The U.S. less-than-truckload industry faces a changing business landscape daily. We’re adapting to new constraints and demands, from fuel emissions standards, driver hours of service and CSA 2010 legislation to carrier consolidation and increasing competition from other modes.
But we have another, looming challenge to inevitably adapt to: Defining what a new pricing structure could look like for the LTL industry.
The rest of the world uses density, cube and dimensional measurements to price their LTL freight, using the metric system as the standard for measurement. But LTL freight moves throughout the United States using the 70-year-old National Motor Freight Classification system, with its different ways of categorizing freight (by freight type and value, susceptibility to damage, etc.) and is priced based on “class,” making U.S. LTL the sole anomaly in the global supply chain.
Class-based pricing is serves its place, providing some degree of pricing stability. But the disjunction between density and class methodologies affects LTL shipper and carrier labor, equipment, energy and time. For example, an LTL shipment moving between Laredo, Texas, and a Mexican destination is typically rated on the class system for the domestic portion and re-rated on density on reaching the border, leaving the potential for inefficiencies and delays.
This example is repeated throughout the global supply chain, affecting the quality and efficiency of international trade. A common pricing or rating system would eliminate conversion errors and simplify pounds-to-kilograms conversion to a basic repetitive math equation, thereby lowering cost and speeding the freight to its destination.
Simplified “common pricing” is a concern for our industry. Auburn University recently published a detailed “Synergic Pricing in the LTL Industry” study, surveying dozens of LTL shipper, logistics service provider, and carrier leaders. Study participants concluded it is time to address an LTL industry pricing change process.
Our industry will need to adapt to larger supply chain demands and trends and support seamless international freight pricing. But our pricing dialogue is just starting.