There have been many significant changes in the LTL freight industry over the past 30 years that are changing the face of the transportation industry. In order to remain current, it is important to understand what these changes are and how they are affecting the cost of doing business.
Within the last few years, less-than-truckload (LTL) rates and capacity have fluctuated. Many carriers have shifted from the traditional National Motor Freight Classification (NMFC) rate-setting formula to density-based pricing, which prices freight according to the amount of space the shipment uses in the truck. This new pricing model, along with other recent industry trends, has had a significant impact on shippers – making it important to understand the new pricing methods for LTL shipments, what’s currently happening in the LTL industry, and some of its key market challenges.
More recently, the LTL industry has incorporated density-based pricing, which considers the actual weight of a particular item, classifies it and determines how much volume it will take up in a trailer. The first step many carriers have taken is introducing “Dimensioners” into their network to efficiently capture the density of each shipment as it travels through their network. This helps the carrier better understand the actual cost incurred for each shipment in order to more accurately price each account. This method is comparable to how large parcel shipping companies such as UPS and FedEx determine their costs to ship products.
This change in pricing modules, combined with an increase in capacity due to the influx of ecommerce shipments, the driver shortage, hours or service being regulated more tightly with the ELD mandate, and natural disasters such as hurricanes and earthquakes, and environmental regulations have all added to the price the shipper can expect to pay, in many cases by 2,3,4, or 5%. Gone are the days that the shippers can be beaten up over pricing because the reality is that they won’t be able to have any trucks, which have increased in price by as much as 100% in recent years with the advent of all of the newest technologies.
Shippers can also prepare themselves for many more accessorial charges than were seen in the past. These charges have always existed but have been applied much more stringently due to anything deemed as extra work or risk to the driver.
The best carriers are telling their customers to brace themselves for this new era of pricing by collaboratively working together to create efficiencies where there once were bottlenecks. The biggest advice given in the industry is to work with your carriers to take costs out of their networks, reduce waiting time at docks and other facilities and realize truckers have to make a profit as well. For the carriers, ninety-nine percent of the industry is just making pennies on the dollar as far as profits. They are making huge investments in trucks, drivers and facilities in order to maintain the status quo, and that cost will inevitably be passed along.