The debate over whether density-based pricing will succeed in toppling the traditional National Motor Freight Classification’s (NMFC) based pricing in the LTL industry is an ongoing debate. Carriers are pushing for dimensional pricing to manage the margins on lightweight shipments. This is the basis of the argument. Under the NMFC classification density was taken into consideration as was packaging and commodity but it was largely based upon weight. Back in the day, carriers in a battle over business after deregulation, were offering FAK (Freight All Kinds ) tariffs to get the business. This strategy ultimately led to unprofitable operation ratios, subpar delivery performance and ultimately the bankruptcy of some major carriers. Major national freight carriers in recent years have declared the days of beating up the carrier on rates is over. Unlike in the past, the LTL industry today has a massive volume of smaller shipments. There is also the challenge of completing same-day deliveries or time definite deliveries. Likewise, these shipments are not always of consistent size and density, making it difficult for shippers to sustain adequate profit margins.
Today, if you want dependable service, you’re going to have to pay for it. Let’s see if we can offer a cursory education on dimensional pricing.
Dimensional Pricing Defined
There is no secret to dimensional pricing. It’s really a simple equation; L x W x H / 139 for ground shipments and 167 for air cargo. It could be argued that the ecommerce boom started all this controversy of the growing disparity between weight and size. Ecommerce shippers have millions of items in inventory and a finite amount of box sizes. I’ve been personally amazed at the box sizes of some items I’ve received. It didn’t take long for the parcel carriers to figure that their trucks were dimming out before weighing out. This was the catalyst for dimensional pricing. It wasn’t long before the LTL carriers arrived at the same conclusion. They were charging by pound through diluted tariffs, not by the room the pallet actually occupied.
FedEx Freight, XPO Logistics, and other LTL and parcel carriers have been installing equipment that can scan a palletized shipment and, combined with scales, provide the cubic dimensions and weight needed to check the shipment classification. The consensus among LTL industry executives is that the current classification system is on its way out. The reality is that carriers sell space in a trailer. Using the dimensions of a pallet or parcel identifies precisely how much space that shipment will require, thereby providing accurate real estate pricing. All three major US parcel delivery services announced policy, pricing and surcharge changes last year for over-dimensional shipments. The COVID-19 pandemic has put stress on the systems at FedEx, UPS, and USPS. Over-dimensional packages may also incur a handling surcharge.
Many shippers believe dimensional pricing amounts to a rate increase, and the number of shipments, they say are re-billed once they go through a dimensioner may support their contention. It can also be argued the shippers are finally being charged an accurate rate. Shippers who are not prepared to invest in equipment to measure their shipments’ dimensional weight will have to adopt strict packaging protocols to package their freight in a uniform method as to avoid a dimensional pricing situation.
The ability to double stack pallets is a prime example. Under dimensional pricing a pallet that cannot be double stacked will be billed at 2 pallet spaces since the pallet will essentially occupy the air above it as well. To date, much of the use of dimensional pricing has been limited to W & I procedures at truck terminals. However, by capturing more and more dimensional shipment data, carriers are laying the data foundation needed for the expanded use of dimensional pricing.
Our supply chain managers at Land Link Traffic Services can help with packaging strategies, supply chain management techniques to maximize lane and weight balancing strategies and overall shipment planning protocols to maximize your freight spend in this more expensive environment. Finally, the Coronavirus has clearly caused some challenging strain on the supply chain. Don’t wander through this uncharted territory alone. Contact us today for a supply chain consultation.
Stay Safe Everyone.
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