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Intermodal 101:Mutual Commitment Pricing Programs

Intermodal 101:Mutual Commitment Pricing Programs

Intermodal 101: Mutual Commitment Pricing Programs

Rail controlled door to door shipping does have several advantages, as discussed in previous weeks, but it also has its drawbacks.

Many shippers have a transportation budget that gets created once per year.  This budget relies on some level of consistency when estimating pricing.  Utilizing the door to door pricing, which is subject to change on very short notice, does not afford them the opportunity to properly budget.

Shippers must be able to add in transportation charges to the cost of their products.  They are not typically able to change their pricing to their customers every time the railroad decides the balance of equipment in each location is out of kilter.

But perhaps the largest reason an intermodal shipper might want to avoid the transient pricing opportunities of door to door is the ability to lock in capacity at a given price.  Many of the equipment providers who offer the door to door service options will also commit to providing capacity if the shipper will commit to a price for year-round business.  They can execute a plan on capacity because they are able to plan based on the shipper’s commitment.

These mutual commitment programs (MCPs is a generic term as used here) provide the stability needed by the shipper for their long-term planning.  Getting a cheap price from spot-market rates is nice, but it does not provide the consistency needed by most shippers.

When should a shipper look to door to door and when should they look to MCPs?  In our next update, we will discuss how shippers should take advantage of one or both of these rate types.