- Definition
- Advantages and Disadvantages
- Examples.
Definition
Point to point rates refers to the rate one pays if transporting goods through a point-to-point transit system. A point-to-point transit system does not use hubs to consolidate goods, cross docking nor does it use any form of break bulk to break up shipments into smaller portions. It directly ships the goods from manufacturing to the endpoint, putting the burden of warehousing on them.
Point-to-Point rates are used for a shipping lane with predictable high volume traffic, for example raw materials from a specific location to the factory. It makes more sense to apply a consistent rate for that lane, rather than based off of volume or mileage.
http://www.naefrontiers.org/Symposia/USFOE/…US…/21909.aspx
- Advantages of point to point rates
- Less fixed costs, due to the lack of distribution centers
- Can be faster due to a direct path
- Won’t be delayed by issues at the hubs, is a simpler system
- If volume is large enough, can benefit from economies of scale
- Disadvantages of point to point rates
- Inventory costs will be higher
- More trips are needed to cover all destinations
Examples
Point-to-point rates are used quite often in transportation. It is most commonly used in air travel, due to the already limited number of hubs. Due to the large volume of passengers that travel between large cities, it makes more sense to have consistent service between the two destinations.
In the context of logistics, it is used to cover a shipping lane with a large consistent volume. For example, a lumber mill transporting wood to a manufacturing plant. The two points in the logistics network are unlikely to change, and can be covered by a point-to-point rate.
http://blogs.cornell.edu/info2040/2011/09/14/hub-and-spoke-vs-point-to-point-transport-networks/
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