Transportation Economics & Rate Structures Flashcards
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Read the first 7 Transportation Economics & Rate Structures flashcards as text
Which primary factor is used to determine LTL (Less-Than-Truckload) freight rates under the NMFC classification system?
Answer: Freight class based on density, stowability, handling, and liability
NMFC freight classes (50–500) are determined by four characteristics: density, stowability, handling ease, and liability, which together define the freight class used to set LTL rates.
What is 'cost-of-service' pricing in transportation?
Answer: Basing rates on the specific costs incurred to provide the transportation service
Cost-of-service pricing sets rates to recover the actual costs (fixed and variable) of providing the service, ensuring the carrier covers expenses including overhead and profit margin.
A shipper negotiates a 'Freight All Kinds' (FAK) agreement with a carrier. What does this mean?
Answer: All commodities in a shipment are rated at a single agreed-upon freight class
FAK agreements allow shippers to rate all commodities at one negotiated class, simplifying billing and often lowering costs when a shipper moves mixed freight that would otherwise be classified at higher classes.
In U.S. transportation regulation, what is the 'zone of rate flexibility' established by the Staggers Rail Act?
Answer: A band within which railroads can raise rates without ICC/STB review for market dominance
The Staggers Rail Act created a zone of rate flexibility allowing railroads to raise rates up to a percentage above variable costs without triggering Surface Transportation Board market dominance review.
What is a 'contract rate' in transportation, as opposed to a 'tariff rate'?
Answer: A privately negotiated rate between a shipper and carrier, typically for committed volume
Contract rates are individually negotiated between shippers and carriers, often in exchange for volume commitments, and are not required to be publicly filed, unlike legacy tariff rates.
What does a 'fuel surcharge' (FSC) in transportation pricing represent?
Answer: A variable accessorial charge added to base rates to recover fluctuating diesel fuel costs
Fuel surcharges are variable add-ons to base freight rates, typically indexed to the U.S. DOE diesel price, allowing carriers to recover fuel cost fluctuations without renegotiating base rates.
Which costing approach allocates indirect (overhead) transportation costs to services based on measurable cost drivers such as miles driven or weight handled?
Answer: Activity-Based Costing (ABC)
Activity-Based Costing assigns overhead costs to specific activities or services based on actual cost drivers, giving carriers a more accurate picture of the true cost of each service offering.