Density-based Pricing. Brian Thompson Vice President of Pricing YRC Freight
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1 Density-based Pricing Brian Thompson Vice President of Pricing YRC Freight
2 Transport Topics LTLs Using Dimension Scanners to Improve Pricing Accuracy Journal of Commerce Innovation gives LTL pricing more than one dimension DC Velocity Shift to dimensional pricing gains momentum
3 Transport Topics Finally, Density-Based Pricing for the LTL Industry? Journal of Commerce UPS joins FedEx in shift to density pricing for ground packages
4 Why Price by Density???
5 All Quotes Require: Origin Destination Capacity used Capacity = weight + NMFC (class) Well established Actively managed Only used in the US Only used in the LTL industry
6 NMFC considerations Density*** Handling Stowability Liability
7 What is density-based pricing? Tie charges directly to the space occupied Not new to LTL Spot pricing Import/export tariffs Expedited tariffs Carriers offer density-based rates on the web
8 Density-based Pricing Formats Density to Class conversion Density (pcf) Class Density (pcf) Class >= Less than 1 500
9 Density-based Pricing Formats Dim-factors Establish a minimum charge for the cubic space a package occupies (L x W x H) / dim factor = dimensional weight Carriers charge the greater b/w actual and dim weight Example: (48 x 48 x 48 ) / 194 = 570 lbs (8.9 pcf )
10 Benefits for Carriers Rates can be set in line with costs NMFC class based on average density, not actual Density average = 6 pcf (class 150) CCSB Docket , subject 8; item 72810
11 Benefits for Carriers Rates can be set in line with costs NMFC class based on average density, not actual Rates reflect space occupied packaging impact Misaligned Stacking Pyramid-shaped Loads Ideal Square Pallet
12 Benefits for Carriers Rates can be set in line with costs More compact packaging Improved costing Improved load planning Eliminate FAKs Homogenize price methods for carriers with multiple modes (i.e. parcel / TL)
13 Benefits for shippers (continued) Rewards better than average densities & packaging Rates too low Rates too high CCSB Docket , subject 8; item 72810
14 Benefits for shippers Rewards dense freight & efficient packaging Reduce rate surprises from cubic capacity rules, inspections, and mixed commodity shpts Eliminate risk of NMFC reclassification Reduced billing errors and lower audit costs Less reliance on outside experts Single pricing methodology for international and domestic ocean shipments Additional capacity reduces rate pressure
15 Benefits for logistics companies Management of international moves Optimize transportation costs across modes Offer consultative and technological solutions Teach packaging best practices
16 Density pricing is more of a reality today Globalization Sophistication of transportation management systems Electronic data transmissions Ability to engage carriers on-line Dimensioning technology Shippers focused on final price, not discounts
17 Obstacles to a switch Comfort with the existing system; change = risk Existing FAK structures Dimensions on BOL or captured by carriers Investment in technology and processes Carriers not equally motivated to change Shippers have many carrier choices Lack of standardization
18 Where we stand today (in my view) Freight forwarders & import/export tariffs Expedited shippers Infrequent LTL shippers NMFC classifies more commodities by density
19 Where are we going? Expect the evolution to continue Carriers continue to develop density capability Investing in dimensioning technology Augmenting current legacy systems Developing rates / tariffs using density Enhancing general rules tariffs Educating sales teams to position new methodology Some customers will be early adopters
20 Where are we going? Carriers will push against FAKs, poor packaging, bulky freight NMFC to classify more commodities by density Technology will advance Transportation Management Systems Measuring devices Some logistics consultants will be stewards of change Shipper adoption will increase
21 Evolution will likely be slow No single catalyst Takes time to educate Investment is required NMFC and density will coexist
22 Accelerants Lengthy period of tight capacity New means of measuring freight affordably & efficiently Increasing press Leader emerges
23 In Conclusion Carriers and shippers can benefit from densitybased pricing Pricing based on density is growing Changing technology is accelerating adoption Expect continuing evolution, no revolution
24 THANK YOU! QUESTIONS?
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