Subscribe to our free, weekly email newsletter!


Moore on Pricing: Truckload pricing and your TMS

By Peter Moore, Partner at Supply Chain Visions
October 01, 2011

It’s become commonplace for shippers to “benchmark” truckload rates with the market either through a consultancy or by accessing one of several web sites with a listing of origin-destination (OD) pairs and a recent market price.

While this is a relatively quick process, and may give shippers a reference point for what you’re paying, it falls well short of what you could do with real “optimization” using a modern, web-accessible transportation management system (TMS) and some smart negotiating.

In the quest to make rate reference tables simple in a TMS, the majority of shippers I’ve worked with often have simple mileage or “flat” line-haul rates for truckload. The only mathematical addition is the fuel surcharge calculation. While this makes loading and retrieving rates easy, it doesn’t leverage the power of a modern TMS—nor does it help shippers to manipulate the many factors that make up the cost of truckload transport in order to save the carrier and the shipper some money. 

The first group of costs, often reflected in carrier rate schedules, includes items such as: minimum charges;  stop-off; detention; and load cancellation. These items are less dynamic and can be negotiated as standards for all loads in a contract period. Be advised that carriers do try to maintain a margin in these accessorial charges, so be sharp about learning the carrier’s labor rates and operating ratio (profitability) so that a fair price is arrived at in advance. 

A second group of costs are more dynamic. They assume that the TMS is interfacing with a sophisticated rate engine with capabilities to deal with transactions as unique events with one-time cost variables. If both the shipper and carrier systems are capable of dealing with unique transaction pricing then several dynamic pricing scenarios emerge. 

First, we look at day-of-shipment “capacity sale” pricing.

A carrier makes available one or more trucks on a given time and day at a sale price.

Conversely, the shipper makes additional freight available in a reverse bid for rates on a given day for a given lane or set of lanes. To make this manageable, the two companies interact at the machine level, and offers and responses are made online via the web. The rate tables for both parties record a new agreed rate that is good for a limited time and for limited usage.

Second, an inbound backhaul is arranged and the Incoterms state that the supplier is covering the cargo through to the destination despite the fact that the receiver is arranging for and paying the carrier. If the load is covered for loss by the supplier, then the shipper should get a break for both the volume of backhaul and the reduction of liability for the carrier.

The third has to do with the problem of over coverage of cargo insurance. Too much insurance often results when a shipper insists on high levels of insurance for all loads when they have a percentage of low-value loads (e.g. return packaging). Often I hear that the shipper’s TMS doesn’t distinguish cargo insurance needs and coverage. 

For more than one carrier the excess in premiums to shippers is a profit maker that they would rather not discuss. For the shipper, savings in this area can cover that new TMS you’ve been thinking about.

Despite the many years the industry has been buying and shipping truckload freight, there is always something new to learn. Keep your people and yourself in learning mode, revise processes to enable more dynamic pricing, and identify and acquire the best TMS technology for moving freight efficiently and effectively.

About the Author

Peter Moore
Partner at Supply Chain Visions

Peter Moore is a partner at Supply Chain Visions, Member of the Program Faculty at the University of Tennessee Center for Executive Education and Adjunct professor at The University of South Carolina Beaufort.  Peter can be reached at .(JavaScript must be enabled to view this email address)


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

UPS today announced diluted earnings per share of $1.32 for the third quarter 2014, a 13.8% improvement over the prior year period. Operating profit increased 8.3%, resulting from balanced growth across all three segments.

The Department of Transportation’s Bureau of Transportation Statistics (BTS) reported this week that U.S. trade with its North America Free Trade Agreement (NAFTA) partners Canada and Mexico increased 4.4 percent from August 2013 to August 2014 at $100.6 billion.

As expected, global trade dipped from August to September but still saw annual gains, according to data issued this week by Panjiva, an online search engine with detailed information on global suppliers and manufacturers.

Transportation and logistics merger and acquisition (M&A) activity in the third quarter saw annual gains, which were driven by smaller deals in the trucking logistics, shipping, and passenger air sectors, according to data issued in the Intersections report by PwC this week.

With the holidays rapidly approaching, it appears retailers are not quite done getting inventory set up and on the shelves in time for what is expected to be a fairly active shopping season. That much was evident based on recent data for September volumes issued by the Port of Los Angeles (POLA) and the Port of Long Beach (POLB).

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA