Theory of Rates and Its Salient Features PDF

CI/CP-2/1.1 Theory of Rates and its salient features. THEORY OF RATES Introduction:- Indian Railways carry about 3000 commodities of heterogeneous variety. These consists of row materials, finished products, perishable, goods loose or in bulk and in bags, articles of high and low value, fragile a...

CI/CP-2/1.1 Theory of Rates and its salient features. THEORY OF RATES Introduction:- Indian Railways carry about 3000 commodities of heterogeneous variety. These consists of row materials, finished products, perishable, goods loose or in bulk and in bags, articles of high and low value, fragile and dangerous goods, building materials of all kind and medicines, chemicals and drugs, clothing, footwear and essential food stuffs. In fact, they directly or remotely enter into the daily existence of the average person. Therefore, it is a matter complexity to fix the charges of transportation commonly known as “Rate”. While fixing the same (Rate) various features are taken into consideration to arrived at a rational rate structure. What is most essential is that there must not be any loss of the trade, loss of the carrier (Railways), diversion of traffics due to high rate and high profit both to the trade and transporter. Therefore, various principles are adopted while fixing rate. Principles: In the principle of rating and classification the following are taking into account: a) Cost of service b) Value of service c) What the traffic can bear They are detailed one after another in brief. a) Cost of service: i. It represents the cost of transportation of a commodity from one place to another. ii. It is represented in terms of money per tonne. iii. Rate fixed must not be less than the freight charges. iv. Minimum freight charges must not result in loss in the cost of service. v. It determines the floor or minimum freight charges to cover the cost of service. b) Value of service: i. It represents the value to be obtained from the service. 7  ii. It is determined by taking the difference between cost (value) at the place of production and the cost (value) at the place of consumption. iii. The difference represents the freight charges to be levied on consignment. iv. If the difference shows reverse trend, the commodity shall run by alternative means of transport. v. The study provides or determines a normal margin of profit vi. It also ensures provision of expenses incidental to transport. c) What the traffic can bear: i. It is somewhat different from the value of service and cost of service. ii. It represents reasonable freight charges on the commodity iii. Seller’s market and buyer’s market are taken into consideration. iv. It envisages collection of freight charges lower than the cost of haulage in certain cases—Low rated commodity Bulky or essential commodities: It envisages the rating at the middle level of such of the commodities as can support their cost of haulage and also provide margin towards freight but cannot support the incidence of a high profit burden. Finally it also envisages levy of high charges in respect of haulage and also make a contribution towards the profit elements, plus as subsidy for the carriage of commodities below the cost of haulage. Thus it represents a graded levy of the freight charges taking in to consideration the capacity of the individual commodities for supporting a high, medium or low freight burden. There are other two factors, which are very important. The Indian Railways are a nationalized public utility undertaking and, have, therefore, a social service to perform. It is not possible to achieve the cost of haulage with an element of profit in the transport of all commodities. Some commodities that enter in our life such as food grains, fertilizers and salt the cost of these commodities may not be pushed up to unbearably high levels. The rating should be such that the burden on the consumers does not become too high. Another important consideration that merits mention is that IR being the best transport service should not levy such freight charges which the traffic cannot bear. Factors essential for consideration: While fixing rate the following factors shall be given due consideration— 1. National priority:- Certain commodities like coal, ore, food grains and fertilizers are given lower classifications considering their nationwide priorities pr urgent need. 8 2. Raw materials:- the freight charges on raw materials moving to factories producing essential goods to be kept at a reasonable level so that it might not become uneconomical to run the factories and the cost of finished products might not have to be pushed up unduly high. 3. Transportation characteristics:- This factor also determines the classification depending upon the quantity of goods offered. For instance, cotton is chargeable at three different rates. When cotton is offered in loose, the weight in relation to volume is too low and therefore a higher rate is applicable. When offered in half presses the weight- volume ratio improves and a lower rate is prescribed. If offered in full pressed a greater weight – volume is increased and still a lower rate is given 4. High value commodities:- Higher classification is accorded to high value commodities since they can support a higher freight burden. 5. Use of commodity:- Sometimes, the use of a commodity determines classification. For example, urea when used as a chemical manure, it is classified as chemical manure Division A and charged in compliance with S/33. when booked for industrial use, it is described as urea (NOC) and charges differently. 6. Raw materials & finished products:- Raw material is given lower classification than the finished product made from the same commodity/material. Maida, a finished product of wheat must not have a lower classification than that of wheat, the raw material. 7. Telescopic rate:- According to it, charges for the greater distance proportionately decreases with the increase in distance. 9