Benchmark Pricing for Temperature-Controlled LTL Success An SMC 3 White Paper, September 2010
E X E C U T I V E S U M M A R Y Today s North American temperature-controlled shippers including third- and fourth-party logistics service providers aim to optimize their transportation through intelligent procurement of less-than-truckload (LTL) freight service. But shippers in the temperaturecontrolled industry have no common benchmark for rating LTL freight. As a result, they struggle with multiple, incompatible carrier rating and pricing systems that skew transportation planning and procurement and raise LTL costs. This white paper briefly explores the value that benchmark-based LTL pricing and rating transparency brings to temperature-controlled shippers: effective pricing and freight management across their organization, seamless North American pricing, strong shipper-carrier alliances, data accuracy and interoperability across technology systems. An SMC 3 White Paper
THE PRICING DIFFERENCE THAT MAKES ALL THE DIFFERENCE Commodities in North America are rated/priced and shipped two very different ways: 1. LTL general commodities pricing 1, used by typical (dry) LTL carriers and shippers to price their general commodities freight services, is a class-based commodity rating system that is combined with distance-based rate scales to define a shipment s base rate. This base is subsequently modified by discounts and adjustments determined by the end customer s shipment profile (frequency, lane geographies, handling cost etc.) to create that end user s price. Even with class-based rating, individual carrier pricing systems vary greatly in directional rating, weight groupings, minimum charge structures, deficit calculation rules and direct versus indirect service routing. 2. Temperature-controlled commodities pricing employs rating approaches ranging from pointto-point mileage (distance) rates to commoditybased rates (pricing by specifically named product types) to pricing by shipping unit (carton, pallet, container etc.) and pricing based on trailer space used (like cube, density or linear foot). To complicate matters, these two disparate rating systems are often intermixed to accommodate specialized transportation services, like pooling or assembly and distribution. With so much rating complexity, temperaturecontrolled shippers find it virtually impossible to analyze the scope, level, value and true costs of LTL carrier services. They suffer financial and time drains, as internal systems and staff are diverted to solve pricing and carrier selection problems and dilemmas. A CARRIER S REALITY: WHY AN LTL DEAL MAY NOT BE WHAT IT APPEARS TO BE Carriers simply cannot supply every transportation solution to every shipper. They are severely limited by their transportation network, operational constraints, geographic range and whether the shipment is local, regional or national. Carrier profitability is a function of their price/cost ratio and is often adjusted in the rate to or from various areas. For example, local and short-haul shipments have a higher percentage of their overall cost at the pick-up and delivery level; longer haul regional and inter-regional and transcontinental shipments have a higher percentage of cost in their line-haul activities. These cost differentials play out in individual carriers tariffs and introduce pricing complexity, when shippers shop multiple carriers for a route or a shipment transaction. Each market presents carriers with unique We chose CzarLite because of the relative operational challenges economics of administration, ease of use, and and costs, and individual transparency with our customers. carriers use their pricing to tailor their Rich Curtis, Director of Truckload Pricing, FFE rates to ongoing market variables. As conditions and strategies change for carriers, the shipper does not always have a viable way to understand or act on carriers pricing changes. In addition, carriers businesses suffer when they are forced out of their normal areas of operation, into circuitous routes or lanes where they lose money on backhaul. Ultimately, the shipper may end up paying for some or all of carriers constraint-based costs even if these costs were not incurred by the shippers freight. BENCHMARKING = EFFECTIVE COMMERCE Organizations worldwide use benchmarks to assure they are using a common language of commerce : The average earnings of the Standard and Poor s 500 are widely used as a financial benchmark and reference point for the health of the U.S. economy. Automobile pricing benchmarks like Edmunds and the Kelley Blue Book provide a core service for benchmarking automobile pricing. LTL pricing benchmarks are built on a reliable base rate system that lets shippers benchmark multiple carriers pricing against a standard and are also recognized by and compatible with shippers industry partners and internal technologie C O N T I N U E D September 2010 page 1
SMC³ CZARLITE : TIME-TESTED LTL BENCHMARKING COMMENTARY FROM THE EXPERTS Ken Manning from TCG on LTL Costs How do temperature-controlled LTL freight costs line up with standard LTL costs? A leading authority on dr y and temperature-controlled freight LTL and truckload (TL) costing, Manning notes that unlike dr y LTL, which generally employs a terminal network and break bulks to aggregate freight, the temperature-controlled LTL market has pool points and assembly and distribution points, with freight delivered via TL stopoffs and regional and local deliver y. In addition, he says, temperature-controlled LTL freight often moves through a thirdpar ty aggregator, which introduces variability in how shipments are accumulated, assembled and distributed. While both temperature-controlled and dr y freight carriers are affected by similar costs around specific segments of their businesses, temperature-controlled carriers must also contend with added fuel costs their largest outlay along with wages, operational supplies, additional capital cost depreciation, taxes and insurance. In addition, temperaturecontrolled carriers operational cost characteristics like temperaturecontrolled dock space or adjacent warehouses or even sitting in a lot while running the reefer unit need to be tracked, fur ther studied and incorporated into costing models. Finally, he says, the greater cost and weight of reefer trailers increase operational costs and reduce payloads, not just for the temperature-controlled freight but, for return loads (often comprised of dr y freight), as well. In the world of LTL shipping there are thousands of price combinations built upon hundreds of base rate systems. The unpredictability of laneby-lane shipment pricing can cause even the most seasoned supply chain professional to miss savings opportunities. The foundation of effective transportation pricing is the base rate, and successful price negotiations can only occur when that foundation is laid properly when shippers can benchmark the pricing of multiple carriers using a reliable, consistent base rate system that is recognized by and compatible with industry partners and shippers internal technologies. CzarLite is North America s most recognized name for LTL pricing in the general commodities LTL market and accounts for millions of LTL transactions and billions of dollars in commerce annually. Over 60 percent of the Fortune 500 companies and 75 percent of the 50 largest logistic service providers use CzarLite as their LTL benchmark. Over 400 carriers including all 50 of the largest national, multi-regional and regional LTL carriers use CzarLite to meet their shipper-customers transportation needs. Major technology providers endorse and recommend CzarLite in combination with their own industry solutions. Shippers who have historically used CzarLite for benchmarking their general commodity freight have successfully transitioned their temperaturecontrolled freight movements to CzarLite as a strategic move to support their business needs, assure pricing transparency across all their procurement activities, and simplify their rating and procurement processes. Unlike other base rate systems that are biased toward a particular carrier or shipper, or can introduce business risk, the CzarLite base rate system is recognized and supported by carriers within the business segment and: Performs consistently, regardless of a shipment s origin, destination or market Supports pricing granularity at the regional economic level, accounting for labor, tolls, taxes, weather-related costs, shipment profiles and Manning, Kenneth. phone interview. March 15, 2010 page 2 An SMC 3 White Paper
other cost that impact regional transportation markets Maintains direction-based neutrality, except in areas of long-term chronic imbalances (Washington DC, New York City or the state of Florida, for example) Is delivered through technology interfaces that work with leading transportation management systems, warehouse management systems, and enterprise resource planning and supply chain technologies Is compatible with shippers industry partners and internal technologies Assures that shippers secure the best LTL carrier value and service for their transportation spend CzarLite: Total Freight Synergy with North American Carriers Over 400 carriers share CzarLite rates with their shipper-customers to: Locate and access regional, multiregional, transcontinental and North American freight that supports their operational strengths and goals with pricing granularity that factors in state and regional labor expenses; speed, weight and load factors; freight flow and traffic congestion costs; and additional operating expenses, like access fees, time-limited road access and bypasses. Improve their productivity when responding to shipper s requests for pricing (RFPs) using a benchmark. Since it is the LTL standard, carriers have developed repetitive processes to support accurate and rapid responses to RFPs. Determine shipment profiles and pricing adjustments by comparing a historical freight pricing statistics with a shipper s market-basket statistics to obtain their target price in the lanes they want. Rely on the independently verified SMC 3 Carrier Cost Index (CCI), which tracks and quantifies carriers business and labor costs, assuring they receive accurate, updated information and avoid additional administrative expenses. A FOCUS ON LTL INTELLIGENCE To periodically update CzarLite and assure it works effectively and reliably over time SMC 3 employs a three-part strategy: 1. Our SMC 3 CCI helps us track and quantify the changing labor and labor-related costs (approximately 64 percent of LTL carriers total expenses) and non-labor costs (approximately 36 percent of LTL carriers total expenses) to accurately reflect the market basket of products and services carriers consume in their operations and assure CzarLite s accuracy. (The CCI is aligned with the statistical processes defined by the Bureau of Labor Statistics.) 2. SMC³ updates CzarLite to incorporate all annual U.S. ZIP code changes. (The U.S. Postal Service updates U.S. ZIP codes several times annually: Five-digit changes normally constitute assignment of new ZIP codes or elimination of existing ZIP codes, but threedigit changes have much greater significance for both shippers and carriers, since they reflect larger, systemic changes in the impacted areas.) Since ZIP code pairs are crucial for determining the distance component of rating a shipment, each change is thoroughly researched and adjudicated to protect the rate levels previously established for that combination of ZIP codes. This fidelity to data precision maintains CzarLite s accuracy across current and historic rate levels. 3. A panel of economic experts confirms the accuracy of the mathematical computations and input data used to update CzarLite and makes recommendations to the update s economic portion. The panelists including Donald Ratajczak, Ph.D. and Irwin Silberman, Ph.D. have an in-depth, working knowledge of the U.S. economy and the transportation industry. Their expertise helps to assure a carrier-independent CzarLite product. We converted all our dry rates to CzarLite years ago, so when we converted our temp-controlled truckload rates too, we had no issues. Now, our temp-controlled carriers give us a different discount per lane for tempcontrolled, instead of discounting per bracket. Except for produce carriers, all new temp-controlled carriers will be on CzarLite, too. Marc Graff, Senior Manager, Transportation Systems and Services, SYSCO C O N T I N U E D September 2010 page 3
THE DEMISE OF OLD-SCHOOL LTL PROCUREMENT THE GROWTH OF RAPID BENEFITS Transportation costs represent an increasing portion of overall business costs today, so it s increasingly important for shippers to ensure carrier rate competitiveness. Most importantly, savvy buyers use collaborative LTL purchasing practices supported by data standards, base rate benchmarking and automation to mitigate and overcome the challenges and risks inherent with oldschool LTL procurement practices. CzarLite draws from SMC 3 s trade expertise and our deep understanding of LTL procurement best practices, giving shippers access to actionable benchmarking data to conduct apples-to-apples base rate comparisons and meet their financial and service goals. CzarLite provides tangible benefits, so shippers can: Simplify and standardize business processes and increase productivity and efficiency, as they move beyond spreadsheet and other rating inefficiencies to overcome the inherent challenges and risks of older LTL procurement practices; support optimal procurement and negotiations; and simplify billing, invoice processing, accounting, computer systems, procurement agreements, contracts, requests for pricing, payment and costing to achieve greater profitability and competitive pricing. Rate shipments using timely, accurate carrierindependent base rates, so they can replace or compare historic point-to-point rates with LTL and TL temperature-controlled rates; support pricing between dry and temperature-controlled freight shipments; or adjust net shipping charges by requesting a percentage discount, multi-tiered discounts, or freight all kinds (FAK) discounts, for example. Create a flexible, borderless international pricing system with standardized base rates that assure pricing stability across all North American freight, since SMC 3 MexicoLite and SMC 3 CanadaLite rate formats are identical to U.S. CzarLite. CONCLUSION COMMENTARY FROM THE EXPERTS Norbridge study confirms CzarLite s industr y-wide impor tance Consulting firm Norbridge Associates studied leading LTL carriers to determine shippers procurement practices. Norbridge found shippers preferred carrier-neutral, industr y-standard carrier tariffs because they limit rating complexity and simplify LTL bid comparison. Norbridge also found CzarLite is the dominant industr y-wide tariff used by shippers. Norbridge, Inc. LTL Pricing Effectiveness Research Study, November 2002 CzarLite offers temperature-controlled shippers the most viable price benchmarking product on the market. With unmatched economic research and data accuracy and integrity behind it, CzarLite provides supply chain partners with full rating transparency, so they can develop critical, collaborative working relationships with their carriers and gain the economic insight they need to succeed in a competitive freight world. The all-inclusive rate system covers shipments throughout the United States and between the United States, Canada and Mexico, providing true, door-to-door base pricing. CzarLite is an industry standard that strengthens carrier-shipper relationships. Leverage the neutrality of CzarLite to survey competitive pricing in regional markets, since looking for a new carrier to serve a regional distribution hub or a single carrier or even group of carriers to support supply chain optimization initiatives is simple with CzarLite. Enjoy added speed and functionality with a softwareas-a-service (SaaS) delivery model that supports rapid system integration. page 4 An SMC 3 White Paper
MORE ABOUT SMC³ SMC 3 is devoted to consistently raising the level of knowledge, collaboration and technological capability in the freight transportation market, using our expertise and industry connectivity to provide the best data, content, products, technology and educational services to our members, customers and associates. Learn how simple it is to benchmark your best rates with CzarLite, and explore CzarLite companion products: SMC 3 CarrierConnect,SMC 3 RateWare and SMC 3 Bid$ense. Contact SMC 3 sales today at 800-845-809 Copyright 2010 SMC 3. All rights reserved. SMC 3 is a trade name and a registered trademark; the SMC 3 logo and CzarLite are registered trademarks; and CanadaLite and MexicoLite are trademarks of Southern Motor Carriers Association, Inc. Other brand and product names are the property of their respective owners. PI# 15088-L September 2010 page 5
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