Proportional Rate

Tags: Glossary

A rate lower than the regular rate for shipments that have prior or subsequent moves is used to overcome competitive disadvantages of combination rates.

What is Proportional Rate?

Proportional Rate

In the world of logistics, the concept of proportional rate plays a crucial role in ensuring fair and competitive pricing for shipments that involve multiple moves. To understand this concept, let's break it down into simpler terms.

When it comes to shipping goods, companies often face the challenge of arranging transportation for shipments that require multiple moves. For example, a shipment may need to be transported from a factory to a distribution center, and then from the distribution center to the final destination. In such cases, it is common for carriers to offer combination rates, which provide a discounted price for the entire journey.

However, combination rates can sometimes put certain shipments at a competitive disadvantage. This is where the proportional rate comes into play. A proportional rate is a lower-than-regular rate that is specifically designed to address the competitive disadvantages of combination rates.

The idea behind the proportional rate is to ensure that shipments with prior or subsequent moves are not unfairly penalized by the combination rate. By offering a lower rate for these shipments, carriers can level the playing field and provide a fair pricing structure.

For example, let's say a shipment needs to be transported from point A to point C, with a stop at point B in between. Without a proportional rate, the combination rate for the entire journey might be higher than the individual rates for point A to point B and point B to point C. This would discourage companies from choosing the most efficient route and instead opt for separate shipments, resulting in inefficiencies and increased costs.

By offering a proportional rate, carriers can incentivize companies to choose the most efficient route and consolidate their shipments. This not only benefits the carriers by maximizing their capacity utilization but also benefits the companies by reducing their transportation costs.

In summary, the proportional rate is a discounted rate that addresses the competitive disadvantages of combination rates for shipments involving multiple moves. It encourages companies to choose the most efficient route and consolidate their shipments, resulting in cost savings and improved logistics efficiency. By understanding and utilizing the concept of proportional rate, businesses can optimize their supply chain operations and achieve a competitive edge in the world of logistics.

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