Several other factors have importance to transportation economics.
Four of the more important factors are discussed. Stowability refers 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. Although density and stowability
are similar, it is possible to have items with similar densities that stow very
differently. Items having rectangular shapes are much easier to stow than
odd-shaped items. For example, while steel blocks and rods may have the same
physical density, rods are far more difficult to stow than blocks because of
their length and shape. Stowability is also influenced by other aspects of size,
since large numbers of items may be nested in
shipments whereas they may be difficult to stow in small quantities. For
example, it is possible to accomplish significant nesting for a truckload of
trash cans while a single can is difficult to stow.
Handling
Special handling equipment may be required to load and unload
trucks, rail cars, or ships. In addition to special handling equipment, the
manner in which products are physically grouped together in boxes or on pallets
for transport and storage impacts handling cost.
Liability
Liability includes product characteristics that can result in
damage. Carriers must either have insurance to protect against potential damage
or accept financial responsibility. Shippers can reduce their risk, and
ultimately transportation cost, by improved packaging or reducing
susceptibility to loss or damage.
Market
Finally, market factors such as lane volume and balance influence
transportation cost. A transport lane refers to movements between origin and destination points. Since
transportation vehicles and drivers typically return to their origin, either
they must find a back-haul load or the vehicle is returned or dead headed empty.
When empty return movements occur, labor, fuel, and maintenance costs must be
charged against the original front-haul movement. Thus, the ideal situation is
to achieve two-way or balanced movement of loads. However, this is rarely the
case because of demand imbalances in manufacturing and consumption locations.
Demand location and seasonality result in transport rates that change with
direction and season. Logistics system design must take such factors into
account to achieve back-haul economies whenever possible.
Costing Freight
The second dimension of transport economics and pricing concerns
the criteria used to allocate cost. Cost allocation is primarily a carrier
concern, but since cost structure influences negotiating ability, the shipper’s
perspective is important as well. Transportation costs are classified into a
number of categories.
Variable
Costs that change in a predictable, direct manner in relation to
some level of activity are labeled variable
costs. Variable costs include direct carrier costs associated with
movement of each load. These expenses are generally measured as a cost per mile
or per unit of weight. Typical variable cost components include labor, fuel,
and maintenance.
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. The fixed category includes costs not
directly influenced by shipment volume. For transportation firms, fixed
components include vehicles, terminals, rights-of-way, information systems, and
support equipment. In the short term, expenses associated with fixed assets
must be covered by contribution above variable costs on a per shipment basis.
Joint
Expenses created by the decision to provide a particular service
are called joint costs. For
example, when a carrier elects to haul a truckload from point A to point B,
there is an implicit decision to incur a joint cost
for the back-haul from point B to point A. The joint cost must be covered by
the original shipper from A to B or a back-haul shipper must be found. Joint
costs have significant impact on transportation charges because carrier
quotations must include implied joint costs based on assessment of back-haul
recovery.
Common
This category includes carrier costs that are incurred on behalf
of all or selected shippers. Common costs, such as
terminal or management expenses, are characterized as overhead. These are often
allocated to a shipper according to a level of activity like the number of
shipments or delivery appointments handled.
Pricing Freight
This section presents the traditional pricing mechanics used by
carriers. This discussion applies specifically to common carriers, although
contract carriers follow a similar approach.
Class
Rates
In transportation terminology, the price in ringgit Malaysia 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. The term class rate evolved from the fact that all
products transported by common carriers are classified for pricing purposes.
Any product legally transported in interstate commerce can be shipped via class
rates.
Determination of common carrier class rates is a two-step process.
The first step is to determine the classification or
grouping for the product being transported. The second step is determining the
rate or price based on the freight classification of the product, weight, and
shipment origin/destination points.
