1948 to 1980, carrier rate bureaus set rates with immunity from federal antitrust laws. This gave bureaus and
truckers enormous power over ratemaking. Trucking
deregulation in 1980 allowed carriers to provide service
and offer rates without seeking prior authority. However,
antitrust immunity was not officially eliminated until
2007. Sometimes, it’s scary to move away from the devil
you know.
Q Does that explain the truckers’ reluctance to go in whole-hog?
A Few companies want to be first. For decades, carriers have been rating freight bills using a specific set of
criteria. [Transportation management software] providers and freight bill auditing companies have large-scale
investments—think billions of dollars—in supporting the
carriers’ traditional model. To change would appear to be
expensive, confusing, and costly. A “new anything” is scary.
Though it’s hard to imagine how the approach of “make it
smaller and you pay less” would be scary.
The challenge will be to make the
change to density or space-occupied
pricing using the existing systems. The
solution lies in cloud computing. Simply
access a cloud-based system to obtain
landed cost based on “space occupied.”
The only information required is the
height of the shipment in inches.
QDo you see a time when densi- ty-based pricing will become mandatory within the LTL segment? And
do you see a place for the classification
system in the industry’s future?
A No pricing system can be manda- tory unless motor carrier transportation is reregulated. However, density- or space-based pricing will be
the norm. It is just too efficient on cost and auditing.
The game changer will be the carrier’s ability to know in
advance what size equipment or space is needed. As for
the future of the traditional classification system, it started
with over 5,500 carriers. It is now less than 700. The system is controlled by the carriers. All it will take is for a few
of the top 10 carriers to offer a more efficient rating system
and the classification model is dead.
Q Some have said that carrier misclassifications have been tantamount to back-door rate cuts for shippers.
What impact will an industrywide move to density-based
pricing have on LTL rates?
A It is all based on size. I see the carriers finally using their space more efficiently and knowing in advance
what capacity is needed for cube to fill the equipment.
Dimensional pricing will create a system whereby carriers
can more effectively schedule their labor, which accounts
for about 60 percent of their cost. If the information is in
an order entry system that the carrier can access days or
weeks in advance, the greater the chance for efficiencies
for carrier and shipper.
Q Shippers are accustomed to the old structure, espe- cially as many have used it to their advantage. Do
you see pushback on the part of the shipping community
to this? Will there be some operational adjustments that
shippers will need to make?
A Adjustments have been going on for years. Ask the apparel, footwear, and PC industries about what has
happened to their classifications. All their pricing is now
density-based with at least a 50-percent rate increase. A
lot of this migration can be classified as
“unknown.” That is why we need educated and knowledgeable people and
systems to overcome this fear.
Q By early next year, FedEx and UPS will have shifted to dimensional-based pricing for U.S. ground packages measuring less than three cubic feet.
These represent a large portion of the
B2C shipments that are the fastest-grow-ing segment of their product mix. Are
the carriers gouging their shippers, or is
there a legitimate basis for the shift?
AThis is legitimate pricing. The car- riers have space to sell or rent.
Shippers do not pay attention to the amount of space they
use. If the shipper knows that a reduction of space can
mean a lower cost, then we have a win-win.
Q Do shippers stand to benefit from the migration to dimensional-based pricing?
A In 2007, the Surface Transportation Board, which replaced the ICC after its sunset, finally killed antitrust
immunity for collective ratemaking. At the time, it wrote
that “to the extent our decision facilitates the entry of
competitors … that might devise different ways of determining the transportation characteristics of commodities,
we believe it will increase the variety of pricing options
available to both carriers and shippers.” I think the board
summarized the argument quite effectively.
