We just got hit - again - by the old discount scam.
It's the usual story. I won't bore you with details, but basically we thought we had a discount in place, made a shipment, and then found that our discount with that carrier didn't apply to this particular shipment because of limitations in how it was written (by the carrier, of course).
So we wound up paying more than three times what we'd expected. Needless to say, we won't be doing any more business with that carrier.
But it's not the first time this has happened, and I'm really sick of it. It seems to me the main reason that carriers use discount pricing is to sucker shippers in so they can reach into their bags of tricks and find excuses to disallow the discount. Don't you agree? And don't you also agree that it's tantamount to the kind of fraud that's prohibited by the Federal Trade Commission for other businesses?
No, I'm sorry, I don't. Agree, that is, with either one of your propositions.
Yes, your experience is certainly one of the side effects of the discount structures used by contemporary LTL carriers. And I'm not going to tell you that carrier managers fall weeping to the floor, abasing themselves in dismay, when such things happen and they reap a small windfall.
But "small" is the operant word here. You don't give details about either the dollar amount involved or the volume of your traffic, but I question that the carrier's immediate monetary gain compensated it for the loss of your future business.
Indeed, you also don't say whether you tried to negotiate this with the carrier's marketing people. If you didn't, I recommend you make the effort next time; that you have an agreed discount in place suggests the carrier placed value on your traffic, and carriers are no longer bound strictly by their established rates. You might well have got at least something off the full base-rate bill.
Your question, though, is the reason for discounting. Let me recount a little not-so-long-ago history.
Prior to 1980 the discount approach to pricing was strictly forbidden by the old Interstate Commerce Commission. One or two carriers, looking enviously at how vendors in other economic sectors had prospered by discounting, tried it; the ICC and the courts shot them down on regulatory grounds.
With the Motor Carrier Act of 1980 broadly deregulating pricing, however, that bar no longer stood. I don't know who was first to take advantage of the new freedom (if anyone does please tell me, I've always wondered), but discount pricing spread like wildfire through the industry.
At first the discounts were comparatively small - 10 percent, 15 percent, maybe 20 percent. But quite quickly carriers came to recognize that many of their customers were evaluating their shipping options based mainly, sometimes solely, on the percentage discount they were receiving. Not the freight bill's bottom line, mind you, just the discount amount. Not terribly sensible, I agree, but people look for shortcuts and this was one such.
As an aside, I once published motor carrier tariffs for clients. One carrier asked me to do a tariff at 30 percent less than standard base rates, undiscounted. Within a month or two it asked me to increase the base by 33 percent, but add a 24 percent discount (same bottom line). Shipper managers, it seemed, didn't like non-discounting.
Things soon got out of control in the newly invigorated competitive marketplace. Carriers bulked up their base rates outrageously, to support more and more increases in those customer-attracting discounts, and the process became self-perpetuating.
Thus it is that discounts in the 70th, even the 80th percentile have become the order of the day now.
The carriers came to recognize, however (at least the ones who survived the competitive carnage of that era), that discounting needed judicious use. Their goal was to attract desirable traffic, not just whatever walked in the door. And so were born the restrictions and limitations - geographic, commodity, service, whatever.
But the structure is neither a trap nor a fraud. It is, as in other economic sectors, a legitimate effort to enhance economic results by luring desired traffic while discouraging traffic that's less wanted, and at the same time simplifying base-rate pricing. That it has run amok is merely a sign of the natural human tendency to carry almost anything even mildly favorable to extremes.
The shipper who pays close attention to the "fine print" of discount limitations will rarely, if ever, get burned. The shipper who doesn't - or the casual shipper who fails to prenegotiate pricing - will take some hits. But thus it is everywhere. On your next airline flight, ask your seatmate how much his or her ticket cost. It may be more or less than yours, but I'll bet sizable bucks that it isn't the same.
Oh, and about FTC prohibition of such practices in other businesses? Check out those big rebates offered by manufacturers of, among other things, furniture, electronics, etc. You can bet they require you to dot every i and cross every t before they'll send you your check. What's the difference? It's always caveat emptor - "let the buyer beware." You're the buyer. Beware.
Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at P.O. Box 76; Morganton, Ga. 30560; phone, (706) 374-7201; fax, (706) 374-7202; e-mail, BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.