THE THEORY OF FREIGHT RATES An amazing assortment of goods are moved over the worlds ocean
trade routes. Of necessity, the carriers charge for the service they render. These charges vary almost as widely
as do the cargoes, for they mirror both the shipowner\'s costs and the special conditions prevailing on the trade
routes traversed by the ships. Ocean freight rates may be described as the prices charged for the services of
water carriers. Each ship operator develops it\'s own rates, usually without consultation with the shippers. The
charges reflect the cost of providing the carriage, the value of this service to the owner of the goods, the ability of
the merchandise to support the expense of transportation, and economic conditions in general. Freight rates truly
reflect the working of the laws of supply and demand. In tramp shipping, particularly, it is possible to observe
how these factors influence the rise or fall of freight rates from day to day and from cargo to cargo. Tramp ships
transport, in shipload (or full cargo) lots, commodities which, like coal, grain, ore, and phosphate rock, can be
moved in bulk. The fact that usually only one shipper and one commodity are involved simplifies the
establishment of a freight rate for this particular movement. To the capital charges of ownership and the expense
of administration and overhead must be added the cost of running the ship, handling the cargo, and paying port
fees and harbor dues. Against this total is set the number of tons to be hauled, and the resultant figure is what the
tramp must charge, per ton of cargo loaded, to break even on the contemplated voyage. If competitive
conditions permit, a margin for profit will form part of the quoted rate. If however the prevailing economic
climate is unfavorable, the owner has the privilege of retiring the ship to a quit backwater, there to wait until the
financial skies are brighter. The tramp operator does not depend upon the longterm goodwill of the shippers, but
is free to accept those offers which appear profitable at the moment. When adversity threatens, those charters
are accepted which minimize anticipated losses. If there is a choice, the cost of temporary lay-up is contrasted
with the loss which continued operation might produce, and the less expensive alternative is selected in a bow to
the inevitable made with whatever grace that can be mustered. Liner-service companies, on the other hand,
depend for financial prosperity upon the accumulated goodwill of shippers who, through the years, come to rely
upon the regular and continued operation of the company\'s fleet. Temporary withdrawal from service whenever
economic conditions are less than favorable is unthinkable. The liner will sail on her regular run, whether full or
not, she will carry a wide variety of commodities, each with its own peculiarities, in quantities which can be
estimated in advance more or less accurately, but never with complete certainty. The ports of call are known far
in advance of sailing, and the total expense of working the ship can be calculated with acceptable precision.

Since, however, the exact distribution of tonnage, commodity by commodity, varies with every trip, it is not
possible to establish a rate that reflects the cost of transporting a single ton of a particular commodity as closely
as does a tramp owner\'s computation. This is not to suggest that liner-service operators cannot compute to a
nicety the costs of owning and operating their ships. They know to a fraction of a cent their daily costs for
amortization and interest on borrowed capital, and what administrative expenses they must charge to individual
voyages. In the same manner that their counterparts in the tramping trade are able to fix individual rates, liner
owners can determine what they should charge per-ton to carry a single commodity when it is offered in lots
sufficient to fill one of their ships. From experience, the liner- service operators know approximately what is
going to move, voyage after voyage, and have a good idea of what tonnage to expect. They must estimate the
overhead to be charged against each commodity and the out of pocket costs of handling them at ports of loading
and discharge. An apportionment of revenue must be made to defray the administrative expense of the vessel
operation. Finally, a small profit should be added to compensate the owners for the risks they assume as well as
for their skill and enterprise, for providing transportation they enhance the value of the goods. They