LTL carriers using dimension equipment for costing, not pricing
SMC³ CEO Andrew Slusher told American Shipper Tuesday that less-than-truckload carriers have a difficult time converting shippers from class to density-based pricing.
Less-than-truckload (LTL) carrier investment in equipment that can capture the dimensions of shipments is more about better understanding which cargo is profitable than about pricing that cargo by density, Andrew Slusher, chief executive officer of SMC³, told American Shipper Tuesday.
Slusher, who took the reins of the trucking content and technology solutions provider in February, said there isn’t enough momentum yet for carriers to institute dimensional, or density-based, pricing in any meaningful way.
“There are a lot of prognosticators who say density-based pricing is happening tomorrow,” he said. “I don’t subscribe to that theory. There are too many investments required. Carriers have made investment in dimensioners, but that’s being used to get more accurate cost information on the shipments they handle."
“The biggest driver of cost of a shipment is the density," Slusher said. "If you get the density wrong in the cost model, you may not know if handling that freight is profitable. There are many times where you go and study your customer and find you were all wrong about whether they were profitable or unprofitable.”
This after-the-fact application of dimensioning technology won’t help an LTL carrier push its customers toward density-based pricing, but it does help them conduct post-mortems on their accounts, influencing future pricing behavior.
There was an expectation that LTL carriers would push for dimensional rating in the wake of decisions at the start of 2015 by FedEx and UPS to shift to that rate structure.
“It would be great to tie price to size and cube utilization,” said Slusher, whose past experience includes stints with American Airlines, YRC Worldwide, and MIQ Logistics. “But the real investment will be with the 3PLs and shippers putting infrastructure in place to get a handle on this themselves," Slusher said. "For a lot of employees, they’re experience is class-based pricing. So they’re wondering, what’s the economic benefit of changing? I know class-based pricing and I have technology based around that. There’s so much business done contractually and a lot of those big customers are going to be hesitant to make a change. It will take some carriers to lead the charge. Some are trying it with their transactional pricing.”
Slusher added that dimensioning technology also provides more accurate freight bills because carriers are better able to verify systematically the dimensions of shipments versus the information provided on the bill of lading by the shipper.
"Systematic processes allow more shipments/bills to be reviewed on a daily basis for accuracy," he said. "It is a big benefit to the carriers."
SMC³ is a trade association that also provides LTL rate and transit time technology solutions to shippers, carriers and transportation management software vendors.
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