  • By products
  • By shipment size
  • By route
  • Miscellaneous rates
• Special service

Line-Haul Rates

1. By products
   • Classification system was devised (T 6.4)
   • Class rates: once a product has a freight classification, line-haul charges can be determined. Zip codes are used for the location (T 6.5)
   • Break weight = Rate next x Weight next / Rate current
   • Freight-All-Kinds: single rate for a shipment regardless of the classification of the commodities that make up the shipment (All-Commodity-Rate)
2. By shipment size
   • $ / 100 pound (cwt)
   • For example, there can be minimum quantities for certain rates
     • 5000 lb
     • 10,000 lb
     • 20,000 lb, etc
   • All quantity rate: single rate for all quantity
3. By route: Considering # of stops
4. Miscellaneous rates
   • Cube rates: rates based on space rather than weight
   • Import-export rates: special rate to encourage foreign trade
   • Deferred rates: shipper accepts the delay for lower rates
   • Released value rates: per-pound rates for loss and damage when estimation of value is difficult
   • Ocean freight rates: do not follow the classification schemes of domestic carriers

Special Service Charges

1. Diversion and reconsignment
   • Diversion: changing the destination of a shipment while en route
   • Reconsignment: Changing the consignee of a shipment after it has reached the original destination

   Shippers can use these privileges in 2 ways:

   • When commodity is perishable, carload can be sent to general market area, then it can be toward to specific market
   • Carrier’s equipment can be used as a warehouse
2. Transit privileges (stop-off privileges): permits shipments to be stored before moving to the final destination (Example in Page 207)
3. Protection
   • Perishable: refrigeration, icing, ventilation or heating
   • Fragile: extra packing or dunnage
4. Interlining: when two carriers ship jointly, because no one carrier can serve O-D. shipper is billed by the first, fist pays second

Terminal Service

1. Pick up and delivery: some carriers include pick up & delivery in line-haul charge and some do not (they can be offered with extra charge)
2. Switching: for railroad cars, from private sidings and junctions to rail terminals or stations, or vice versa
3. Demurrage and Detention: penalty charges on the shipper or consignee for going beyond an allowed free time for rail cars. 48 hours is the standard free time for loading and unloading

Private Carrier Service

The reason that companies own or lease private transport equipment rather than use for-hire carriers are (survey from 248 companies):

1. Service reliability
2. Short order cycle time
3. Emergency response capability
4. Improve customer contact
   • Fixed costs: insurance, vehicles, licensing, etc.
   • Operating costs: driver compensation (wages, meals, health plans)
   • Vehicle operating costs: fuel, tires, maintenance, etc.