Brief Definition
Transportation Rates are the negotiated costs of moving freight from one origin to the destination. All costs associated with beginning to end of the shipment may be evaluated.
Broad Explanation
Transport costs are a monetary measure that the provider must pay to produce transportation services whether this is by truck, rail, ocean carrier, air, or pipeline. Transportation costs are influenced by the respective rates of transport that companies charge users. These rates are negotiated cost of moving freight from one origin to the destination. Rates are subject to competitive pressure. This means that a rate will be adjusted according to the demand and the supply. All modes of transportation will see both rate and volume increases, an indication that the recession has bottomed and companies are replenishing their inventories.
Table of Contents
- Trucking Rates
- Exhibit 1- Current US Freight Rate Index
- Factors affecting Truck Rates
- Determining Rates
- Air Rates
- Exhibit 2- Rate/Volume Increase by Type of Mode
- References
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1. Trucking Rates
Trucking rates are rising at an accelerated pace especially in long distance LTL trucking. Transportation firms have become very effective at maximizing the profit per shipment, which will increase the rates in the industry. Also, there is a labor shortage in the trucking industry due to the high turnover rate. There is a shortage of qualified drivers, which is driving up the prices for shipping services. Additionally, there is increased competition from other service-based industries, which is reducing the labor pool even more. Another trend in the trucking industry affecting the transportation rates are the high diesel prices. The volatility of crude oil on the international market is driving up the price of fuel. Lastly, there are bankruptcies occurring in the trucking industry especially between the years 2007-2011 due to the lack of credit and being unable to secure cash for needed daily operations.
2. Exhibit 1- Current US Freight Rate Index
3. Factors affecting Trucking Rates
Some of the factors that can affect trucking rates include the value of shipping, contract pricing, numerous accessorial charges, technology, rebates, service level, and value-added services. Trucking rates are dependent on market rates for specific merchandise and they factor in fuel costs, miles and costs per lane. The ton-per-mile max, which affects the trucking rates, is calculated by the weight of each truck for each trip.
4. Determining Rates
There are basics when negotiating transportation rates between consumers and carriers. The carrier should determine the trucking rate by determining the loading and unloading environments. Also, identifying the packaging and weight of the load can increase or decrease the freight rate. Then, simply define the trucking freight rate class. The classes are associated with a pound-per-cubic-foot-density. Estimating the density of the cargo to be shipped will help a lot in determining a fair transportation rate. The density and trucking rate are the cargo’s total pounds divided by the cubic feet of the cargo holder.
5. Air Rates
The average air prices for all air transportations jumped in 2001 by 2.1%. Buyers of nonscheduled freight services on domestic flights bore the brunt of inflation. Rates for airfreight in the US are typically very high due to the high-speed delivery especially with same day delivery that’s on the rise. Also, a lot of new technology product launches in the fall and winter seasons have increased airfreight rates because these companies want to make sure their products are in the right place at the right time. The best way to move high-end technology products is via air because it is the most secure.
6. Exhibit 2: Rate/Volume Increase by Type of Mode
| Mode | Rate Increase | Volume Increase |
| Rail | 2.5% | 2.6% |
| Intermodal | 0.9% | 2.1% |
| Truckload | 0.6% | 2.7% |
| Regional LTL | 0.7% | 2.1% |
| National LTL | 0.7% | 1.5% |
7. References:
http://www.genco.com/transportation/transportation-industry-trends.php#trend1
http://www.logisticsmgmt.com/article/transportation_pricing_trends_-_december_2011/
http://mhlnews.com/distribution/transportation-rates-rise-all-modes-0524
http://www.freightrateindex.com/
FS12-18
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