Most of the nation's less-than-truckload (LTL) carriers are wedded to a pricing system that uses class rates that are either published by a rate bureau or established by the carriers themselves. Most of these class rates are subject to classification descriptions, ratings, rules, and packaging requirements published in the National Motor Freight Classification (NMFC). Class rates vary according to weight of the shipment, zip code, and distance—and it's off of these class rates that carriers offer percentage discounts.

But LTL carriers are always on the lookout for pricing systems that will meet the needs of particular customers. That's why many LTL carriers have created such tariffs as pallet tariffs which assess freight charges on a per pallet basis. And many more carriers, at the insistence of their customers, have adopted a special class rate tariff that has nationwide application—the so-called “CzarLite” tariff published by SMC3. Developed 20 years ago, CzarLite provides LTL base rates for LTL shipments in the U.S., Canada, and Mexico—however, it's not a tariff in which changes or additions are made by a group of carriers acting collectively under anti-trust immunity.

Added to the mix are tariffs that individual customers have developed with a particular carrier. Some of the larger carriers have downloaded anywhere from 200 to 300 such “customized” tariffs into their computers.

However, now there's a new pricing system coming on line that its developers believe will greatly simplify matters and, more importantly, help shippers save between 8 and 10 percent of their LTL shipping costs. According to Hank Mullen, president of The Visibility Group and one its pioneers, “cube-based” pricing is a process that allows carriers and shippers of any size shipments to pull unnecessary costs/process out of existing LTL pricing systems.

Cube-based pricing generates a Cube Shipping Document (CSD)—an enhanced version of the old bill of lading. It delivers automatic advanced shipment notices on inbound/outbound shipments, shops lanes, segments, weight breaks, and best cost purchases per shipment, and adds the ability to custom-tune delivery times and dates as well as offer multi-payment options to the carrier. The system is also designed to eliminate freight bill auditing by outside firms.

A number of LTL carriers of general commodity—as well as many shippers—have shown a keen interest in exploring cube-based. As a matter of fact, a handful of carriers have already started developing their own cube-based systems.

However, as I mentioned in my August Pricing column, it should be made clear up front that cube-based is not designed for all commodities being shipped via LTL, such as ladders or hazardous materials to name two. In the early stages of development, this pricing concept has been geared to attract palletized shipments, particularly those weighing less than 500 pounds.

Before tackling the various pricing options that cube-based offers, let's begin with the basic shipping document shippers will need to complete called the Cube Shipping Document (CSD)—what you'd probably refer to as the bill of lading. It requires the shipper to not only provide the name and address of both the consignor and the consignee, but the so-called “cube group” in which the commodity being shipped falls under and the weight of each product being shipped.

Rather than setting up a classification system of 18 classes as found in the NMFC, the cube-based system has only five “cube groups” running from D1 to D5—a greatly simplified approach (See Tables 1 & 2). Shippers will then be required to provide the weight of the shipment, both stackable (*ST) and non-stackable (*NST). On the Cube Shipping Document there will be a shipping weight shown beginning at 100 pounds or less, and the shipper will be required to check off which weight group his shipment falls under (See Table 3).

You'll notice that unlike the standard-class rate system that has six weight breaks starting at less than 500 pounds, the cube-based pricing system has five altogether different weight breaks, with four breaks under 500 pounds. This is based off the fact that carriers receive a large volume of shipments weighing less than 500 pounds that should be priced at different levels. By offering just one rate at 500 pounds, carriers force shippers of non-palletized shipments weighing in the 200 to 500 pound range to divert many of those shipments to UPS Hundredweight or FedEx Multiweight services.

Let's move into the next phase of cube-based pricing that deals with the multi-pricing options the carrier will be offering under the new system. While currently more than 40 pricing options have been identified, carriers are likely to offer fouror five on their cube-based shipping documents.

Here is a quick rundown of what the key options are likely to be on the Cube Shipping Document.

While this pricing concept is still in the development stage, once it's up and running we expect it will be offered to individual customers who have specifically asked for it. And it's key to remember that each carrier that adopts this system will be developing its own system without any collection action or discussion among other carriers.

As far as NMFC is concerned, we expect its usefulness will continue, even under the cube-based pricing system. Carriers offering cube-based will want to have rules as well as packaging requirements. And, as you read above, one way to determine which of five cube groups would require referring to the NMFC.

We think many shippers will show a keen interest in cube-based, a simplified system that offers many pricing concessions that shippers can easily opt for right up front.