A fair return is the profit level that enables a carrier to realize a rate of return on investment or property value that the regulatory agencies deem acceptable for that level of risk. The term “regulatory agencies” can refer to governmental organizations, such as the Federal Maritime Commission (FMC) in the United States, or quasi-governmental organizations, such as the Canadian Transportation Agency. A fair return ensures that carriers are able to cover their costs and earn a reasonable profit, while also protecting shippers from excessive rates.
In order to determine what constitutes a fair return, regulatory agencies take into account a number of factors, including:
- the type of service being provided,
- the level of risk involved,
- the overall economic conditions.
For example, in times of economic recession, carriers may be allowed to earn a lower return in order to keep rates affordable for shippers. Similarly, in industries with high levels of competition, carriers may be required to earn a higher return in order to offset the risk of failure.
Ultimately, the goal of regulatory agencies is to strike a balance between the need for carriers to earn a fair return and the need for shippers to pay reasonable rates.