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Transportation - Transportation Economics and Pricing

Q: Transportation economics and pricing are driven by multiple factor that influence rates. Which primary factors?

- Economy of distance- Economy of weight- Economy of density

5 important questions on Transportation - Transportation Economics and Pricing

Transportation economics and pricing are driven by multiple factor that influence rates. Which primary factors?

- Economy of distance- Economy of weight- Economy of density

Describe Economy of Distance

Distance is a major influence on transportation cost.
-The cost curve does not begin at zero because there are fixed costs associated with shipment pickup and delivery. Regardless of distance
- The cost curve increases at a decreasing rate as a function of distance. This is known as the tapering principle.

Describe Economy of Weight

Scale economies exist for most transportation movements. Transport cost per unit of weight decreases as load size increase. This is because fixed costs of pickup, delivery and administration are spread of incremental weight.This relationship is limited by the size of the transportation vehicle. Managerial implication: small loads should be consolidated into larger loads to max economy of scale.

Describe Economy of Density

Density is the combination of weight and volume. Weight and volume are important since transportation cost for any movement is usually quoted in dollars per unit of weight. CWT: hundredweight. Higher-density products allow fixed transport cost to be spread across more weight.

Transportation economics and pricing are driven by multiple factors that influence costs, which factors? (lecture)

- Variable costs
- Fixed costs
- Joint costs: expenses created by the decision to provide a particular service. Costs are connected to that service.
- Common costs: costs that are incurred on behalf of all or selected shippers (such as terminal or management expenses)