Freight Rates/Tariffs

Goods or produce that are not consumed locally may be transported for short or long distances in order to supply markets. Seeking commercial gain from the transportation of cargo or freight, whether by land or sea, has been a business activity pursued since prehistoric times on the Silk Road, the Grand Trunk Road, or any other trade route.

From ancient times, tolls were charged by governments on the goods that traveled through their domains. The “tariffs,” fees, and/or taxes were added to the price of the goods. In this sense, a tariff is a tax. Tariffs were used in the United States during most of the 19th century in order to protect American industries from foreign competition and to finance the federal government.

Transporting goods is expensive so transporters developed systems for pricing the cost of shipping cargo. Their charges for transporting would be the tariff or the freight rate on land or the freight on board a ship. Whether by land or by sea, the tariff or freight rates depended upon the kind of cargo and its destination. Shippers priced the cost of carrying the cargo or freight in terms of its type, its weight, its distance to its delivery destination, any transit services, and other factors. For example, the tariff or freight rate for shipping animals would include the cost of passage on a train or a ship as well as the cost of keeping the livestock supplied during a voyage. In many times and places, shippers were able to set their own freight rates. The table of charges set by a railroad, bus line, trucking line, airline, barge operator, or oceanic shipper would be its bill or cost or charge or tariff.

In modern times, freight rates have continued to reflect the destination as well as the type of transportation (train, truck, ship, bus, aircraft) because the costs vary, often in relation to the speed of delivery. So shipping by air is generally more expensive but worth the cost for perishable goods or for timely delivery.

In competitive shipping markets freight rates are set competitively by different companies. In competitive markets, entry to providing shipping is usually very open to newcomers. However, in many modern markets governments have intervened for political reasons. In these regulated market situations, the freight rates are set by government agencies in order to protect politically active interests from “excessive” charges. However, it has been common for the regulated transportation market to then be closed, with a government-controlled monopoly or oligopoly providing shipping. The closed market is then protected from competition to the benefit of the operators but usually to the financial detriment of the consumer public.

In the 19th century in the United States, railroad companies set their own freight rates at first. However, abusive practices soon entangled them in politics with people and business interests hurt by the [Page 591]railroad freight rates. Frank Norris published The Octopus (1901) as a muckraking novel about the struggle between wheat growers in California and the Southern Pacific Railroad. The wheat farmers were victimized by the unwarranted rate hikes of the railroad. The railroads felt they should charge “all the traffic would bear.” This business practice was viewed as excessive by those seeking to use the railroads for shipping. In fact, it was within the limits of what customers would pay without seeking an alternative form of transportation.

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