Principles of Freight Billing and Cost Structure

In the freight industry, understanding the principles of billing and cost structure is crucial for both carriers and shippers.

Billing Principles

The first key principle is based on weight and volume. Freight charges are often determined by either the actual weight of the goods or their volumetric weight, taking the higher value. This is because carriers need to account for the space occupied by large but light items. For example, in air freight, volumetric weight is calculated by dividing the volume (in cubic centimeters) by a specific conversion factor.

Distance also plays a significant role. Longer - distance shipments generally cost more due to increased fuel consumption, wear and tear on vehicles, and longer transit times. Rates are typically set per unit of distance, such as per mile or kilometer.

The type of service required affects the billing as well. Express services, which offer faster delivery, come with a premium price compared to standard services.

Cost Structure Principles

Fixed costs are those that do not vary with the volume of freight. These include the purchase or lease of transportation equipment, insurance, and warehouse rent. As the volume of freight increases, the fixed cost per unit decreases.

Variable costs change in direct proportion to the volume of freight. Fuel costs are a prime example, as more fuel is needed for heavier loads and longer distances. Labor costs for loading and unloading also fall into this category.

Overhead costs, such as administrative expenses and office utilities, are allocated across all shipments. By understanding these principles, carriers can set appropriate rates, and shippers can better manage their transportation budgets.