Although increasing numbers of shippers are using air freight for regular service, most view air transport as a premium, emergency service because of its higher cost. But when an item must be delivered to a distant location quickly, air freight offers the quickest time-in-transit of any transport mode. For most shippers, however, these time sensitive shipments are relatively few in number or frequency. Modern aircraft have cruising speeds of 500 to 600 miles per hour and are able to travel internationally. The average length of haul domestically is more, than 800 miles, although international movements may be thousands of miles.
To a great extent, domestic air lines competes directly with motor carriers, and to a much lesser degree with rail carriers. Where countries are separated by large expanses of water, the major competitor for international air freight is water carriage.
Air carriersgenerally handlehigh-value products. Air freight usually cannot be cost-justified for low-value items, because the high price of air freight would represent too large a percentage of the product cost. Customer service' considerations may influence the choice of transport, but only if service issues are more important than cost issues.
Air transport provides frequent and reliable service and rapid time-in-transit, but terminal and delivery delays and congestion may appreciably reduce some of this advantage. On a point-to-point basis over short distances, motor transport often matches or outperforms the total transit time of air freight. It is the totaltransit time that is important to the shipper rather than the transit time from terminal to terminal.
Water transportation can be broken down into several distinct categories: (1) inland waterway, such as rivers and canals, (2) lakes, (3) coastal and interecoastal ocean, and (4) international deep sea. It is concentrated in low-value items where speed is not critical.
Other than in ocean transport, water carriers are limited in their movement by the availability of lakes, rivers, canals, or intercoastal waterways. Reliance on watercarriage depends to a greater or lesser degree on the geography of the particular location.
Water carriage is the most inexpensive method of shipping high-bulk, low-value commodities.
Pipelines are able to transport only a limited number of products, including natural gas, crude oil, petroleum products, water, chemicals, and slurry products. Natural gas and crude oil account for the majority of pipeline traffic. Oil pipelines transport approximately 18.4 percent of all domestic intercity freight traffic measured in ton-miles. Pipelines offer the shipper an extremely high level of service dependability at a relatively low cost. Pipelines are able to deliver their product on time because of the following factors:
The flows of products within the pipelines are monitored and controlled by computer.
Looses and damages due to pipeline leaks or breaks are extremely rare.
Climatic conditions have minimal effects on products moving in pipelines.
Pipelines are not labor-intensive; therefore, strikes or employee absences have little effect on their operations.
The advantages in cost and dependability that pipelines have over other transport modes have stimulated shipper interest in moving other products by pipeline. Certainly, if a product is or can be liquid, gas, or slurry form, it can be transported by pipeline. As the costs of other modes increase, shipper may give additional consideration to pipelines as a mode of transport for nontraditional products.
In addition to the five basic modes of transport, a number of intermodal combinations are available to the shipper. The more popular combinations are trailer-on-flatcar(трейлер навагоне-платформе) (TOFC) and container-on-flatcar(COFC). Intermodal movements combine the cost/ or service advantages of two or more modes in a single product movement.
5.5. Carrier Pricing
Two forms or methods of transportation pricingcan be utilized: cost of service and value of service. Cost-of-service pricing establishes transportation rates at levels that cover a carrier's fixed and variable costs, plus allowance for some profit. Transportation costs can vary within the cost-of-service pricing approach because of two major factors: distance and volume. Naturally, this approach is appealing because it establishes the lower limit of rates. However, it has some inherent difficulties.
First, a carrier must be able to identify its fixed and variable costs. This involves a recognition of the relevant cost components and an ability to measure these costs accurately. Many carrier firms are unable to measure costs precisely. Second, this approach requires that fixed costs be allocated to each freight movement (shipment). A second method of transportation pricing is value-of-service pricing. This approach is based on charging what the market will bear; and is based on the demand for transportation services and the competitive situation. This approach establishes the upper limit on rates. The rates set will maximize the difference between revenues received and the variable cost incurred for carrying a shipment. In most instances, competition will determine the price charged.
Categories of Rates.There are two types of charges assessed by carriers: line-haul rates, which are charged for the movement of goods between two points that are not in the same local pickup and delivery area, and accessorial charges, which cover all other payments made to carriers for transporting, handling, or servicing a shipment. Line-haul rates can he grouped into four types: (1) class rates, (2) exception rates, (3) commodity rates, and (4) miscellaneous rates.
Class rates reduce the number of transportation rates required by grouping products into classes for pricing purposes. A product's specific classification is referred to as its class rating. A basic rate would be Class 100, with higher numbers representing more expensive rates and lower numbers less expensive rates. The charge to move a specific product classification between two locations is referred to as the rate. By identifying the class rating of a product, the rate per hundredweight (100 pounds) between any two points can be determined.
Exception rates, or exceptions to the classification, provide the shipper with rates lower than the published class rates. This type of rate was introduced in order to provide a special rate for a specific area, origin-destination, or commodity when competition or volume justified the lower rate. When an exception rate is published, the classification that normally applies is changed.
Commodity rates apply when a large quantity of a product is shipped between two locations on a regular basis. These rates are published on a point-to-point basis without regard to product classification.
Contract rates and freight all kinds (FAK) rates include other rates that apply in special circumstances. For example, contract rates are those negotiated between a shipper and carrier. They are formalized through a written contractual agreement between the two parties. These types of rates are increasing in usage because of the growth of contract carriage.
Freight-all-kinds (FAK)rates have developed in recent years and apply to shipments instead of products. They tend to be based on the costs of providing the transportation service: the products shipped can be of any type. The carrier provides the shipper with a rate per shipment based on the weight of the products being shipped. FAK rates have become very popular with companies such as wholesalers and manufacturers that ship a variety of products to retail customers on a regular basis.
The FOB pricing terms that are offered by sellers to buyers have a significant impact on logistics generally and transportation specifically. For example, if a seller quotes a delivered price to the buyer's retail store location, the total price includes not only the cost of the product, but the cost of moving the product to the retail store.
In a delivered pricing system, buyers are given a price that includes delivery of the product. As mentioned in the discussion of FOB pricing, this form of pricing is, in essence. FOB destination. The seller secures the transportation mode/carrier and delivers the product to the buyer. This option can be advantageous to one or both parties of the transaction, depending on which variation of delivered pricing is used by the seller.
Zone Pricing. Zone pricing is a method that categorizes geographic areas into zones. Each zone will have a particular delivery cost associated with it. The closer the zone to the seller, the lower the delivery cost; the farther away, the higher the delivery charge. Depending upon the buyer's location in a particular zone, some buyers will be paying more for delivery on a per mile basis than others.
Basing Point Pricing. In a basing-point-pricing system, the seller selects one or more locations that serve as points of origin. Depending on which point of origin is selected by the seller, the buyer will pay delivery costs from that point to the buyer's location. The seller will often use a manufacturing plant, distribution center, port, live trade zone, and so forth as a basing point. This method can be good or bad for the buyer, depending on which basing point is selected.
Quantity discounts can be cumulative or noncumulalive. Cumulative quantity discounts provide price reductions to the buyer based on the amount of purchases over some prescribed period of time. Noncumulative quantity discounts are applied to each order and do not accumulate over a time period.
Allowances. Sometimes, sellers will provide price reductions to buyers that perform some of the delivery function. For example, when using a delivered pricing system, the seller assumes all costs of delivery and adds those costs to the price of the product. If the buyer is willing to assume some of the delivery functions, the seller will often provide some allowances, or price reductions, to the buyer. The most common allowances are provided for customer pickup of the product or unloading of the carrier vehicle upon delivery at the customer's location. These services cost the seller money and if the buyer is willing to perform these functions, the seller can provide a price concession. The important element in making the right decisions about taking advantage of allowances is to know the costs associated with each delivery function. The allowance should be equal to, or greater than, the costs to the buyer for assuming these responsibilities.
Negotiated pricing. Shippers are concentrating more business with fewer carriers and placing greater emphasis on negotiated pricing. The goal of the negotiation process is to develop an agreement that is mutually beneficial, recognizes the needs of the parties involved, and motivates them to perform. Because most negotiations are based on cost-of service pricing, carriers should have precise measures of their costs. Only when all costs are considered can carriers and shippers work together to reduce the carriers' cost base.