Chapter 4: Costing and Pricing for Transportation

Rail vs. Motor Carriers

- rail is more of a monopoly due to start-up costs, hard to enter market - motor carriers are more of a pure competition/monopolistic, low entry barriers (so many companies/players... 400,000 across US)

Character-of-Shipment Rates

LTL/TL rates, multiple car rates, incentive rates, unit-train rates, per-truckload rates, density rates

Social Responsibility Pricing

Walmart hurricane relief, 9/11 assistance

Exception Rates

a modification to the national classification instituted by an individual carrier (ex. to rating, min weight, density group)

Profit Maximization - Skimming Price

ex. iPhone 4, carrier costs for high-value goods

Survival-Based Pricing

ex. last minute airplane ticket deal

Unit-Volume Pricing

ex. tighter packaging encourages / capacity utilization

Differential Pricing

infusion of marketing into post-regulation era of transportation

Sales-Based Pricing

later stages of product / service life cycle once popular passenger movements

Area, Location, or Route Rates

local rates, joint rates, proportional rates, differential rates, per-mile rates

Time/Service Rate Structures

moving passengers or freight by local train versus national (direct vs. connecting flights)

Rule of Thumb for Making Price Adjustments

must be the result of a reduction in carrier costs because of an action by the customer, may not exceed cost savings to the carrier

Most common mistakes in carrier pricing

over reliance on cost-based pricing, failure to react to market changes, price set independently of marketing mix, "one price for all" mentality, price managed independently of overall strategic plan

Net-Rate

pricing presented as one number to shipper

Class Rates: commodity classification factors

product density, stowability and handling, liability

Mark-Up

profit / cost

Margin

profit / price (profit maximization)

Commodity Rates

special rate published on a specific commodity or group of related commodities between specific points and generally via specific routs in specific directions

Market Share Pricing

to increase market share and enjoy economies of scale

Prices (after deregulation)

under freedom from economic regulation, the use of rates set in confidential contracts between carriers and shippers has become prominent

Value-of-Service

value as perceived by the shipper, margin, often used for high-value periods

Deferred Delivery

airline charges more if you need overnight, FedEx willing to charge less if you are willing to "defer" shipment until next scheduled FedEx plane

Rates (before deregulation)

all interstate rail freight traffic and much motor freight traffic was moved on published (tariff) rates

Cost-of-Service

buildup approach, markup, popular during regulated transportation period

Special Rates

character-of-shipment, area, location or route, time/service, contract, deferred delivery rate structures

Rate Structure Systems

class rates, exception rates, commodity rates, special rates

All four types of markets an be found in transportation industries:

commodity & products, geographic point, route, intermodal competition

Contract Rates

contract services are governed by contracts negotiated between the shipper and carrier, not by generally published tariffs; based on volume, relationship with customer/supplier

Combination Pricing

cost of service - pricing floor value of service - pricing ceiling

Carrier Pricing Strategies (4)

cost-of-service, value-of-service, combination, net-rate

Factors affecting carrier pricing decisions (4)

customers (market), government, channel members, competition