Step up to lower LTL prices
July 01, 2011
Earlier this year i wrote about the winds of change affecting LTL pricing in North America. If shippers and carriers are going to take advantage of pricing deregulation then they have to work together to disaggregate, cooperate, and automate.
If things were not complicated enough already, we now have new hours of service (HOS) rules and carbon footprints driving costs—more than the old National Motor Freight Classification (NMFC) was ever designed to handle. In fact, shippers and carriers are putting the NMFC out to pasture.
These days, the best carriers are moving to differentiate their pricing through options from which shippers may choose. Examples include pallet cube, a.m.-delivery services, metro area options, fast payment, and backhaul. By doing this, the carrier can let the shipper customize a level of service while getting the best price; but the shipper has to step up their game and enable price selection based upon cube, day or week, special services, and insurance coverage.
A few shippers have recently told me that their transportation management system (TMS) just can’t handle this much variation in price and service selection. Well, I suggest a business case review to see what that old TMS is really costing you. This may lead to a new TMS that is not forcing you to dumb down the rates to a simple FAK rate table.
And if you’ve been paying maintenance fees (many in the 20 percent range) to your software provider and they haven’t been keeping up the research and development pace, then you and your CIO need to have a little chat. TMS is now a tool available as Software as a Service (SaaS) and for very low cost per shipment.
But before you shake up the technology in house, make sure your carrier can handle dynamic pricing changes with their system. If either party does not have the ability to calculate landed price based on a variety of negotiated variables, the result will be invoice rejects and lots of money for the post-auditors as they clean up the mess.
I have seen shippers and carriers share the same system for executing orders with a single dynamic rating engine loaded with rates that reflect the cost variables of insurance, cube, fuel by geographic area, day of week, and even time of day. Shippers report up to 15 percent savings utilizing such dynamic pricing engines.
In a related trend, we’re seeing collaboration between shippers and carriers to increase the geographic and load density of freight. This is allowing the carriers to optimize their utilization of equipment while complying with HOS rules.
Today it’s routine for two or more shippers to discuss commitment to combined loads, cross docking, and regional consolidation. If you’re not in the game, call your industrial neighbors and ask them which carriers they use. Actually, I usually ask the drivers at the loading dock where else they are picking up today—that can be an eye opener.
First, call your carriers and ask them how you can help raise density in your market. Next, call your customers and suppliers and ask them about collaborating in helping optimize transportation for environmental and cost reasons. Be aware, not all carriers and shippers have the technology or skills to understand and have visibility to their network of loads. If your business partner does not, encourage them to step up their game so you can both benefit from the new dynamic pricing market in LTL freight.
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