A “seismic shift” in the valuation of truckload rates is under way and set to pick up speed in the next decade, a report from the Transportation Intermediaries Association (TIA) says. The third-party logistics (3PL) group sees time “leapfrogging” mileage as the basis for ratemaking.
“Nearly 40 years ago, mileage replaced weight as the top-used valuation for freight rates after the Motor Carrier Act of 1980 opened the floodgates of competition,” the TIA said in its report, released Thursday. The rising value of supply chain time is resetting the ratemaking clock.
The catalyst is the electronic logging device (ELD) mandate, the TIA said. When the mandate took effect in 2017, “shippers and 3PLs began buying the driver’s time, not the mileage,” the group said in its report. At the moment, however, shippers are still paying for miles, not minutes.
“We are not totally into a time-billing business yet,” Lamar Quinn, general manager of R.E. Garrison Trucking, an Alabama-based carrier, said in the report. Truckload carriers pay drivers and bill shippers by the mile. “We are in the distance business, but our productivity is in time,” said Quinn.
But carriers do charge for excessive detention time, the extra hours shippers or receivers hold drivers while loading or unloading a trailer. The TIA report focused on detention and found shippers, brokers, and carriers see opportunity to remove it as a “point of contention.”
Detention could become the point of the spear when it comes to rethinking how to pay for time in the supply chain. Beyond detention, carriers, 3PLs, and shippers will have to look at areas such as time-based pay for truck drivers now compensated by the mile.
Mileage-based billing systems and compensation plans are endemic in the truckload sector and baked into many transportation management systems. That will make shifting to a more time-oriented environment difficult. But in the Amazon era, time really is money.
The ELD mandate meant trucking companies could electronically capture accurate detention times — and usually detention beyond two hours is considered excessive. That led to a rise in detention charges last year, but shippers are resisting charges in this year’s softer market.
Discussions about detention can get pretty contentious. “I’ve been doing this 26 years, and customers are getting worse and worse about trying to get you in and out of their doors, and they don’t want to pay for any of it,” said Tim Staroba, president of Navajo Express.
Certain carriers have more trouble with detention than others, including refrigerated carriers, such as Navajo, based in Denver, Colorado. Carriers and 3PLs with shorter lengths of haul, and same-day pickups and deliveries, may have more trouble getting from dock to dock.
Balancing costs to reduce detention
Some shippers, the report said, have found that changes to detention pay policies improve operations and lower overall costs. Del Monte Foods, for example, last March switched the length of time it detained drivers before paying fees from three hours to two hours.
Labor costs rose as Del Monte strove to move trucks in and out of its facilities an hour faster, but overall transportation costs went down as the food company paid fewer detention charges and got more favorable rates from its carriers, the company said in the TIA report.
“It forces the wrong action when you set parameters in a manner that allows people to take their time, since it is not costing them any money,” said Robert Savage, Del Monte’s vice president of transportation and logistics. The company also extended appointment windows for drivers.
Del Monte Foods requires drivers not arrive more than an hour ahead of their appointment time. Trucks are loaded at port warehouses in order based on which drivers arrive closest to their appointment times, Savage said in the report.
The change in market conditions from tight to abundant capacity hasn’t changed Del Monte’s strategy, he said. Del Monte recently moved a warehouse in Laredo, Texas, to a new location that has a wash facility, drop yards for trailers, and scales, and operates 24/7.
The new facility reduced the company’s spend on detention by 80 percent, Savage said. “I do not want to lose good carriers,” he said. “At the end of the day, I need reliable carriers, drivers, and equipment. You’ve got to let your walk match your talk.”