Theory of Rates in Indian Railways

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Questions and Answers

What is the primary challenge in setting transportation rates for Indian Railways, given the variety of goods they carry?

Balancing the diversity of commodities with a rational rate structure. (correct)

Prioritizing high-value goods over low-value goods in rate setting.

Ignoring the different characteristics of raw and finished materials.

Ensuring all goods are transported at the same cost per tonne.

Which principle of rate setting for Indian Railways considers the cost of transporting a commodity from one place to another?

Value of service.

Market demand.

What the traffic can bear.

Cost of service. (correct)

Which factors determine value of service in setting transport rates?

Minimum freight charges and cost of service.

Seller's and buyer's market conditions.

The availability of alternative transport methods.

Cost at the production and consumption points. (correct)

What does 'What the traffic can bear' represent in the context of setting freight charges?

Reasonable freight charges which considers market conditions. (C) Signup and view all the answers

If the value of service calculation shows a reverse trend, what is the likely outcome?

The commodity will be transported using alternative means. (D) Signup and view all the answers

Which of the following correctly describes about the 'Cost of service' principle of rating and classification?

It represents cost of transportation, determined per tonne of goods. (C) Signup and view all the answers

What is one of aims of the 'value of service' principle while setting freight charges?

To ensure a normal margin of profit and provision for transport. (A) Signup and view all the answers

What happens if the freight charges are set below the cost of service?

It may result in a loss for the railways. (B) Signup and view all the answers

Which of the following is NOT directly considered while applying ‘what the traffic can bear’ principal?

The cost of fuel used by carrier. (B) Signup and view all the answers

Why is it important to consider both 'Cost of service' and 'Value of service' when determining freight charges?

To ensure the freight rates are fair to both carriers and customers. (C) Signup and view all the answers

What is one of the primary objectives of the Indian Railways freight charge system?

To implement a graded freight levy based on the capacity of individual commodities to support high, medium or low freight burdens. (C) Signup and view all the answers

In the context of Indian Railways freight charges, what are 'low-rated commodities'?

Commodities for which freight charges are set lower than the cost of hauling them. (B) Signup and view all the answers

What is the primary goal behind keeping freight charges for raw materials at reasonable levels?

To prevent the cost of finished products from becoming excessively high. (C) Signup and view all the answers

According to the material, what is one of the reasons behind the graded freight levy system used by Indian Railways?

To balance the cost of transporting essential commodities with the economic needs of the operation. (B) Signup and view all the answers

How does the way cotton is transported influence its freight charges?

The rate varies according to the weight-to-volume-ratio (B) Signup and view all the answers

Which term best describes Indian Railways in the context of freight charges?

A nationalized public utility undertaking (A) Signup and view all the answers

Which of the following is given a lower classification due to its importance?

Food grains and fertilizers (A) Signup and view all the answers

What is the effect of excessively high freight charges for transport services?

It can render the service unaffordable for traffic. (D) Signup and view all the answers

What does the freight charge system aim to provide for certain essential commodities?

To ensure that consumer costs are not pushed too high. (B) Signup and view all the answers

What is the purpose of fixing rates with consideration for 'national priority'?

To prioritize the carriage of goods that are important for the nation. (C) Signup and view all the answers

What is primarily ensured by fixing rates based on the cost of service?

Covering the minimum cost of service without incurring a loss (D) Signup and view all the answers

How does the principle of value of service differ from the cost of service?

It determines the effective value derived from the service provided (B) Signup and view all the answers

Which of the following accurately reflects the 'what the traffic can bear' principle in freight rate setting?

It includes the seller's and buyer's market considerations to set rates (C) Signup and view all the answers

In the context of the theory of rates, what is a potential consequence of setting freight charges based on a reverse trend in value of service?

Shift to alternative modes of transportation (C) Signup and view all the answers

What essential feature should not be overlooked while establishing a rational rate structure for Indian Railways?

To avoid loss to both the trade and the carrier (A) Signup and view all the answers

What does the term 'floor freight charges' refer to in the cost of service principle?

The lowest rate that can be charged without incurring a loss (D) Signup and view all the answers

What happens if transportation rates are set lower than the cost of service?

Potential loss for the carrier and reduced service quality (B) Signup and view all the answers

Which aspect is NOT considered in the value of service principle when calculating freight charges?

Cost of transportation based on distance (B) Signup and view all the answers

What critical factor influences what the traffic can bear principle in freight charge setting?

The elasticity of demand within the local market (B) Signup and view all the answers

How are bulky or essential commodities rated for freight charges?

At a middle level that accommodates both cost and profit (D) Signup and view all the answers

What is a crucial factor when determining freight charges on raw materials for essential goods production?

Ensuring transportation costs do not make factory operations uneconomical (B) Signup and view all the answers

Why is it essential for Indian Railways to levy freight charges that the traffic can bear?

To avoid pushing costs of essential goods to unmanageable levels for consumers (D) Signup and view all the answers

What happens to the classification of a commodity like food grains based on national priority?

It is often classified lower to accommodate national needs (C) Signup and view all the answers

In what way do the transportation characteristics influence freight charges?

They determine varied rates based on the quantity and form of goods offered (C) Signup and view all the answers

What is one underlying principle when setting freight charges for low-rated commodities?

They should be lower than haulage costs without affecting essential supply (D) Signup and view all the answers

What does the Indian Railways aim to avoid when establishing freight charges for essential commodities?

Imposing excessively high costs on consumers (A) Signup and view all the answers

How does the pricing of cotton differ based on its offered form?

Different rates apply based on weight-volume ratios for its form (B) Signup and view all the answers

Which statement reflects the Indian Railways' dual role concerning freight charges?

It has a social service mission combined with transportation efficiency (D) Signup and view all the answers

What is the importance of the graded levy of freight charges?

It adjusts based on the economic capabilities of goods to bear freight burdens (A) Signup and view all the answers

Which of these factors is most directly related to the 'cost of service' principle in setting freight charges?

The monetary cost per tonne of transporting goods. (C) Signup and view all the answers

According to the material, what does a 'reverse trend' in the 'value of service' calculation suggest for a commodity?

The commodity will be transported by alternative means. (B) Signup and view all the answers

What is the primary reason for classifying certain commodities, like coal and food grains, at a lower rate?

To reflect their significance for consumers nationwide. (B) Signup and view all the answers

What primary aspect does the principle of 'what the traffic can bear' consider while setting freight charges?

Reasonable freight charges considering market dynamics. (B) Signup and view all the answers

Which element is primarily considered when determining if a commodity should be charged a high, medium, or low freight rate?

The capability of the commodity to support varying levels of freight costs. (B) Signup and view all the answers

What is the primary function of the 'value of service' principle in determining freight charges?

To establish the potential profitability of transporting a commodity. (D) Signup and view all the answers

Why does Indian Railways need to consider setting freight charges that the traffic can bear?

To prevent excessive financial burden on consumers or business. (B) Signup and view all the answers

How does the Indian Railways use a graded freight system to balance its objectives?

By combining high freight charges with subsidies for lower cost transport. (C) Signup and view all the answers

If the transportation cost per tonne of a commodity is $X$, what is the minimum freight rate the charge should be as per the provided principles?

Equal to $X$ (B) Signup and view all the answers

Which principle related to setting freight rates is NOT based on directly calculating financial figures like cost or profit?

What the traffic can bear. (D) Signup and view all the answers

What is the key consideration for Indian Railways when setting freight charges for raw materials?

To ensure that costs for producing essential items remain reasonable. (A) Signup and view all the answers

Which factor helps to determine a 'normal margin of profit' when setting freight charges using the 'value of service' principle?

The difference between cost at origin and consumption points. (B) Signup and view all the answers

What characterizes how Indian Railways determines freight charges for bulky or essential goods?

A moderate rate that covers costs, with some profit margin. (B) Signup and view all the answers

How do different forms of offering the same good, such as cotton, affect freight costs?

The greater the weight-volume ratio, the lower the rate charged for the cotton. (D) Signup and view all the answers

What is the implication if freight charges are solely based on 'what the traffic can bear' without considering other principles?

Potential for excessive or unfair rates. (B) Signup and view all the answers

Why is Indian Railways considered a 'Nationalised public utility undertaking'?

Because it has a primary obligation to provide social service (D) Signup and view all the answers

In cases where the value at the place of consumption is lower than at the place of production which outcome is most likely, regarding freight charges?

Alternative means of transport will be used. (A) Signup and view all the answers

What does the 'floor' in 'floor freight charges' refer to within the cost of service principle?

The minimum charge to cover the cost of service. (C) Signup and view all the answers

What is one of the main goals of freight rate setting by the Indian Railways, besides financial viability?

To avoid excessive prices of necessary commodities for consumers. (A) Signup and view all the answers

In addition to costs, which factor significantly influences the freight charges of some commodities?

The quantity of the goods offered and their transportation characteristics. (D) Signup and view all the answers

Study Notes

Theory of Rates

Indian Railways handle approximately 3000 diverse commodities, including raw materials, finished products, and perishables, which are crucial for daily life.
Determining appropriate transportation charges (rates) is complex, requiring consideration of various factors to avoid trade losses, carrier losses, and traffic diversions due to high rates and profits.

Principles of Rating and Classification

Cost of Service:
- Represents the cost of transporting a commodity between locations.
- Measured in monetary terms per tonne.
- Rates must not be lower than freight costs.
- Minimum freight charges should cover service costs.
Value of Service:
- Represents the value derived from the service, calculated as the difference between production and consumption costs.
- In reverse cases (where freight costs are higher than value), alternative transportation methods might be more suitable.
- Includes a normal profit margin and transport-related expenses.
What the Traffic Can Bear:
- Different from cost and value of service.
- Accounts for market conditions (seller/buyer).
- May result in lower rates than haulage costs, especially for commodities with lower profitability.

Special Considerations

Bulky/Essential Commodities:
- Medium-level rates for commodities that support cost of haulage but not high profits.
- Might include subsidies for transport below cost; this may involve a graded levy of freight charges, considering the commodity's ability to bear high, medium, or low freight burdens.
National Priority:
- Certain commodities (e.g., coal, ore, food grains, fertilizers) are given lower classifications due to national need.
Raw Materials:
- Freight costs should be reasonable to avoid uneconomical factory operations and prevent high final product costs.
Transportation Characteristics:
- Classification can depend on factors like quantity (loose, half-pressed, or fully pressed goods). Higher rates are applied to goods with smaller weight-to-volume ratios and vice-versa.
High-Value Commodities:
- Can justify higher freight rates due to their higher profitability potential.
Use of Commodity:
- Classification can be based on usage (e.g., chemical manure vs. industrial use; this follows S/33 stipulations).
Finished vs Raw Materials:
- Finished products typically have higher classifications compared to their raw material counterparts.
Telescopic Rates:
- Freight charges decrease proportionally as distance decreases.

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Description

This quiz explores the complex principles of transportation rates used by Indian Railways. It covers the cost of service, value of service, and factors that influence freight charges. Test your understanding of how these elements play a critical role in the railway industry.