Question

Distinguish between the terms "rates" and "price" as relates to transportation?

Describe in detail please.

Answer 1

            It is common for words such as rate and price to be used interchangeably in casual conversation; their general definitions are similar enough that they will both apply to many situations. However, this is not the case for these terms when they are applied to the business of transportation. “When a transportation professional is talking about a certain rate, they are referring to an amount that can be found in a rate tariff book as payment to a carrier for performing a specified transportation service”. This implied that payments remain relatively fixed. These rates are based on the movement of a specific commodity between two points, rather than the cost of moving one ton one mile. The transportation industry in the United States utilizes three different rate systems: class, exception and commodity. The class rate system provides rates for any commodity between two points. The exception system is designed around carriers that may need to deviate from the product scale system. Commodity rates are applied to specific origin-destination shipping patterns of specific commodities.

            “If that professional is discussing a certain price, they are referring to an implied value or level that is determined based on prevailing market forces; a price in this context implies a dynamic economic environment that is receptive to changes in customer demand and carrier supply”. Pricing decisions are based on four main factors: customers and market, government, other channel members and competition. The impact of the market on pricing is simple; the market sets the price that everyone is expected to pay. Government regulation serves to prevent and address errors in the marketplace to control carrier pricing. “When applied to carriers, channel members refer to other carriers in the same mode and in different modes”. As in any business, competition serves to impact individual pricing policy through lowering or raising prices and changing business strategies.