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Transportation Economics and Pricing

Economic Drivers:
Distance Weight Density Stowability Handling Liability Market

Major influence on transportation cost, such as labor, fuel, and maintenance. Tapering principle: the principle of economy of scale and economy of distance.



Load weight As with other logistics activities, scale economies exist for most transportation movements.

Cost per pound

Weight of load

Combination of weight and volume. Weight and volume are important since transportation cost for any movement is usually quoted in dollar per unit of weight. Transport charges are commonly quoted per hundredweight (CWT). Higher density products are typically assessed lower transport cost per unit of weight.

Cost per pound

Product density

Refer to how product dimensions fit into transportation equipment. Odd package sizes and shapes, as well as excessive size or length, may not fit well in transportation equipment, resulting in wasted cubic capacity. Stowability is also influenced by other aspects of size, since large numbers of items may be nested in shipments.


In addition to special handling equipment, the manner in which products are physically grouped together in boxes or on pallets for transport and storage will impact handling cost.

Liability includes product characteristics that can result in damage. Carriers must either have insurance to protect against potential damage.

Market factors: lane volume and balance influence transportation cost. A transport lane: movement between origin and destination point. Since transportation vehicle and drivers typically return to other origin, either they must find a back-haul load or the vehicle is returned or deadheaded empty.

Variable: Labor, fuel, and maintenance Fixed: cost that not directly influenced by shipment volume (vehicle, terminals, rights-of-way, information systems, and support equipment). Joint: expenses created by the decision provide a particular service. Common: terminal and management expenses.

Carrier Pricing Strategy

Cost of service Buildup approach where the carrier established a rate based on the cost of providing the service plus a profit margin. Ex: if the cost of providing a transportation service is $200 and the profit markup is 10%, the carrier would charge $220.

Value-of-service Charges a price based on value as perceived by the shipper rather than the carrier cost. The value of supplying the service establishes the maximum rate. Ex: a shipper perceived transporting 1000 pounds of electronics equipment as more critical or valuable than 1000 pounds of coal. Combination Established the transport price at an intermediate level between the cost-of-service minimum and value-of-service maximum. Net Rate The rate that generated by the Trucking Industry Regulatory Reform Act (TIRRA). Established discounts and accessorial charge are built into net rate.

Distance Rates also vary directly with distance; the longer the haul, the higher the rate. This relates to the carriers higher costs of moving the product longer distances. Weight of shipment Rates also vary inversely with weight; the heavier the shipment, the lower the rate.

Documentation: Domestic
Bill of Lading Freight Bill Claims F.O.B. Terms of Sale

Documentation: Domestic Bills of Lading

Shows title to the goods, name and address of the consignor and consignee. Summarizes the goods in transit and their class rates. Straight Bill Non-negotiable Contains terms of the sale including the time/place of title transfer. Order Bill Negotiable

Documentation: Domestic Freight Bills

Carriers invoice for charges for a given shipment. Credit terms are stipulated by the carrier and can vary extensively. Credit may be denied if the charges are worth more than the freight. Bills may also be either prepaid or collect. Freight bills are typically audited internally or externally.

Documentation: Domestic Claims

A document filed with the carrier to recover monetary losses due to losses, damage, delay or overcharges by the carrier. Typically, claims are filed within 9 months, claimant in notified by receipt within 30 days, and settlement or refusal within 120 days.

Documentation: Domestic F.O.B. Terms of Sale

Determines which party is to pay the freight bill, which party has title to the goods, and which party controls the movement of the goods. F.O.B. origin - buyer pays freight, owns goods once loaded, controls movement of the goods F.O.B. destination - seller pays freight, owns goods until delivered, controls movement of the goods

Documentation: International
Documentation for international transportation is far more complex than required for domestic transportation. Types of documents vary widely b country.

Sales Documents Terms of Sale Transportation Documents

Documentation: International Sales Documents

Sales contract is the initial document. Letter of Credit may also accompany shipment (guarantees payment). May also use cash and other means of demonstrating an ability to pay for the goods.

Documentation: International Terms of Sale

Terms may include:

Export packing costs Inland transportation Export clearance Vehicle loading Transportation costs Insurance Duties Insurances

Documentation: International Transportation Documents

Export Declaration - describes the goods Export License - allows export of goods

General license allows export of most goods w/out any special requirements Validation export license for export of controlled items

Commercial value



Bill of Lading - initiating document for all shipments Export B.O.L. - can govern foreign domestic, inter country, and domestic movements of the goods. Ocean B.O.L. - sets terms, lists origin and destination ports, quantities and weight, rates, special handling needs for the ocean movement. Order B.O.L - negotiable Clean B.O.L. - issued by carrier when goods arrive in port; damages and other exceptions should be noted