FREIGHT SERVICE QUALITY AND CARRIER ECONOMICS

This paper is concerned with the economic implications of freight service quality, particularly as it affects the individual carrier. The model development allows carrier economics to be properly examined as part of a larger logistics process. Optimal service quality is framed as a technical efficiency criterion which minimizes the full cost of transportation (a sum of carrier and shipper costs). This criterion, termed quality efficiency (QE), is shown to be profit-maximizing with the full cost-full price formulation of carrier profit, where full price is the sum of freight rate and an average shipper cost expression. A quality policy is a rule, such as QE, which specifies the implemented quality level as a function of volume. The quality policy construct permits a simplification of the carrier profit model. Alternative quality policies, such as carrier cost optimization, are examined and compared with QE. The relationship between service quality and economic analysis of the carrier is then explored with respect to perfect competition and returns-to-scale. The paper closes by examining the potential impact of freight rate regulation on service quality.

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  • Accession Number: 00490022
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Dec 31 1989 12:00AM