DEFINITION of 'Basing Point'

The basing point is the specific predetermined geographical location used in the basing point pricing system, in which the delivered price is the same for every destination, no matter where the product is produced or from what point it is shipped. Firms would set the prices of their goods within a given market based on a base price plus a set rate for transportation charges, regardless of just how far buyers were from their location.

BREAKING DOWN 'Basing Point'

Basing point pricing enables selling firms to collude, by simply agreeing on a base price — and it lowers buying firms' ability to gain a competitive advantage by location or private transportation. Basing point pricing was once common practice in the United States, especially in the steel, cement and automotive industries. Even after the passage of the Sherman Antitrust Act in 1890 which outlawed price fixing, basing-point systems were widely used for another 60 years.

Unlawful Use of Basing Point Pricing

In 1948, the Supreme Court ruled in Federal Trade Commission v. The Cement Institute, et al., that the industry-wide basing point system used in the cement industry was unlawful and constituted an unfair method of competition, and that the industry had acted in concert to fix prices.

The basing point itself is usually where the manufacturing of a product or production of a commodity takes place, and the manufacturer will quote the base price plus a set shipping cost from that location, to all the buyers in that market, regardless just how far they are from the basing point.

Example of a Basing Point in Shipping

For example, if the basing point is Chicago, then a shipment within Chicago will cost the base price, and a shipment outside Chicago will cost the base price plus the set shipping rate anywhere within that zone. Company X operates Chicago and Company Y is located 100 miles west of Chicago. If a customer is located 50 miles east of Chicago, then the set price a product under the basing point system will include the same transportation fee and both companies must charge the same, even though Company X only had to ship the product 50 miles, whereas Company Y has to ship it 150 miles.

RELATED TERMS
  1. Capital Base

    The term capital base has multiple applications in finance. In ...
  2. Price Fixing

    Price fixing is setting the price of a product or service, rather ...
  3. Competitive Pricing

    Competitive pricing is the process of selecting strategic price ...
  4. Delivery Point

    The delivery point is the place specified in futures contracts ...
  5. Basis Point (BPS)

    Basis point (BPS) refers to a common unit of measure for interest ...
  6. Origination Points

    Origination points are a fee borrowers pay to lenders or loan ...
Related Articles
  1. Investing

    Looking to Invest in Oil Tankers? Try These 3 Stocks (NAT, SFL)

    Obtain information on the oil shipping industry, and discover three of the most widely traded oil tanker stocks to obtain exposure to oil shipping.
  2. Personal Finance

    Studying in the United States: Chicago

    Would you enjoy going to college in Chicago? Here's what it's like to study and live in the Windy City.
  3. Investing

    Bulk Carrier Vs. Container Vs. Tanker: Exploring the 2016 Shipping Market (C)

    Read about the divergent fates of oil tankers, dry bulk carriers, container ships and other seafaring vessels in the 2016 shipping market.
  4. Managing Wealth

    Best Places to Exchange Currency in Chicago

    Whether you're leaving the Windy City or arriving with a stack of foreign cash, these are your best bets for currency exchange.
  5. Investing

    Sell Growth Stocks The IBD Way

    Savvy investing is all about learning some smart rules and sticking to them. We give you the rundown.
  6. Investing

    Global Transportation: 3 Key Industry Players (BRK-A, AAL)

    Get information on some of the leading publicly-traded companies worldwide that are major players in the transportation industry.
  7. Small Business

    What are antitrust laws?

    Learn about antitrust laws or "competition laws." These statutes protect consumers from predatory business practices by ensuring fair competition exists.
  8. Investing

    How To Analyze The Transportation Industry

    By gaining an awareness of the transportation firms and trends that affect these players, investors can gain an edge by analyzing the sector and looking to profit from understanding it.
  9. Personal Finance

    Is Your Loyalty Paying Off?

    Not always. But here is the way to make the best of an increasingly shrinking rewards universe.
  10. Investing

    The 3 Best Shipping Services to Use This Holiday Season (UPS, FDX)

    Look at the strengths, weaknesses and comparative costs of the three best shipping companies: the U.S. Postal Service, UPS and FedEx.
RELATED FAQS
  1. What are the Differences Between Ex Works (EXW) and Free On Board (FOB)?

    Although these terms are similar, responsibilities and obligations are delegated to different parties in EXW and FOB. Read Answer >>
  2. What Does it Mean When Someone Says a Stock Went Up X Points?

    When you hear a stock has lost or gained X number of points, this is the same as saying the stock has lost or gained X number ... Read Answer >>
  3. What are the costs for Free On Board (fob) shipping freights?

    Find out about free on board shipping, the obligations of parties involved, and the costs each party must assume. Learn about ... Read Answer >>
  4. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Answer >>
Trading Center