Moore on Pricing Part 1: The pallet classification debate

Moore offers clarification to November column
In my november column I raised the possibility of carriers beginning to charge for pallets as a unique part of the shipmen—as well as the possibility of pallets to be subject to classifications based on weight and density that reflected higher than the traditional Class 70 for a standard 40-inch x 48-ince pallet as a part of a shipment.

I note that Item 640, the new classification table in Item 150390 for pallets and the recent removal of economic regulation and Sec. 5a immunity by the federal government, allow carriers to do what I have suggested. I further stated that Item 170 allows the carrier to charge the highest classification available where the density for an item is not specifically described on the Bill of Lading. Thus, I suggested shippers should begin describing the pallet to protect their company.

Carriers and the Commodity Classification Standards Board (CCSB) have stated that I am absolutely wrong, and it was not their intention to start billing shippers for pallets as a separate item subject to a pallet classification table—and that they do not require shippers to list pallets as a separate item on the Bill of Lading. They state that this is reflected in Item 640 that allows for mixed pallets to have the pallet rated at the lowest class of the freight on that pallet. 

My concern, apparently not clearly stated, is that the application of item 150390 is not expressly limited to empty pallets.

As a long time shipper and owner of a third party logistics company, I remain skeptical that with a new classification for pallets in place it will never be used by a carrier on “loaded” pallets, particularly one in financial straits, to retroactively invoice a shipper with “corrected” invoices. For this reason I felt shippers need to fully describe the pallet on the Bill of Lading in self-defense.

In an effort to get clarity about this issue, I turned to William Pugh Esq., former executive director of the National Motor Freight Traffic Association, publisher of the National Motor Freight Classification (NMFC), and an expert that both the carriers and I recognize and respect. I have relayed my concerns and those of the carriers to Pugh in the following questions. I present his answers verbatim to avoid any misunderstandings. 

Pete Moore: NMFC Item 640 requires that the weight of the pallet and each unitized article must be shown on the bill of lading and shipping order in order to avoid having the entire weight of a mixed pallet containing various commodities being charged at “the rate or class provided for the highest classed article.” Can the carriers then charge for the pallet as a separate item according to the new classifications?

William Pugh: Prior to 2008, pallets that served to unitize a shipment (“loaded pallets”) were considered to be “used shipping containers” that were exempt from economic regulation. These loaded pallets were excluded from NMFC by its Notice of Application that appeared prominently on the first page of the NMFC and limited its application to “commodities that are subject to economic regulation.”
After 2008, when the STB discontinued its economic regulation of collective classification making, “loaded pallets” and other exempt commodities were no longer automatically excluded from the NMFC. They would now become subject to Item 170 as well as item 640.

The CCSB’s action on subject 10 did not in any way exclude from Item 150390 “loaded pallets” or pallets that are “unitizing freight.” While the NMFC is replete with countless examples of exclusions of the kind that could have been used to restrict Item 150390, there is nothing in writing to support their contention that newly amended Item 150390 is limited to “empty pallets.” Rather, this interpretation is based on the bare allegation that Item 150390 will continue to be interpreted to include a limitation on application that is not in the new item and no longer in the NMFC. My view is that shippers should be able to expect that such limitations would be clearly specified in the item description. 

Moore: Would the separate listing of a pallet on a Bill of Lading be of advantage or disadvantage to the shipper?
Push: There are advantages and disadvantages to treating a pallet that is serving to unitize freight as indistinguishable from empty pallets for classification purposes—particularly if the pallet’s class is lower than the class(es) of the products it unitizes. For example, NMFC Item 640 Sec.3. (b)(3) provides that the weight of a unitized pallet will be charged at the lowest class applicable to any article or articles comprising not less than 5 percent of the total weight of the loaded pallet. If the pallet has a class that’s lower than the products it contains, the ability to charge for the pallet according to that lower class would be advantageous to the shipper.

Moore: In the November article I stated that freight charges are indirectly affected by classification. What is the relationship between classification and freight rates?

Pugh:  The principal components of freight charges are the class that represents the “transportability” of the involved commodity, according to an evaluation of its transportation characteristics, and the rate that reflects the distance and other characteristics of the involved movement. Normally for a given movement, there is a high correlation between the class of an article and the freight charges for its movement, so that an increase in the class of the article will often result in higher freight charges. Of course, the carrier has the option of rejecting the NMFC or any changes that are approved by the CCSB.

In the past few weeks, a number of emails were sent to Logistics Management (LM) magazine and to me on this issue. Joel Ringer, chairman of the CCSB has recently written to LM stating that the “fact is the only shippers potentially impacted by the CCSB’s approval of Subject 10 of Docket 2012-3 are those that ship empty —for lack of a better word—steel or wood pallets, shipping racks, etc., as named in item 150390. Again, the proposal amended only the classification provisions that apply when the commodities being shipped are steel or wood pallets, shipping racks, etc.”  

I humbly suggest that Mr. Ringer’s statement begs the question: If the new Item 150390 is to be interpreted as for “empty” pallets only, then say so in the classification provision, thus excluding the risk of future application of this provision to shippers of palletized freight. 

This has been a very healthy if heated, discussion. I welcome reader response to this column and promise a well-considered response ([email protected]).