Classification Key to Simplified Pricing

Classification Key to Simplified Pricing

Copyright 2006, Traffic World, Inc.

Your recent article, "LTL Carriers Package Up" (Traffic World, Oct. 16, 2006), looks at the entry of FedEx and UPS into the LTL market and its potential impact on motor carrier processes and pricing. With regard to pricing, the article suggests that these package carrier giants may opt to base their LTL pricing on "dimensional weight," which in turn could spell the end for the National Motor Freight Classification.

Satish Jindel, president of SJ Consulting Group, is quoted as saying, "They [the package carriers] are going to ''dim-capture'' instead of using the classification system. If you can capture dimensional weight for millions of parcel shipments a night, how far can you be from doing that for a few thousand LTL shipments?"

That question, rhetorical though it may be, fails to consider that the physical characteristics of LTL freight are far more diverse than those of parcel shipments.

LTL freight is bags of cement, lengths of pipe, rolls of carpeting and drums of poisonous liquid. It is used internal combustion engines bolted on skids, plastic sheet on A-frame shipping racks, wood desks wrapped with plastic film and foodstuffs that mustn''t be exposed to temperature extremes.

And these are only a handful of the literally thousands of commodities and shipping forms moving in LTL service, each of which presents the carrier with a unique set of service demands.

The National Motor Freight Classification groups goods into one of 18 classes -from a low of class 50 to a high of class 500-according to their respective service demands, or what we call their relative "transportability." This is accomplished through an evaluation of the product''s transportation characteristics:

-- Density, as measured in pounds per cubic foot;

-- Stowability, which includes excessive weight or excessive length;

-- Ease or difficulty of handling, which includes special care or attention necessary to handle the goods; and

-- Liability, which includes value per pound, susceptibility to theft, liability to damage, perishability, propensity to damage other products with which transported and propensity to spontaneous combustion or explosion.

Products that share comparable transportation characteristics are assigned the same class. By grouping the thousands of products moving in LTL service into just 18 classes, the National Motor Freight Classification greatly simplifies motor carrier pricing.

From time to time, someone suggests dumping the classification system in favor of some other basis-dim-weight, density-only, whatever. But none of those pricing mechanisms give due consideration to the full array of service demands that the diversity of physical characteristics of LTL freight places on the carrier.

Of course, at the end of the day it will be the carriers who decide what pricing system works best for them and their customers.

The National Motor Freight Classification has its critics, but it remains viable after more than 70 years because it works well for carriers and shippers alike by providing a rational basis for motor carrier pricing.

Joel L. Ringer

Manager, Classification Development,

National Classification Committee