Costing and Pricing for the Transportation Industry

Introduction 

Transportation needs resources such as labor, fuel, equipment and infrastructure. The cost of transportation is the utilization of these resources. Part of these resources is bought by users of transportation directly like fuel bought by households for automobile travel. Several resources are bought by companies that offer transportation services, for instance, fuel bought by a trucking firm or labor bought by a railroad. Additionally, federal, local and state governments offer most of the transportation infrastructure like highways. Prices charged by transportation services by various organizations become expensive costs to freight shippers and travellers, affecting their transportation choices. Since transportation is inclusive in the production of close to all services and goods, fluctuations in transportation price affect the cost of other services and goods. According to Harrison (2017), transportation prices on their own are affected by input prices like fuel costs and labor costs. The application of logistics in transport allows greater efficiency of movements with the right choice of terminals, modes, routes and schedules. The essence of logistics is to avail goods, commodities, raw materials while fulfilling four main necessities associated with quality, delivery, order and cost fulfillment. Globally, logistics act as organizational and material support requiring a detailed set of decisions to be arrived at regarding several issues like supplier location, modes of transport to be utilized and the sequencing and time of delivery. This study will, therefore, discuss costing and pricing for transportation on land and water in the U.S. 

In this research, the main user transporter services that will be discussed revolve around two modes of transport; road and water. The number of transport services is limitless. A combination of five modes are used; shipper’s association, transportation agencies, small shipper carriers (such as the United Parcel Service and Federal Express), and brokers can be utilized for their effectiveness in handling a single transportation mode or small packages ( Rahman et al., 2013) . To assist in solving the challenge of transportation service choice, it is imperative to view transportation services in terms of price, transit time, loss and damage and variability and transit time. As several studies have revealed, these factors are crucial to decision-makers. 

Water transport 

According to Harrison (2017), sea and ocean shipping have undergone many crucial institutional and technological changes including the development of shipping registry, launching of containerization and cargo reservation institution in the U.S. The first-time container service was witnessed in the U.S was in 1966 with America the Far East being the first route. From 1980, the tonnage from the U.S to Europe has clocked 81 percent ( Litman, 2014) . Both in and out if the U.S ports, containerization is believed to be a greater contributor of improved shipping. There are several direct costs that the U.S imposes on usage like stevedoring and storage and also indirect costs for lengthy port stops. As a result of containerization, large and quick ships greatly minimize the price per ton-mile as the ship steams by incurring high indirect port costs as a result of idle time. According to the pricing index, nations experiencing a depreciation or appreciation to a dollar enjoy higher or lower shipping prices. Studies of rates on North America Atlantic liner routes show an increase to the dollar deflector. A report by Rahman et al (2013) indicated that costs and prices for ocean transport depend on container penetration, oil prices, route density and the size of national fleets. 

Road transport 

Road transport costs have declined drastically reduced in recent decades by over 40 percent despite the high wage costs and energy. Due to lack of comprehensive data on transport data pricing, a study by Litman (2014) in the North Caroline indicated that truck transport costs declined by 32 percent between 1988 and 2005with a great regional change due to the disparities in road quality and the prices of road usage. Fuel prices are direct costs to consumers and a cost to transportation companies too. As of 2015, the cost of petroleum products was a big share of the total value of the outcome of transport services meant for hire, which was valued at 21.3 percent. Household spending on motor oil and Gasoline spent transportation was 22 percent Rahman et al (2013). 

Service choices and their Traits 

Price 

Price is mainly the line haul rate for transporting any accessories and goods or terminal charges for an extra service provider. The case where for-hire services are demanded, charges for moving goods between and other charges like for a pick-up at the origin, insurance, delivery at the destination, and organizing goods for transportation create the total service costs. If a shipper possesses the service, for example, trucks or fleet, the service costs incurred is the allocation of appropriate costs to a certain shipment (Litman, 2014). The relevant costs, in this case, include maintenance, labor, fuel, administrative costs and depreciation of equipment. Cost of service defers greatly from one transport service to another. Road transport is almost seven times more expensive compared to rail and rail almost four times that of water transport. All these figures originate from average freight revenue collected by the modes transport in regards to the ton-miles shipped. To establish the cost used for the purpose of transportation, selection of services must be based on real charges that mirror the commodity that is shipped, direction and distance of the movement. 

Variability and transit time 

Variability and transit time is viewed as the uncertainties in carrier performance. Sequential surveys have indicated that in transportation performance characteristics, delivery time variability is ranked at the top and transit time of road and water differs significantly. The best way to measure transit time is through door to door regardless of how many modes are involved. Rahman et al (2013) defines variability as the normal differences that exist between shipments through different modes. All shipments on-road or water with the same point of origin or destination and on the same movement mode may not necessarily be in transit for a similar length of time as a result of traffic congestion and weather effects. All these factors increase the costs and pricing of the modes of transport. 

Loss and damage 

Loss and damage is another factor that determines the costing and pricing of road and water transport in the U.S. Different carriers differ in the manner in which they move freight without causing damages or loss. Carriers with relatively low chances of causing damage and loss of freight are priced higher in the U.S. Although, some losses and damage can be as a result of God’s actions, shipper’s default or other causes that are beyond the carrier’s control certain costs must be considered before shipping takes place (Harrison, 2017). The greatest loss that shipper encounter is customer service. Due to delays, a shipment of goods may deter immediate use of the shipped goods. This means huge inventory costs are incurred due to high backorders when expected replenishment stock is not received. It takes a while to process claims like this one and sometimes it is costly if the court is involved. To minimize this damage, shippers must provide heightened protective packaging, and this expense is added transport costs and the end-user too. 

Determinants of transport costs and prices for Road and Water 

Distance and Geography 

The review in Rahman et al (2013) finalize that the elasticity costs per unit incurred in transporting weight with regard to port to port distance ranges between 0.15 and 0.22. This means that costs decrease with distance. This measure does not include applicable whether the distance is by sea or land. Studies done by Litman (2014) finds out that an extra distance of 1000 km escalates costs seven times if the distance to be covered is on land, unlike in maritime. In relation to distance, the elasticities of transport on the road are 0.275 and 0.22 on the sea. This means that elasticity is greater by land than by sea. In later work Harrison (2017) estimates that as much as the distance elasticity of costs in the U.S of costs was greater by road, it has reduced rapidly over time. 

On the other hand, landlocked states in the U.S such as Arizona, Pennsylvania, Minnesota, Ohio and Montana encounter a huge cost disparity, which is crucial because over a fifth of the U.S are landlocked. Data from the World Bank reveals that the globe’s ten greatest costs are governed by nations that are landlocked. Rahman et al (2013) find that states that are landlocked have 50 percent more transport costs than other nations. For these American States, it is crucial for them to be able to move on the road quickly and cheaply. 

Trade Facilitation and Infrastructure 

As much as infrastructure investments are expensive, they play a big role in cutting transport costs. Infrastructural stock is always measured by rail index, road index and telecommunications capacity championed by Harrison (2017). Today, the World Development Indicators provide updated date of paved roads in the U.S. to find out the significance of infrastructure, Litman (2014) makes use of an index based on Rahman et al (2013) work to compute the variation in infrastructure adds up to 40 percent of the variation in known transport costs in states bordering the coast and up to 60 percent in states that are landlocked. Being that the majority of the goods travel via water Harrison (2017), it is not by coincidence that several studies stress the significance of ports. Rahman et al (2013) applies port efficiency measures founded on an index form the Global Competitiveness Report that is anchored on business surveys. Estimates indicate that any form of deterioration in the quality of a port from the 75 th percentile to 25 th percentile increases shipping costs and prices by twelve percent. This means close to sixty percent of the markets are drawn away from these landlocked states. Since the elasticity of costs regarding distance is relatively below unity, studies posit that the remoteness demerit can be subdued with well-run ports. 

Infrastructure needs a lot of investment, and the ability to manage shipments appropriately requires managerial and technical improvements. Although ports occur naturally, their effectiveness is institutional. For instance, Harrison (2017) asserts that ports are effective if beefed with security to cut organized crimes. But according to his investigations, there is a non-linear association between regulation and effectiveness, with some being great. Rahman et al (2013) indicates the prices associated with guidelines to import a container measuring 20ft to be $ 814 in the U.S. Likewise, the U.S has a high LPI indicator of customs clearance quality. Litman (2014) further indicates that transport costs are established by the physical geography of landlocked-ness and distance, but also by the fact that a lot of time is spent while moving goods slowly from one border to another or waiting at the borders for transit. He computes the average time goods spend at the borders to be 1,700 km, a distance the goods could have travelled in-land. This is a clear indication of physical infrastructure deficiencies such as ports and also due to procedural delays. 

Market Power 

While spots markets are set on tramp shipping, conferences are used to price liner shipping, and this enables market power exploitation and collusion. Other than the prices that transport users pay in the form of costs of services being supplied, price-cost is also important. Rahman et al (2013) posit that one in five importer-exporter partnerships worldwide used just one ship working on that route in the U.S. More than half were attended by four or fewer ships that were only by single carriers. Harrison (2017) argues that a general cargo market is enough to prevent a colliding market structure due to conducive. However, Litman (2014) suggest that higher price arrangement of fixing prices has already taken place. Viewing transport services as a deduced demand, Rahman et al (2013) confirm that prices are only higher in cases where imported goods have low elasticity and that possessing several shippers’ decreases the price together with the effect of elasticity. These two research shows the exercise of market power, which signifies rapid competition could be suppressed by transport charges. Lack of competition is only experienced on ocean shipping. Deregulation of fright in the U.S meant that several truck workers ceased from being represented by the Teamsters union and their bargaining power vanished. 

Conclusion 

Transportation is an essential component in the management and design of logistics systems since it can account for about two-thirds of the entire logistics costs in the U.S. This article has described transportation in terms of costing and pricing mainly on roads and water. Water and road transport is considered as the cheapest means of transport. Ocean shipping in the U.S incurred many crucial institutional and technological changes, including the modernization of its shipping registry, launching of containerization and cargo reservation institution. At the same time, road transport costs have declined in recent decades by over 40 percent despite the high wages and energy costs. The factors that influence service choices by consumers include price, loss and damage and transit time and variability . Some of the determinants of costing and pricing for transportation for road and water are market power, trade facilitation and infrastructure and distance and geography. 

References 

Harrison, A. J. (2017). The economics of transport appraisal . Routledge. 

Litman, T. (2014). Transit price elasticities and cross-elasticities. Journal of Public Transportation , 7 (2), 3 

Rahman, M. A., Mallum, F., Sarder, M., Miller, C., & Sulbaran, T. (2013). Transportation Mode Selection Tradeoffs between Green Transportation and Costs. In IIE Annual Conference. Proceedings (p. 3787). Institute of Industrial and Systems Engineers (IISE).