Transportation Economics

Economic Factors

  1. Distance - cost curve increases at a decreasing rate with distance (tapering principle)
  2. Weight - cost per unit of weight decreases as load size increases
  3. Density - higher density products are cheaper per unit of weight
  4. Stowability - how product dimensions fit into transport equipment
  5. Handling - special handling equipment increases cost if required
  6. Liability - risk of damage in transport (function of packing/type)
  7. Market - amount of shipment along the transportation lane that makes the market more or less costly to serve.

Transportation Rates & Ratings

  • The rate is the price to move a product per hundredweight between two locations (also known as tariffs) or per mile in TL. Rates may include minimum charges and surcharges (eg. to cover fuel cost risk).
  • Class rates are the rates for various classes of goods transported
  • Rating is the classification of product based on its transportation characteristics. Packing and other factors affect the rating (and shipment cost) of an item.
    • The trucking system uses the National Motor Freight Classification managed by the National Motor Freight Traffic Association
      • Class 100 is considered the class of an average product. Classes range from 35 to 500 with the higher class being the more expensive to transport. A product with a rating of 200 would be around twice as expensive to ship as a product with a rating of 100.
      • Products are also classified as LTL or TL shipments
      • Shippers usually apply a discount from class rates for specific customers.
      • Cube rates (a newer concept) replace the 18 classifications with five cube groupings. Rates and determined for the weight contained in each category of freight. There are four weight rates for shipments under 500lbs and shipments over 500lbs are priced per 500lb unit.
      • Commodity rates are special rates for commodities.
      • Freight-all-kind (FAK) rates is a composite rate of a mixed shipment of various classes.
    • The rail system uses the Uniform Freight Classification