The Future of Density Based Pricing in the LTL Market
In recent years, the dramatically increasing cost of labor, operational costs and capital expenditures have had a significant financial impact on most of the LTL carriers. In an industry that is renowned for low profit margins, increasing revenue to the bottom line has proven to be challenging for LTL carriers. In an attempt to offset these financial ramifications, the LTL carriers have implemented some cost savings initiatives:
-
Switching long haul shipments from traditional truck-based line-haul operations to intermodal moves. Yes, most of the major LTL carriers are railing your long haul shipments. This change has had a negative impact on transit times for several shippers.
-
Implementation of GPS technology in monitoring pickup and delivery performance.
-
Increasing the Weight and Inspection (W&I) frequency for LTL shipments.
-
Implementing new technology to efficiently conduct higher volumes of W&I's on LTL shipments.
These initiatives are also further setting the stage for the LTL carriers' drive to implement density based pricing. Essentially, density based pricing will shatter the traditional LTL pricing structures currently utilized between shippers and carriers. If the carriers have their way, the days of using freight classification, FAK structures, weight and length of haul to calculate freight rates will cease to exist. Density and length of haul will become the primary factors in determining the shipment cost.
While it is crucial that the LTL carriers remain profitable in the marketplace, it is equally important that shippers are safeguarding their transportation spend. A shipper can protect themselves through a variety of steps:
-
Education and information is critical. Learn the differences between the traditional pricing tables and the new density/dimensional based models.
-
Partner with a trusted 3PL that can provide your business with the technology and metrics to insure your LTL rates remain competitive. Your 3PL should have the knowledge, skills and technology to identify potential savings opportunities, generate RFP's and provide the necessary analytical tools to ascertain the impact of density or dimensional based pricing.
-
The shipper/carrier relationship should be a true partnership that values the financial well-being of both parties. Assist the LTL carriers in minimizing their operational costs. Insure shipments are properly packaged and protected, dispatchers are notified in a timely fashion of pickup requests and that the LTL carriers are able to pickup and deliver shipments quickly and efficiently.
The LTL carriers will continue to push for density based pricing to maximize their revenue. However, shippers are expected to have continued reluctance to agree as the value in making this change is not easily identifiable. Most shippers still perceive value and assurance from the traditional pricing tables, corresponding discount percentages and negotiated accessorial charges. The transition to density based pricing will not be occurring overnight.
|
Matt Balsly is the Manager of ALC Logistics, former Assistant Manager and National Accounts Manager for the Dallas,TX office. He has been with the Allen Lund Company for 10 years and graduated from Avila University in Kansas City, Missouri with a BA in History.
|
| About Allen Lund Company: Specializing as a national third-party transportation broker with nationwide offices and over 400 employees, the Allen Lund Company works with shippers and carriers across the nation to transport dry, refrigerated (specializing in produce), and flatbed freight; additionally, the Allen Lund Company has an international division, which is licensed by the FMC as an OTI-NVOCC #019872NF, and a logistics and software division, ALC Logistics.
|
