Explain the Transportation Cost Structure

Transportation cost/Freight Rate Structure
Freight rates of any mode of transport are based on the following principles:
Freight should the actual cost of transport operation. The actual cost of operation depends on the following factors:
a)      Fixed costs -Freight should cover interest on capital, depreciation, registration and insurance expenses of a vehicle, if applicable, general upkeep of the vehicle. administration overheads, and expenditure on other fixed facilities, etc.
b)      Semi-fixed costs – Freight should cover the salary of the driver, cleaner, conductor and miscellaneous maintenance expenses, which vary partially the running of the vehicle.
c)      Vehicle Utilization – A transporter is interested In getting maximum mileage out of his vehicle by moving it at top speed to cover the distance in as short a time as possible.
If the consignments loaded or the route Covered is not conducive, the transporter would quote a higher freight rates.
Higher freight rates are also quoted when vehicles are detained at terminals either for certain formalities, terminal congestion in busy ports or at factory gates, or while waiting for loading or unloading operations. Terminal detentions are invariably accounted for in the freight rates , normally not noticed at all.
Freight rates are quoted higher if there is no expectation of obtaining a return trip with a load or if considerable empty movement of vehicles is involved after unloading.
Vehicle Utilization is affected by the nature of goods. Hazardous goods that are likely to cause damage to the other consignments or the vehicle itself attract higher freight rates.
Consignments, which can be loaded less by weight in a vehicle, attract higher unit freight rate since they yield poor utilization of the vehicle.
 
2.      Traffic Bearing Capacity:
An age-old consideration for the freight rates is the doctrine of “what traffic can bear.” This basically means how much the customer can pay for the transportation. Transportation adds place utility to goods, for it makes them marketable at another place. However, after the addition of the cost of transport, the price of goods should be still attractive to the buyer.

3.      Public Use:
Freight rates all over the world are governed on human grounds that items of public use should be made available to the common man at the cheapest rate. For example, foodgrains and salt are carried at rock-bottom prices, sometimes even at those, which do not cover the actual cost of operation.

4.      Government Policies:
Freight rates are often framed on the basis of government objectives, which aim at serving certain points – such as promotion of certain type of trade, development of certain industries, etc. In such cases, freight rates are either depressed to promote the particular traffic or hiked to discourage particular traffic.

5.      Reasonable Profit:
The transporter must provide for a reasonable profit after covering the cost of operations and capital investment. This margin must give not only return of investment but also compensate him for the entrepreneurial time and effort he puts in, but also provide sufficient fAg f6r future development of his enterprises