San Mateo, Andrea Louise P.

HRDM 4-FS2N

Transportation Economics and Pricing

Economy of Distance

The general relationship between distance and transportation cost has two important points.
First, the cost curve does not begin at zero because there are fixed costs associated with shipment pickup
and delivery regardless of distance. Second, the cost curve increases at a decreasing rate as a function of
distance.

Economy of Weight

Similar to the other logistics activities, scale economies exist for most transportation movements.
This relationship indicates that transport cost per unit of weight decreases as load size increases.

Costing Freight

Transportation cost are classified into a number of categories.

 Variable- Cost that change in a predictable, direct manner in relation to some level of activity are
labeled as variable costs.
 Fixed- Expenses that do not change in the short run and must be paid even when a company is
not operating, such as during a holiday or a strike, are fixed costs.
 Joint- Expenses created by the decision to provide a particular service are called joint costs.
 Common- It includes carrier costs that are incurred on behalf of all or selected shippers.

Pricing Freight

This section represents the traditional pricing mechanics used by carriers. It applies specifically to common
carriers, although contract carriers follow a similar approach.

 Class Rates- In transportation terminology, the price is dollars and cents per hundredweight to
move a specific product between two locations is referred to as the rate. The rate is listed on
pricing sheets or on computer files known as tariffs.
 Freight Classification- All products transported are grouped together into uniform classifications.
The classification takes into consideration the characteristics of a product or commodity that
influence the cost of handling or transport.
 18 Classes of Freight according to National Motor Freight Classification

Class Name Cost Notes, Example Weight Range

per Cubic Foot
Class 50- Clean Freight Lowest Cost Fits on standard shrink wrapped 4x4 pallet, very Over 50 lbs.
durable
Class 55 Bricks, cement, mortar, hardwood flooring 35-50 pounds
Class 60 Car accessories & car parts 30- 35 pounds
Class 65 Car accessories & car parts, bottled beverage, books 22.5- 30 pounds
in boxes
Class 70 Car accessories & car parts, food items, automobile 15-22.5 pounds
engines
Class 77.5 Tires, bathroom fixtures 13.5-15 pounds
Class 85 Crated Machinery, cast iron stoves 12-13.5 pounds
Class 92.5 Computers, monitors, refrigerators 10.5-12 pounds
Class 100 Boat covers, car covers, canvas, wine cases, caskets 9-10.5 pounds
Class 110 Cabinets, framed artwork, table saw 8-9 pounds
Class 125 Small household appliances 7-8 pounds
Class 150 Auto sheet metal parts, bookcases 6-7 pounds
Class 175 Clothing, couches stuffed furniture 5-6 pounds
Class 200 Auto sheet metal parts, aircraft parts, aluminum 4-5 pounds
table, packaged mattresses
Class 250 Bamboo furniture, mattress and box spring, plasma 3-4 pounds
TV
Class 300 Wood cabinets, tables, chairs setup, model boats 2-3 pounds
Class 400 Deer antlers 1-2 pounds
Class 500- Low Density or Highest Cost Bags of gold dust, ping pong balls Less than 1 lbs.
High Value

 Rate Determination- Once a classification rating is obtained for a product, the rate must be
determined. The rate per hundredweight is usually based on the shipment origin and destination,
although the actual price charged for a particular shipment is normally subject to a minimum
charge and may also be subject to surcharges.
 Commodity Rates- when a large quantity of a product moves between two locations on a regular
basis, it is common practice for carriers to publish a commodity rate. Commodity rates are
published on a point to point basis and apply only on specified products.
 Exception Rates- special rates published to provide prices lower than the prevailing class rates
are called exception rates. The original purpose of the exception rate was to provide a special rate
for specific area, origin/destination or commodity when justified by either competitive or high
volume movements.
 Special Rates and Services
 Freight-all-kind (FAK) rates- a mixture of different products is transported under
a negotiated rating. Rather than determine the classification and applicable
freight of individual products, an average rating is applied for the total shipment.
 Environmental Services- special control of freight while in transit, such as
refrigeration, ventilation, and heating.
  Special Equipment Charges- use of equipment that the carrier has purchased for
a shipper’s convenience.

Transportation Management

Operational Management

 Equipment Scheduling and Yard Management- one major responsibility of the traffic
department. Scheduling is an important process in both common carrier and private
transportation. Proper yard management requires careful load planning, equipment
utilization, and driver scheduling.
 Load Planning- How loads are planned directly impacts transportation efficiency.
 Routing and Advanced Shipment Notifications (ASN)- an important part of achieving
efficiency is shipment routing. From an administrative viewpoint, the traffic department is
responsible for assuring that routing is performed in an efficient manner while meeting key
customer service requirements. It is common practice for shippers to electronically provide
consignees advanced shipment notification (ASN).
 Movement Administration- traffic managers have the basic responsibility of administering
the performance of for-hire and private transportation. Effective administration requires
continuous carrier performance measurement and evaluation. Effective administration
requires carrier selection, integration and evaluation.