Price Practices and Price Policies: Selected Writings

By Jules Backman | Go to book overview

rate territories differ from one another in the number of classes, the percentage relations of the lower classes to first class, the levels of the basic first-class scales and the rates of progression of these scales as lengths of haul increase.


THE RATE-MAKING PROCESS *

E. G. PLOWMAN

The traditional approach to commodity freight rates in the United States has been to make rates that will move traffic. Railroad, truck, water, and airline managements always have sought to obtain effective utilization of their lines by attracting as much traffic as possible. To attract traffic requires millions of commodity freight rates. At any time many hundreds of these commodity rates are in process of negotiation.

It is correct to say that there are different freight rates on the same commodity moved over the same track for the same distance. These differences have to do with the nature of the commercial transaction and with the volume of tonnage that is offered to the carrier. If examination is also made of the earnings of carriers, it will be found that the multiplicity of joint routes results in different earnings or so-called divisions of the same commodity freight rate for movement over the same track and in the same train. In other words, two like carloads moving from A to B via different tariff routes may pay the same freight revenue but yield different amounts to an intermediate carrier who operates from C to D within A to B. These inherent variations in earnings of carriers stem from the use of commodity rates as prices of transportation service.

The simplest kind of freight rate structure is one based solely upon mileage. It would be very easy to publish. It would meet all the tests of any tariff simplification committee. Such a simple tariff could prescribe that on each pound of freight the charge would be so much per ton mile. Such a freight rate structure in essence is of toll or tax rather than pricing type. It disregards the advantages of attracting as much traffic as possible to each carrier by proper pricing. It penalizes even to the point of driving out of existence traffic that would come forward under more realistic pricing. . . .

____________________
*
From an address by E. G. Plowman before the Rochester, N. Y., Chapter of the Delta Nu Alpha Transportation Fraternity, reprinted in What's New ( Washington: Association of American Railroads, August, 1952), pp. 23-29. Mr. Plowman is a Vice President of the United States Steel Company.

-472-

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