# Tariffs and calculations for cargo transportation by various...

## Tariffs and calculations for the transport of goods by various modes of transport

As a result of studying this chapter, the student must:

know

• a systematic approach to pricing, the procedure for setting tariffs, the impact on tariffs of various factors and strategies;

• how to solve the most important tasks of the national economy and business, which include the rational distribution of freight turnover and the volume of transport between different modes of transport, the elimination of inefficient transportation, the development of economic ties between the regions of the country;

be able to

• determine the maximum, technical and target tariff, as well as the developed tariff system and calculate the freight charges for the transportation of goods by various modes of transport to consumers;

own

theoretical aspects of determining the tariff in the conditions of pure competition, monopoly and oligonality, as well as changes in the tariff on the material flow market when using supply and demand.

## Pricing in the transportation services market

Setting tariffs (prices) - one of the most important areas of decision-making in any business, including logistics. However, the procedure for setting tariffs (prices) is a complex and multi-stage process (Figure 4.1). According to certain strategies, given in some literature sources, this process includes the following stages:

• Maintain a positioning strategy for a product or service;

• serve the achievements of the company's financial goals;

• Meet the realities of the market environment.

In Fig. 4.2 shows a systemic approach in setting the tariff (price), revealing the strategy of positioning the goods (services). The latter is aimed at allocating goods (services) to competitors, at least for one attractive characteristic that determines the target segment of the given product (service), the significance and sought-after benefits, as well as the quality of the product or service, its cost and price.

Fig. 4.1. Pricing Procedure

If we talk about freight rates, then they are by their economic nature the prices for transportation services. As a price, freight tariffs promote rational distribution of products and the right mix of production and consumption interests.

Fig. 4.2. System approach to pricing

Source: Dixon P. R. Marketing Management: Per. with English. M .: Binom, 1998. S. 451.

Freight tariffs, like any price, have a number of functions:

• Express labor costs;

• Materially stimulate the development and improvement of production;

• form public needs;

• have a distributive function, because through the price there is an important and complex process of allocating the newly created value to the needs of production, consumption and accumulation.

Freight tariffs also contribute to resolving the most important national economic tasks and business: the rational allocation of productive forces in the country; approximation of industry to sources of raw materials, development of new areas; rational distribution of freight turnover between different modes of transport; full use of rolling stock, elimination of unnecessarily long-distance traffic, maximum loading of empty runs; strengthening of economic calculation in transport; development of economic relations between the regions of the country.

The behavior of prices in the market is a complex process; having established this or that price, the firm can receive both the big profits, and have significant losses. It is important to note that the decision-making process on pricing is not based on the data of one particular science, but relies on the knowledge and achievements of many different theoretical developments, in particular in the areas of accounting, economics and marketing. It can be confidently asserted that the price setting has nothing in common (or has little in common) with the costs incurred in the course of transportation and sale of the product or service in question, but is very tightly linked to market conditions.

At the heart of the construction of tariffs (prices) are the average costs associated with the transportation of products, plus profits (surcharges to costs). The level of the premium is determined by the objectives of the firm, which can affect the established rate of return on invested capital. Experts say that the percentage of the premium has a tendency to grow in situations where the firm believes that profits are easier to obtain (during the economic boom), and to a decline - in a situation where the firm believes that profits are harder to obtain, i.e. in the period of economic recession. Nevertheless, this method of establishing a price (tariff) serves as a good means to achieve maximum profit in situations of variability and uncertainty.

Aggregate costs, revenues and profits are shown in Fig. 4.3. At the same time, the tariff (price) remains constant, and the volume of traffic varies. Total revenues and expenses grow with the increase in material flow. At the transportation level below Q1, the company incurs losses as a result of high fixed costs and a low level of material flow. After the Qt point, profit growth (segment x-y) is observed. Profit at the level of material flow Q 2 is maximized.

Fig. 4.3. Schedule for determining maximum profit and revenue

The increase in the volume of material flow after the point Q 2 leads to an increase in aggregate income, but the total profit decreases. At the point D the implementation of the material flow corresponds to the total revenues and costs. This example will enable the logistics manager to conclude that at a fixed price, only a specific amount of material flow can guarantee maximum profit.

Therefore, a natural and popular approach to the development of a price strategy can be cost analysis. This is due to the fact that the logistics company carries costs when delivering products. Naturally, it seeks to determine the range of prices (tariffs) that provide coverage for fixed and variable costs, and make a profit.

Prices calculated on the basis of costs, without explicit consideration of market factors, are called prices , outgoing costs strong>.

We can distinguish three types of such prices (tariffs), each of which meets specific objectives to cover costs and profitability.

The marginal tariff P n corresponds to variable costs, i.e. leads to zero marginal profit:

Marginal Rate = Variable Costs.

Variable costs - this is the absolute lower limit of the tariff, below which the firm can not go down.

The technical tariff P m (breakeven rate) corresponds to constant and variable costs. With the accepted material flow hypothesis:

or

(4.1)

where Q is the material flow corresponding to different hypotheses; C per, C post-variables and fixed costs.

As a rule, the technical tariff ensures full coverage of expenses in terms of a specific volume of material flow and is not applied to other volumes.

The target tariff P is established by introducing a certain premium to the technical tariff P m, determined relative to the invested capital K. The target tariff also comes from hypotheses material flow:

(4.2)

where p is the return on equity (expected return).

The movement of prices (tariff) in the market of material flow depends on supply and demand. For the first time the definition of the demand function in the XIX century. gave the French economist Λ. Cournot. Its function D shows the dependence of demand on the price P, ie. D = f (P).

The law of demand is formulated as follows: all other things being equal, there is an inverse relationship between the price (tariff) and the demand for material flow in any market; demand grows with a decrease in tariffs, and vice versa (Table 4.1).

Similarly to the demand, the supply function is defined: S = f (P).

The law of the proposal says that with the increase in price (tariff), the supply grows.

Common to both functions factor (tariff) P has the opposite effect on them, and the supply and demand curves move in opposite directions. The point of their intersection A determines the value of P0 and is called the market or equilibrium price (Figure 4.4).

Table 4.1

Characteristics of the four main market models

 Characteristic Market model pure competition monopolistic competition oligopoly pure monopoly Number of firms Very large Many Multiple One Product type Standardized Differentiated Standardized or differentiated Unique; no close substitutes Control over price None Some, but in a narrow framework Limited by mutual dependence; significant in collusion Significant

Pic . 4.4. Demand functions Q, D and offer S depending on the price P:

D - demand; S - the sentence; Q - the amount of material flow; A is the equilibrium point; P - price

If the market price (tariff) is at some point above equilibrium, then it generates an excess supply over demand, if below the equilibrium point, then generates a supply deficit in comparison with demand. Therefore, the market price (tariff) tends to balance.

Practice shows that the analysis of demand and supply schedules allows you to assess the possible behavior of firms in the logistics system in a specific price (tariff) policy.

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