CarrierDirect white paper takes deep dive into benefits of dimensional LTL pricing

While it is still very much in its early stages, the use of dimensional pricing and related technology is clearly making an impact in the less-than-truckload sector.

Industry stakeholders have maintained that these dimension-based approaches to LTL pricing provide carriers with the ability to gain better visibility and knowledge of the costs in their network to augment depressed profit margins and ultimately, carriers’ return on invested capital. What’s more, they also laud the impact of dimensional pricing providing LTL carriers with a greater ability to profile shippers and freight types to better gauge freight costs, coupled with a better knowledge of freight moving in their networks and a better understanding of how that freight impacts margin levels.

These benefits serve as key components of the thesis presented by Chicago-based freight transportation and logistics consultancy CarrierDirect in a recently-released white paper, entitled “The New Dimension of LTL Pricing,” which examines dimensioning technology relative to its impact on the LTL sector and accuracy of freight classification for LTL carriers, 3PLs, and shippers.

In the white paper, CarrierDirect makes a clear case for why LTL carriers should be implementing dimensioners, explaining that freight classification accuracy has historically been compromised due to changes on packaging, shipment/pallet stacking, manufacturing processes, and materials, which has subsequently hindered the validity of bill of lading descriptions and led to acrimonious relations between shippers, intermediaries, and carriers.

But with dimensioners, CarrierDirect explained that they “remove all elements of doubt and opportunities for error in freight descriptions. Dimensioners, with their scale weights, laser accuracy, and photographic documentation, remove all of the subjective elements in these situations and create a uniform base of information that all sides can agree on.”

In an interview, Rich Luhrs, CarrierDirect senior vice president and author of the white paper, explained that as some larger, high-profile LTL carriers embraced dimensioning in taking what he called a leap of faith, it has led to more carriers also taking the plunge, too.

“There was some hesitation or worry that if an LTL carrier made the shift, it would lose a certain percentage of customers,” he said. “The reality of it is…there were a lot more incidence of errors by shippers in the classification of freight than there were by carriers, and it has always been a problem. That cuts both ways, too.”

As an example, Luhrs explained that a shipment would be measured and weighed and then fast forward three years and the packaging for the same shipment is more bulky but it still has the same description in the bill of lading that was printed for thousands of the same shipment product years ago. That is something that would very rarely go in the direction of the carrier, with shippers rarely being questioned on it, he noted. 

“It became really clear to them that there were no freight density police,” he said. “The carriers would have a W&I (weight and inspection) guy out there looking for things way off the charts but if something were subtly off by 5-10 percent, a typical W&I guy would not do much about it unless it was grossly oversized.”

That would only correct a small percentage of the errors, though, he said that percentage typically paid for W&I operations as well as provide a small margin. Luhrs described that as the tip of a pretty big iceberg and is where dimensioning started to take off with larger LTL players.

The white paper takes that another step in explaining that roughly 20-to-30 percent of LTL shipments have dimensional exceptions, with 50 percent of them yielding valid, collectable revenue adjustments that present an opportunity to collect revenues on 10-to-15 percent of all LTL shipments. And the remainder of the capital would be typically handled through negotiations and freight commitments.

It is still not a perfect science, but it is getting there, said Luhrs.  “There is still a big human factor involved.”

The emergence of dimensioners and the speed in which they have become more accepted has resulted in a declining entry price point, so that not only well-capitalized LTL carriers can deploy them but also smaller carriers, too.

That was made clear by CarrierDirect in the white paper, too, as it explained that the full payback on dimensioner investments has consistently been between 2-to-6 months from implementation and as low as 20 days.

“Once you have the majority of LTL carriers using them, it feels like, to me, it could eventually a flick of the switch to density-based pricing from freight classification,” said Luhrs. “There will be a huge database to draw from so carriers will know their specific costs related to their cube factor, with density not being a default number that carriers did not always know in the past as there was a lack of true data on the density side. That problem is being solved by these dimensioners.”

As for improvements in dimensioning technology over time, CarrierDirect said that current tools now are 60-to-70 percent lower cost-wise than comparable technology from 3 or 4 years ago, coupled with broader scanning footprints that can handle larger shipments and pallets. Other improvements it cited were gains in software efficiency that have increased opportunities for flagging out of class freight that reduces handling and back office time. Another benefit it cited was a reduction in scan times from averages of 20-30 seconds to 1-6 seconds, with in motion scanning expected to become more prevalent in that it allows for accurate dimensioning without disengaging the pallet from a forklift and reduces dock handling requirements.

By providing a uniform base with dimensioning technology, Luhrs said it will change the predicted pace of the transition to events-based pricing.

“There are results people don’t envision when new technology comes out, and the result of this is not just accuracy between the shipper and the carrier, it is going to be a transition in the way shipments are priced and the way shipments are billed,” said Luhrs. “That will be in the form of density-based pricing.”