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  1. Exception Rates
  2. Commodity Rates
  3. Nesting
  4. 3. Carrier Pricing: Combination Strategy
  5. 1. Economic Drivers: Density
  6. -Class Rates
  7. Auditing
  8. Special Rates and Services (continued)
  9. Bill of Lading (BOL)
  10. Expediting
  11. Administrative Activities: Auditing & Claims Administration
  12. 1. Economic Drivers: Liability
  13. 2. Costing Methods: Common Costs
  14. Shipment Manifest
  15. Freight Bill
  16. 1. Economic Drivers: Distance
  17. Administrative Activities: Control
  18. Administrative Activities: Consolidation
  19. Freight Forwarders:
  20. -Joint costs have a significant impact on transportation charges because
  21. tapering principle
  22. An effective logistics strategy must recognize four interrelated topics
  23. 3. Carrier Pricing: Value-of-Service Strategy
  24. 2. Costing Methods: Variable Costs
  25. -Rate Determination
  26. 3. Carrier Pricing: Net-Rate Pricing Strategy
  27. Freight-All-Kind (FAK)
  28. Pricing Fundamentals of F.O.B. pricing
  29. Brokers:
  30. Special Rates and Services
  31. Product storage services
  32. Documentation
  33. Claims can be
  34. Administrative Activities: Negotiation
  35. 3. Carrier Pricing: Cost-of-Service Strategy
  36. -Classification
  37. Shippers can reduce their risk of liability by
  38. 4. Rates and Rating Mechanics
  39. 1. Economic Drivers: Handling
  40. 1. Economic Drivers: Weight
  41. 2. Costing Methods: Fixed Costs
  42. Transportation Administration Activities
  43. Key elements of operational management
  44. -Density
  45. Transit Services
  46. 1. Economic Drivers Influence Rates
  47. 3. Carrier Pricing Strategies
  48. 1. Economic Drivers: Market Factors
  49. Shipper Associations and Agents
  50. Tracing
  51. Detention (motor)
  52. Demurrage (rail)
  53. Joint Rates
  54. 2. Costing Methods: Joint Costs
  55. Proactive
  56. Special Rates and Servicess
  57. -Cube Rates
  58. 1. Economic Drivers: Stowability
  59. Reactive approach
  60. Pricing Practices
  61. -Tracking driver Hours of Service (HOS
  62. Pricing Fundamentals of Delivered Pricing
  1. a -Value-of-service price is based on value as perceived by the shipper rather than the carrier
    -Higher margins than cost-of-service pricing
    -Depends on the value of the goods being shipped
    -Used for high value goods or when no competition exists
    e.g., 1980's FedEx overnight delivery
  2. b -Fixed costs must be paid even when the carrier is not operating its equipment
    -Fixed costs are not influenced by shipment volume
    -Includes vehicles, terminals, rights-of-way, information systems, and support equipment
    -Must be covered by contribution above variable costs on a per shipment basis
  3. c are the price in dollars and cents per hundredweight to move a specific product (i.e., class) between two locations
  4. d lists the individual stops or consignees when multiple shipments are placed on a single vehicle
  5. e Primary purpose of documentation is to protect all parties involved in the transaction
    -Bill of Lading
    -Freight Bill
    -Shipment manifest
  6. f are for a large quantity of product which moves between two locations on a regular basis
    -Typical for most rail freight today
  7. g Three Factors Determine the Base Rate
    1.)How much are you shipping?
    2.) What are you shipping?
    3.) How far are you shipping from origin to destination?
  8. h -Market factors such as lane volume and balance influence transportation cost
    -Transport lane refers to movements between origin and destination points
    -Carriers must find a backhaul load or vehicle is returned empty
    -Imbalances in volume between shipping points can result in higher transport costs
  9. i -Loss and damage resulting from poor performance
    -Overcharge/undercharge when amount billed is different from expected
  10. j Auditing and claims administration is needed when services are not performed as promised
  11. k -Handling some products may require special equipment
    -Special equipment may be needed to load and unload trucks, railcars, or ships
    -How products are grouped together in boxes or pallets will also impact handling cost
  12. l -Improved packaging and loading
    -Reducing susceptibility to loss or damage
  13. m -Variable costs change in a predictable, direct manner in relation to some level of activity
    -Variable costs in transportation are only incurred if you operate the vehicle
    -Transport rates must cover these at the very least!
    -Generally measured per mile or per unit weight or both
    e.g., per ton-miles transported
  14. n -Combination price is set at a value between cost-of-service minimum and value-of-service maximum
    -Most carriers use some form of combination pricing
    Common in highly volatile markets and changing competitive situations
  15. o can be negotiated if a shipper needs to use a combination of carriers
  16. p businesses that consolidate small shipments from various customers into bulk shipment for a common carrier to transport
  17. q permit shipments to be stopped at an intermediate point between origin and destination for special processing
  18. r -Volume is important because vehicles are typically constrained more by cubic capacity than by weight loaded
    -Cost per unit of weight declines as product density increases
    -Higher density products allowed fixed transport costs to be spread over more weight
  19. s ) to comply with federal regulations
  20. t -Cost-of-Service pricing is similar to a cost-plus pricing strategy for manufacturing
    -The carrier estimates the cost of providing the service and then adds on a percent profit margin
    -Commonly used for pricing transportation of low value goods or in highly competitive situations
  21. u Carrier pricing strategies for setting rates follows one or two of the following approaches

    -Cost-of-service strategy
    -Value-of-service strategy
    -Combination pricing strategy
    -Net-rate pricing strategy
  22. v -Common costs are incurred on behalf of all or a select group of shippers
    -Terminal or management expenses are typical examples
    -Usually allocated to shippers based on level of activity for that customer
    e.g., number of shipments
  23. w -Stowability is how product dimensions fit into transportation equipment
    -Odd package shapes and sizes can waste cubic capacity. Items with rectangular shapes are easier to stow

  24. x Delivered pricing — the seller includes transportation in the product price

    Single Zone delivered pricing
    Buyer pays a single price regardless of where they are located
    Example, USPS First class letters

    Multiple Zone pricing
    Seller charges different prices for different geographic areas
    Parcel carriers use this

    Base Point pricing
    Final delivered price is determined by the product's list price plus transportation cost from a designated base point
  25. y Distance
  26. z -charge for holding a railcar for more than 48 hours before unloading
  27. aa is checking freight bills to ensure accuracy
    Pre-audit determines proper charges prior to payment
    Post-audit does the same after payment
    Pay particular attention to accessorial charges !
  28. ab Operational Management
    Auditing and Claims Administration
  29. ac Weight is the second major factor for most transportation costs

    -Cost per pound decreases as weight increases until the carrier vehicle is full
    -Relationship starts again for the next vehicle load
    -Small loads should be consolidated into larger loads to maximize scale economies
  30. ad represents a carrier's method of charging for transportation services rendered
    Can be prepaid or collect
  31. ae -Seeking win-win agreements where both shippers and carriers share transportation consolidation and productivity gains
    -Collaborative negotiation: Both parties seek the lowest total logistical cost consistent with the shipper's needed service level (i.e. delivery time)
  32. af approach includes preorder planning of quantity and timing with the shipper to facilitate consolidated freight movement
  33. ag -Demurrage (rail) charge for holding a railcar for more than 48 hours before unloading
    -Detention (motor) charge for holding a truck for more than a few hours before unloading
  34. ah Consolidation is combining LTL or parcel shipments moving to a general location
    Shift to "response-based" logistics has made the industry rethink consolidation
    -Two groups of techniques
  35. ai is the combination of weight and volume
  36. aj -charge for holding a truck for more than a few hours before unloading
  37. ak refers to the ability of product to be placed in itself or collapsed for better stowability
  38. al are special rates to provide prices lower than the prevailing class rates
  39. am is the basic document utilized in purchasing transport services
    Serves as a receipt and documents products and quantities shipped
    Specifies terms and conditions of carrier liability
  40. an -Joint costs are unavoidably created by the decision to provide a particular service
    -For example, when a carrier elects to haul a truckload from point A to point B, there is an implicit decision to incur a joint cost for the back-haul from point B back to point A.
  41. ao -Diversion and re-consignment allows changing the destination and/or consignee prior to arrival at the original destination
    -Split delivery is delivering portions of a shipment to multiple destinations
  42. ap -does not attempt to influence composition and timing of transportation movements, but reacts to shipments as they come
    -Example is UPS nightly sorting of package freight for intercity movement
  43. aq -Joint Rates
    -Transit Services
    -Freight-All-Kind (FAK)
  44. ar is based on the classification rating, shipment origin, and destination
  45. as include (see next few slides)
    FAK rates, Joint rates, Transit services, Split delivery, etc.
  46. at Control responsibilities include tracing, expediting and driver hours of service administration
    -Tracking driver Hours of Service (HOS)
  47. au When the rate of cost decreases as distance increases
  48. av -Net-rate is a simplified pricing format made possible by deregulation
    -Established discounts and accessorial charges are rolled into one all-inclusive price
    -Pricing is tailored to the individual customer's needs
  49. aw 1.) Economic Drivers
    2.) Costing Methods
    3.) Carrier Pricing Strategy
    4.) Rates and Rating Mechanics
  50. ax Pricing practices have a direct impact on logistical operations
    -Traditionally, logistics pricing was "BUNDLED" into the price for a product or service
    -Trend has been to DE-BUNDLE these charges so they become separate and visible to the customer
    -Focus is still on DELIVERING VALUE to the customer
  51. ay is the grouping of similar products into uniform classes that are assigned a rating
  52. az rates allow a mixture of different products to be transported under a negotiated rating
  53. ba -carrier quotations must include implied joint costs.
    -Either a back-haul shipper must be found
    -Or the joint cost must be covered by the original shipper from A to B and built into the quote.
  54. bb is procedure to locate lost or late shipments
    i.e., tracking with RFID and GPS systems
    Proof of delivery
  55. bc - Distance directly contributes to variable expenses through: Labor, fuel, and maintenance
    - Cost curve starts above zero because of fixed costs associated with pickup and delivery regardless of distance
    -However, rate of cost DECREASES as distance increases
  56. bd -Equipment Scheduling and Yard Management
    -Load Planning and Routing
    -Advance Shipment Notification (ASN)
    -Movement Administration
    -Transportation Management System (TMS)
    -An integral information technology solution to help oversee day-to-day activities
  57. be -Liability includes product characteristics that can result in damage
    -Carriers must pay for liability insurance or accept financial responsibility
  58. bf : groups of shippers who employ an agent to consolidate purchases and shipments for them
  59. bg F.O.B (freight on board) pricing aka "free-on-board"

    F.O.B. Origin — seller states price at point of origin, and agrees to load a carrier, but assumes no further responsibility. Buyer selects carrier and mode, pays transportation and assumes the risk for in-transit loss or damage
    F.O.B. Destination — seller arranges for transportation and adds charges to the sales invoice. Title does not pass to the buyer until delivery is completed
  60. bh intermediaries that coordinate transportation arrangements for shipper, consignees and carriers, operating on a commission basis
  61. bi replace the 18 traditional freight classifications of the National Motor Freight Classification (NMFC) with five cube groupings
  62. bj involves the shipper notifying carrier that it needs a specific shipment to move quickly and with no delays