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OCS dynamic high-speed parcel
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Kinds” (FAK) rates, pricing that applies
to a hodgepodge of items classified at
different levels. About half of all LTL
shipments are classified as FAK, according to Jindel. Though rates based on FAK
classifications sometimes reflect accurate
freight charges, often they do not. The
industry would experience a mid-sin-gle-digit improvement in operating revenue if all FAK shipments were replaced
with a class rating for each shipment,
Jindel said.
SHIPPER PUSHBACK
Unsurprisingly, carriers are encountering
shipper resistance to changing the status
quo. Though Old Dominion has pushed
dimensional pricing for five years, it has
had few shipper bites, according to Chip
Overbey, senior vice president, strategic
planning. Most of the support instead
comes from Old Dominion’s third-party
partners, which account for about 25 to
30 percent of its customer base, Overbey
said. Those customers tender such large
volumes that they don’t want to be bothered with the intricacies of the class rate
structure, Overbey said.
Todd Polen, Old Dominion’s vice
president of pricing and costing, said
the carrier tries to show shippers that
moving from class to dimensional rates
would eliminate arduous negotiations
over commodity classes, end freight pay-
ment disputes, and preclude the need to
constantly update classification criteria.
“The simplicity is the sell,” Polen said.
“You can’t promise freight savings.”
Yet the pledge of back-end efficiencies
has so far failed to persuade shippers
who don’t want to allocate resources to
change their legacy systems, according
to Overbey. Old Dominion has offered
to use its own dimensioning machines
to measure the freight. However, many
customers are loath to relinquish such
a level of control to a vendor, no matter
how trusted, Overbey said.
C. Thomas Barnes, who was recently
hired to run the fledgling LTL business
of broker Coyote Logistics LLC, said
dimensioners will not go mainstream,
and shippers will not be forced to use
them, until 70 to 80 percent of the largest
LTL carriers by revenue roll them out.
The industry is far from that threshold,
he said. Two or three are truly prepared,
while several others are in testing but
are not active with a formal process and
IT platform to support the equipment,
Barnes said.
In addition, carriers will need to understand how they can use these tools to
rationalize their own costs, which will,
in turn, put them in a better position to
discuss pricing options with shippers,
Barnes said. That, too, will take time, he
said.
Jindel of SJ said the days of shippers strong-arming their carriers in rate
negotiations have disappeared as capacity
tightens, demand strengthens, and carriers maintain the pricing discipline they’ve
shown for the past three or so years. As
dimensioners gain traction, shippers will
find themselves paying more and sacrificing service to keep the status quo, or
they will work to improve the density of
their shipments, according to Jindel. The
latter approach has much potential as
LTL shippers have never paid a great deal
of attention to optimizing the physical
characteristics of their freight, he said.
Pugh of Dynarates said the space-occupied model would open up new avenues
of shipper-carrier collaboration. They
could more effectively coordinate pickup
and delivery times to minimize carrier
costs, and fill excess capacity at locations
where the equipment is located, he said.
Shippers could streamline their packaging to occupy less space on a trailer and
receive rate reductions as a result, he
added.
Sophisticated shippers will acknowledge that the move away from the class
system is “inevitable” and will welcome
a shift from the “mystery and needless
complexity” inherent in it, according
to Pugh. Those shippers reluctant to
embrace change will likely be the ones
who lack the clout to prevent it, he added.
Overbey of Old Dominion said the carrier is confident the classification system
will eventually disappear as shippers recognize the benefits of a dimension-based
model. But the legacy systems will be
around for a while, and it may take action
by a very prominent shipper to meaningfully move the needle, he added. N
