freight rate

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This cost of transporting goods reflects a number of factors besides basic transport costs, such as the nature of the commodity. Non-breakable, non-perishable items, like coal, are carried most cheaply as they can be carried in bulk on open wagons. The more careful the handling required, the more expensive is the freight rate. Sophisticated manufactured goods can bear high freight rates because of their greater value. Raw materials are carried for less so that they can be moved over greater distances. Hummels (1999) U. Chicago, for example, finds for the United States that the ad valorem freight rate is 7.6% for food and live animals, but only 2.25% for machinery. Falling air-freight rates mean that around 30% of US imports now go by air. However, studies based on this data indicate an implicit willingness to pay for time saved at the rate of around 0.5% of the value of goods shipped for each day saved, indicating the massive premium on proximity (Hummels (2001) mimeo, Purdue U.).

Distance is an important factor. Many freight rates are tapered; that is, the rate per tonne-mile or tonne-kilometre drops as the distance increases, but this change in rates is expressed in a series of distance ‘bands’ so that, on a graph, the relationship between cost over unit distance and distance would appear as a series of downward steps rather than a smooth diagonal line. Plummer and Sheppard (2006) J. Econ. Geog. 6, 5 take to task S. Brackman et al. (2001) for setting transport costs, and thus distance, as an external quasi-freight rate.

Subjects: Earth Sciences and Geography.

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