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LTL pricing study rolled out by Auburn

By Jeff Berman, Group News Editor
July 23, 2010

A study designed to examine current less-than-truckload (LTL) transportation pricing practices conducted by the supply chain management department at Auburn University—and sponsored by SMC3 is scheduled to kick off later this year.

This study comes at a time when the LTL market to a large degree has lagged the truckload market in terms of a lack of pricing power, as well as having excess capacity, too. And while freight activity saw a pickup at the end of 2009 through the first six months of 2010, truckload has had more success than LTL over that time.

And over the past few years, the LTL industry has changed in several ways, with changes to the regulatory environment have altering collective ratemaking opportunities for transportation providers, coupled with the recent economic downturn creating serious challenges for all types of carriers, observed Joe B. Hanna, Ph.D., chair and professor of supply chain management at Auburn.

“As a result of these and other changes to the industry, we are undertaking a study to identify current LTL pricing practices to better understand the industry and its current business model(s),” said Hanna. “Another reason for undertaking this study is that at least two previous studies into LTL pricing practices have examined this issue before (1993
and 2002).  Comparing current study results to the results of the previous studies may also allow us to gain some additional insight into how current pricing practices compare to practices over the last two decades.”

Hanna said the study is seeking information from carriers, shippers, and 3PL’s. Carriers, he said, can provide considerable insight into how they approach the pricing process for their services while shippers and 3PL’s can provide considerable amounts of information about how they source the transportation market for LTL services.  All of the respondents can also provide the study with information on how they establish what they believe is a
“fair” or “profitable” rate, how they benchmark LTL transportation rates, and their thoughts about the deep discounting practices that can be commonplace when negotiating LTL rates, according to Hanna.

The study will utilize a two-stage methodology, beginning with a 12-to-15 in-depth interviews with each of the three target categories of respondents—shippers, carriers, 3PLs. When this phase is complete, its contents will be thoroughly evaluated and used to help develop a survey instrument. Hanna said this instrument will then be used to collect additional data from a broader range of respondents from the three categories to gain additional insights into current LTL practices.

As for the next steps of this study, interviews are being conducted this month and in August followed by data analysis in the fall, and then the development and administration of a survey instrument.

“By the end of the year, we hope to have significant amounts of data, allowing us to conduct an in-depth analysis and draw some solid conclusions about the current pricing practices of the LTL industry,” said Hanna.

SMC3 Vice President of Business Development Danny Slaton told LM that the motivation for this study is not the level of LTL pricing occurring but rather the methodology n which shippers, carriers, and 3PLs are using pricing tools.

“There are some very specific pricing activities and inventions that have been around for a long time like classification, use of base rates and use of individual carrier pricing discounting,” said Slaton. “We have done these studies before and want to understand how things have shifted over a period of time. We are not really looking at shift in levels of price; we are looking at the mechanics of the business process and how much more has technology changed that is applied to pricing and how pricing is integrated into the overall business process at the enterprise level.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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Article Topics

News · Truckload · LTL · SMC3 · Auburn · All topics

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