There is little doubt that impending changes to the LTL classification-based freight-pricing system will be a central discussion among supply chain professionals for years to come.
Although carriers are talking about density, few customers are moved to go there. Shippers and 3PLs are change-resistant. They’re concerned about increased rates, re-engineering of traditional pricing systems, infrastructure costs and the basic fear of the unknown. With capacity and driver restraints, they see that carriers might own the conversation and the pricing advantage.
For carriers, migrating to an entirely new rating system would be no small task. On the surface, it looks like an equation change, but to put it into operation requires technological updates, installation of measuring equipment at every facility, increased handling time and lower efficiency. Competitive edge, measured in minutes, is reduced because of extra steps verifying dimensions. Carriers also have existing class-based agreements with their customer base, so migration to density will be a customer-by-customer process involving negotiation, which takes time and experience.
Much has been written about LTL carriers moving to dimensional pricing and recovering revenue from customers who misclassify freight. Dimensional pricing exposes cost, while the trend toward FAK shipments may disguise costs. As an automated process, along with potential increase in recovered revenue, dimensional pricing would appear to provide the means for quick payoff of carrier equipment purchases.
All of this is indicative of a long-term process; at this point, we’re talking about thought leadership, not actual movement. Who should lead freight pricing initiatives? On the surface it appears that carriers may need to make the initial effort, but a collaborative effort between carriers, shippers and logistics service providers may be more desirable. Regardless, the LTL segment is facing an innovative, but disruptive, change.
Jack E. Middleton, President and CEO, SMC3