The 2:00 Minute Warning

Let’s talk about what’s going on in the LTL industry because there are some very big changes underway and these changes could have a significant impact on your LTL freight costs.
 
As we have shared in numerous Two Minute Warnings, the carriers (across all modes - LTL, TL, Parcel, Ocean, Air, Intermodal and Rail) have great data. They are using this data in creating their proposed rate increases in order to determine the most effective ways to increase their revenues.

We mentioned this last week as we discussed UPS’ changes in their Peak Season Surcharges that could result in an 8% - 10% increase for parcel shippers. In the LTL sector, we are seeing more carriers push for “density based pricing” which will likely increase your LTL costs.

Let me cut right to the chase and state that a whole bunch of shippers are not really well versed on what “density based pricing” means or understand how it will affect their costs. So let’s take a moment to explain how this is different than what is happening today in the LTL world.
 
Historically, the way freight has been rated in the LTL sector is by classification. The National Motor Freight Classification (NMFC) used four criteria to aggregate products into freight classes: Density, Handling (or susceptibility to being damaged), Stowability, and Liability (a.k.a. the  value of the product being shipped). Classes could go anywhere from class 50 up to class 500. The beauty of this system is once your products were “classed,” determining the cost to ship them was simply a matter of determining an individual shipment’s weight and distance to its destination.

Density based pricing changes things for shippers. Whereas, in the past, commodities have been assigned a classification dependent on the average density, a.k.a. pounds per cubic foot, (and other criteria) for all products moving under that description, today, the LTL carriers are using dimensioners so they can obtain accurate density information on each and every shipment being put on their trailers.

In short, they no longer have to rely on averages. What this means is that the product description is no longer the sole determinant of the freight class. Instead, the NMFC is being amended to include more and more density-based classifications within a product description category.

For example, under the “old” system Item # 95190, “Hardware NOI” was considered either Class 70 or 77.5. Today, the NMFC has created eleven subcategories ranging from Class 60 to Class 400 based on the “pounds per cubic foot.” Stated a bit differently, you could have two shipments with the same commodity description and have two different class rates. This significantly complicates your task in computing your potential freight charges.
 
We have compiled a list of Seven Ways That Density Based Pricing Changes Could Affect Your LTL Costs. If you would like a copy of this list, send me an email or give us a call.

In closing, it is important to point out that some shippers will see this as an opportunity to engage in better negotiations with their carriers and out perform their competition. Other shippers will see it as a threat to their business if it causes their LTL costs to go up.

For those of you who want to view it as an opportunity, TranzAct can really help you. As an industry leader on LTL procurement and management best practices and processes, we have conducted billions of dollars in sourcing events and have helped scores of companies like yours realize the lowest rates combined with the best service, especially as market conditions change like we are currently seeing.

We also offer strategic sourcing alternatives and supply chain assessments that can help your company be more efficient in reducing freight costs by working more effectively with your carriers. So if you’re interested in learning more about how density based pricing and other pricing initiatives from LTL carriers can affect your LTL costs, let’s talk and put your company ahead of the pack in controlling your LTL costs. Simply send me an email or schedule a time for us to meet.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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