FREIGHT RATE GAME CHANGER ON THE HORIZON

 

For several decades the rates for less than truckload shipments have been based on “classes” published in the National Motor Freight Classification. There are 18 of these classes, ranging from Class 50, the lowest rates to Class 500 which are the highest. In 1983, the Interstate Commerce Commission mandated that these classes should be based on four characteristics – density, stowability, handling, and liability. While not a perfect system, it has been reasonably fair and has allowed carriers rates that are reflect the difficulty and risk, or lack thereof, in loading, moving, and handling freight.

Over the years however, an increasing number of exceptions have been made to these class rates. Carriers routinely discount these classes for no apparent reason other than to secure the freight of a particular shipper or group of shippers. They also have published FAK (Freight All Kinds) rates for shippers who move various classes of freight in one load. Often these shipments would be more expensive if the separate, applicable classes were applied.

But it appears that all this might be about to change. Last month, UPS Freight, the LTL arm of UPS, announced that pricing based on density was being introduced to interested customers. This simplified method of pricing would set rates based strictly on the products’ density, or how much space it takes in a truck. Old Dominion Freight Line adopted such a program a few years ago, and YRC is said to have a similar plan.

Recently, FedEx Ground announced that effective January 1, 2015, density or dimensional pricing (sometimes referred to as dim weight pricing) would be established on packages of 3 cubic feet or less. This is expected to cover most of the FedEx Ground shipments. If competitive tradition continues, UPS won’t be far behind.

I believe it is just a question of time until dimensional pricing spreads throughout the LTL industry. For some shippers this will result in higher rates, and there no doubt will be a pushback from firms shipping light, bulky products that require a lot of space. (Think lamp shades and ping pong balls.)

The timing of the broader changes remains a question. If we start to experience capacity shortages, it will be easier for the carriers to make the change. If we have a “shippers’ market”, carriers may not be able to move as quickly as they would like. I suspect however, that by the end of 2015, dim weight pricing will be the general rule for LTL shipments.

Written By: Clifford F. Lynch