Here’s the point.  They know everything about your parcel shipments, the average packages you ship each day, the average weight of each shipment, the dimensions of each shipment, the time it takes to pick up your packages and how many packages get delivered to each customer.  They know how many times they handle shipments, what that costs and how long it takes to get from point A to point B.  They know this because when they price your business, they want to ensure there is a decent margin and profit for them at the end of the day.  If you have seen their financial results, you should agree that they are darn good at this.  I admire them for how they run their business.  I admire FedEx as well. USPS…..not so much, but then again I don’t consider it a real business.

When I compare how UPS and FedEx measure customer activity, it is much more sophisticated than the LTL industry in general.  However, many LTL carriers are catching up quickly.  There are many more LTL companies than small package companies and thus a wider spectrum of capabilities in LTL.  However, the large national carriers are quickly gaining speed when it comes to measuring customer activity and costs.  What once might have been a market where price was leveraged based on volume, that is quickly changing.  LTL carriers are adopting new technologies to measure shipment characteristics and time spent for each activity in a shipment’s life cycle.  LTL carriers are using hand held devices to measure time spent at pick-up and delivery. They are taking photographs of shipments to determine packaging, handling characteristics, stackability and stowability.  They are using images and lasers to determine shipment density.  Much of this data feeds into sophisticated costing models so they can better price their services.

If you want to lower your LTL prices, I suggest you start looking at the following cost factors and help the LTL carriers lower their costs which can then translate to lower pricing.

• Pickup & Delivery – Carriers measure time spent at a customer’s facility and the amount of time to travel to the pick-up site.  While you can’t control how close your facility is to a freight carrier’s terminal, being located close to other shippers is important.  Most important is to minimize the amount of time a carrier must spend to pick up your shipments.  Also, they will count how much time to deliver to your customers and while you may not be able to control that, it is an important factor.
• Terminal – Carriers measure the amount of time and effort they spend to move your shipment at origin and destination terminals.  If you have shipments that are not palletized, for example, it takes more time to handle those shipments. If your shipments are properly packaged, or of extreme length, it takes more time to move and handle those shipments across a dock.
• Line haul – This cost component is the biggest factor in any shipment.  Most important is how well your shipments mix with other LTL shipments.  If it can be stacked upon, that is more favorable than something that is of a pyramid style.  One carrier told me any shipment over 55″ tall will not allow them to use decks and thus have unused space above it.  Density is a major factor as the cost of space within a trailer is considered.
• Breakbulk – Carriers use hubs and much like Terminal costs, the packaging is important and amount of time to handle.  Often, large shipments can be nose loaded and avoid handling at any dock.  Those shipments will receive favorable costing. Also, if shipments can be loaded directly to bypass a breakbulk facility, that avoids a handle.  Perhaps learning about your carrier’s network can help.
• Administrative – Often carriers have to manually enter freight bill information into their systems.  They have to issue invoices and receive checks, call for delinquent invoices.  All of those factor into their costs.  Setting up EDI or web services to electronically tender shipments, retrieve shipment status and even receive electronic invoices all lower the cost of the carrier.

As carriers adopt more technology, and they are quickly doing this, your pricing will reflect how much cost your carrier is absorbing due to your practices.  I suggest you look at all of these factors and objectively assess whether you are helping or hindering a carrier.  While it may not be popular to improve packaging, for example, it may be a good investment if you can reduce your shipping prices.  Carriers will need to do a better job educating their sales force to help you help them.

I am distinguishing the 3PL that offers brokerage services from the 3PL who provides integrated supply chain management solutions.  While each category may think of themselves as a 3PL, I don’t.  In fact, I know several truckload brokers that when they started brokering LTL, they decided a name change was appropriate to reflect their new found services.  However, brokerage is brokerage.  I’m not saying brokerage is a bad thing.  In fact, for many shippers it offers convenience, simplicity and a single point of contact.  And to a lot of shippers, that’s what they are seeking.

A true 3PL will provide much deeper solutions.  They likely will complement those solutions with brokerage services, but often a true 3PL will provide customized solutions, supported by technology and often integrated with their client’s systems to streamline processes. It’s not unusual for 3PLs to integrate multiple service providers to deliver a solution.  For example, a 3PL might offer pool distribution where a truckload moves are delivered to a cross-dock for final mile service.  The 3PL would coordinate and streamline data so to the client, it appears as one transaction with tracking throughout the shipment cycle.  Another example would be where a 3PL is managing returns and rather than have each return treated as a single shipment, perhaps they employ a warehouse to aggregate returned orders, or perhaps even repackage product.  The solutions can be endless, but 3PLs like to engineer the solutions, apply technology and process to meet specific customer needs and objectives.

So, what’s my point?  It’s simply that if you are dealing with a 3PL, you need to know their underlying business model and what your objectives are.  A broker who wants to be known as a 3PL might have limitations to the types of solutions they offer.  However, many shippers don’t need elaborate solutions.  They just want a single point of contact, value, simplicity and speed of interaction.  Others need and want more complex solutions to meet their client’s needs or to find other ways to reduce costs.

One 3PL executive stated that “people come to us as a technology provider.”  Another executive of a 3PL/broker stated “there has been a substantial uptick in shippers using 3PLs for LTL services.  We have seen a huge increase in the small and medium-size shipper markets because we are able to bring them dozens of relationships and provide a portal to instantly compare pricing, run reports and track shipments.”  I found those comments to be especially relevant. It seems that perhaps the technology, or TMS, is the key to their success.

Just prior to this article being published, I learned that several LTL carriers are collaborating to offer Transportation Management Software (TMS) solutions direclty to clients.   It seems that LTL carriers are beginning to recognize what the small and mid-sized shipper is seeking.   I maintain that the small and mid-sized market seek value, simplicity, time-savings and relevant information.  Thus far, 3PLs and brokers have been fulfilling that unmet need.  Most shippers don’t have the time to surf multiple carrier web-sites to get quotes, book shipments, track and trace and download data for reports.  3Pls and brokers provide clients a TMS where a shipper can more easily conduct business. It’s easy and they don’t have anyone dedicated to managing shipping.  The days of the small and mid-market shippers having traffic or transprotation managers in the ranks are over.

So, are the LTL carriers catching on?  TMS adoption is up to 37% from 32% a year ago according to Logistics Management magazine.  I suspect well over half of the 37% who use TMS are provided by a 3PL or broker.  If LTL carriers adopt TMS, then they can start providing some of the solutions that a 3PL/broker provides.  If that does indeed happen, then my advice to 3PLs and brokers is to start providing other value that goes beyond what a carrier or TMS can provide.  That’s an entirely different subject and I won’t go into it here, but TMS adoption by carriers could be a game changer and 3PLs and brokers should have a contingency plan in place so they are still viable in the future.

There is no doubt that a TMS provides value.  A shipper can obtain this technology through a 3Pl/broker, a carrier or even directly from a software provider.  But the benefits are substantial in controlling cost and improving service.  The next couple of years will be interesting to see if the predictions by the 3PLs in the article play out, or if the LTL carriers thwart the trend by providing tools and technology directly to the shipper market.  Stay tuned!

This adoption only makes sense since every other transportation sector on the globe uses density as a component to determine price.  Shippers generally are ill-equipped to accurately measure dimensions and determine density.  Thus, they typically guess the density and corresponding class.  Carriers are equipping drivers with tape measures, using laser dimensioning systems and using new technology like FreightSnap to obtain dimensions and translate to class.  In addition, whenever the CCSB makes changes to the NMFC, those changes don’t make the USA Today headlines, facebook, twittter or other communicatin vehicles.  They post it on their web-site and virutally you have to access the change or learn the hard way, through a W&I correction.

The other part of the W&I equation is weight corrections.  I’ve blogged before about carriers using forklift scales to weigh shipments and they are substantially different than floor scales.  They weigh in increments of 5 pounds and the blades must be centered 23″ apart, and the forklift must be standing still, etc.   With these new tools, carriers are better equipped than ever to issue corrections and they even provide incentive to employees to catch and issue corrections.  While anyone who outwardly trys to “cheat” with weight or description should be caught, the vast majoirty of shippers want to fairly describe their product and hate corrections.

When a shipper charges a client for shipping and handling, they do it usually before any correction is issued.  Those corrections normally are issued charging more money due to weight or class and are issued after shippers charge their clients.  Thus, it’s not unusual for a shipper to end up upside down on its costs.

So as this trend continues, I believe carriers have an obligation to consult wtih its clients to ensure they are up to speed on any changes occuring in the NMFC.  I also believe carriers should consult with shippers on how to properly measure shipments to obtain density to minimize corrections.  I think carriers need to transition from the “gotcha” mentality to one that helps a shipper avoid the issues going forward.  And, as density is widely accepted as the standard for pricing, shippers will be ahead to study alternatives

In the good old days, you could get last minute airline tickets at a remarkable discount.  Today, hotels and car rental companies use a variety of travel web-sites and typically reduce prices as cars and rooms appear that they won’t be rented.  Airlines, on the other hand, now charge more for last minute bookings.  I believe they learned that providing last minute deals influenced behavior and sub-optimized revenue and yield by offering last minute deals.

I have often wondered why LTL carriers don’t do a better job of employing yield management practices.  That is, if lanes are not balanced and trailers moving empty or partially loaded, use dynamic pricing to attract business on those assets.  To date, most carriers use “volume spot quote” programs to help balance lanes.  However, those spot quote programs are not very dynamic and prices can be set for months at a time as LTL carriers typically don’t evaluate opportunities in a real-time fashion.  Recently, Roadrunner Transportation Services launched a service where local terminals decide where they will be operating equipment and not filling it.  Apparently, these terminals control the amount of freight and when they need it.  I’m not certain how they determine pricing.  The point is, this is the first program I’ve heard of that empowers local terminals to determine needs.  Others do it from a centralized standpoint and aren’t very dynamic.

One reason LTL carriers don’t do a better job with yield management is that they don’t operate with fixed or set capacity.  Their capacity is much more fluid especially for their line haul operations.  If they get commitments for more freight than they have equipment, they simply can rent additional equipment, work overtime or contract carriers to temporarily help them out.  They also live in a world where they don’t get notice in advance of demand.  If you fly, rent a car or stay in hotel, typically one knows about that in advance and notifies the company providing the capacity in advance.

I do believe there is room for improvement from LTL carrier even given the flexible capacity and dynamic demand.  Technology is such that carriers can determine volumes being picked up in real time, know the lanes they are traveling with an imbalance and can compute rough estimates of need based on historical trends.  While Roadrunner is off to a good start, I would like to see carriers actually push to consumers the capacity they are tyring to fill by matching lanes to known shippers.  While that may be almost Groupon-esque, many shippers would like to know about deals and carriers can place whatever criteria they want around the shipments they are seeking.

While I can appreciate a consultant for their particular expertise, I really want a consultant to not only tell me what needs to be done, but to actually do it.  Heck, in my career, I often knew what had to be done, didn’t anyone telling me, but needed someone to actually do it.  I usually didn’t have the time or resources to do it myself.  I recently had the good fortune of working with Expense Reduction Analysts (ERA).  It’s a group comprised of category experts that reduce overhead expenses across 21 different disciplines (categories).

Those categories range from utilities, merchant card fees, office supplies, waste management, packaging supplies, insurance and many others.  What I found interesting is that each category expert was a lot like me.  That is, they spent a good portion of their career in or studying a category and were experts in all facets of that particular category.  For me, I have spent 35 years in the transportation and logistics industry and, while I don’t like to boast, I happen to know a whole lot about the industry, and thus am able to help people navigate to increase efficiencies.  Also, these category experts with ERA don’t just tell you what you need to do and how to do it, they do it for you.  That’s exactly like me so I can relate.  And, they generally do it on a contingency basis, just like me.

The trend in business over the past 20 years has been to be lean and only have mininal resources and expertise available to run the business.  While most businesses might have a procurement department, they don’t have category experts.  Procurement people typically  issue RFPs and then compares the responses and selects the best one.  They typically don’t know enough about the business to expertly craft an RFP in each category and know exactly what can be achieved.  It’s better than nothing, but I believe that engaging category experts and especially on a contingency basis makes a lot of sense.

Of course, I used to be a consultant, but now I am a category expert.

One of my other complaints is that when a change is made, it’s up to the shipper to do research and determine if the products they ship have been re-classified.  There isn’t some automatic notice sent out.  While that might be impractical, I do know some carrier representatives who take time to alert clients of changes.  For those of you who do that, thank you.

I have witnessed a trend where more and more articles are being classified based on the product’s density.  In a discussion with a member of the Commodity Classification Standards Board (CCSB), I learned that class is first determined based on density, second based on value and finally, and to a lesser extent stow-ability and handling characteristics.  The CCSB is a group comprised of members from the National Motor Freight Traffic Association.  As you might suspect, that association is comprised of carriers and those employed by the association.  Contained within the NMFTA web-site and under  the CCSB tab, is where you find the dockets and what has changed relative to NMFC classifications.  Notice these dockets take place about 3 times per year, but each one contain more than one change.

The most recent docket that was effective February 1, 2013 contained a change that impacted two of my clients.  Each manufacture roll up doors. However, one client manufactures roll up doors that are used on ambulances and fire trucks, while the other manufactures roll up doors for self storage units.  The CCSB effectively eliminated the old item number that specified roll up doors as class 65 or 85 based on door width.  They replaced it with an item that effectively classes roll up doors at class 125.  That is a substantial increase for both of my clients.  So, I was compelled to research the process that is used to make this type determination.  I won’t go into those details but you can do that by clicking on the CCSB tab under the NMFTA web-site.

In my research, I found that part of the process involves requesting input from shippers of products being changed.  One of my clients was named as a recipient of an inquiry and actually named as someone who responded.  I spoke with my client and all he said he received was a survey that he filled out and returned.  He wasn’t given any voice to protest this change and claimed the survey was fairly innocent and he didn’t understand the ramifications of being sent a survey.

My point is that it doesn’t appear that shippers have the opportunity for an active voice in the proceedings.  The CCSB publishes a protest process but only after the fact. Then, there isn’t any effective means of communicating these changes.  In most cases, shippers find out about the change when an LTL inspector slaps them with a correction.  By that time, it’s far too late to react.

The LTL industry needs to understand that customers want straightforward communication, fairness and simplicity.  They understand there is a cost for shipping.  They get terribly frustrated by the “surprises”.  More and more it seems that the LTL industry is hiding behind complicated tariffs, obscure and complicated rules and the archaic NMFC.  It’s no wonder 3PLs are flourishing.  They help shippers with making shipping simpler, easier and helping avoid the carrier surprises.

I read an article recently that spoke to the growing acceptance and use of Transportation Management Software.  The article stated that TMS adoption has grown from 32% a year ago to 37% of polled companies using TMS and 25% of all respondents stating they were going to adopt TMS or upgrade their TMS in the coming 12 months.  While they didn’t publish the number, my belief is that probably half or more of the 37% (TMS users) probably obtained their TMS from a 3PL.  There is no doubt in my mind a TMS is valuable.  A TMS allows one to optimize shipment routing, tender shipments to carriers instantly, provide a single place to track shipments, create bills of lading and is a repository for detailed shipment data.

So, if a shipper doesn’t want to acquire a TMS directly from a software provider, their next best option might be to get one from a 3PL.  If a shipper cannot get fair shipping rates  from a carrier, then a 3PL offers value by providing more competitive pricing.  If a shipper thinks it takes too much time to deal with multiple carriers and their technologies and interfaces, than a 3PL can provide value. I had gotten into the bad habit of defining 3PLs as value-added or transportation re-sellers.  I now see it differently.  While the value-added might provide a deeper value proposition, the 3PL re-seller is providing something a shipper can’t easily get on their own, otherwise they wouldn’t be in existence.

My favorite recent quote is from Mark Cuban.  “Make your product easier to buy than your competition, or you will find your customers buying from them, not you.”  I spend a lot of time working with LTL carriers in addition to 3PLs.  I don’t think it’s unfair to characterize the LTL carrier/3PL relationship as frustrating.  Close to 25% of most LTL carriers revenue is now conducted through a 3PL and the LTL carrier doesn’t fully understand why a shipper does business with a 3PL.   Many LTL carriers think it’s because a 3PL can offer a better price.  While value is a very important component, I contend that the 3PL has done a wonderful job of making it easier to business with.  They are providing the value, or what the shipper can’t do for themselves.

If I were a 3PL today, I would continue to explore and initiate ways to provide services that the shipper cannot provide easily by themselves.  You never know when the LTL carrier industry might wake up and start figuring out how to make it easier for shippers to do business.

LTL carriers impose minimum cubic capacity rules to effectively counter very light, fluffy shipments that take up more than their fair share of a trailer.  In most cases, LTL carriers state that if a shipment consumes 750 cubic feet of space or more, AND the shipment has a density of less than 6 pounds per cubic foot, it’s not paying it’s fair share.  While the rule varies dramatically amongst carriers, most artificaially adjust the weight to a minimum of 6 pounds per cubic foot, AND apply a 125 or 150  commodity class to the shipment with those associated tariff rates.  Most carriers use the 750 cubic feet as the threshold, but not all.  One national carrier uses a threshold of 250 cubic feet and another 350 cubic feet (if less than 3lbs/ft3) as the threshold before implementing the rule.  Thus, some shipments as small as 3-4 pallets might have the rule applied.

There is no standard.  In fact, some carriers force class 100 or 125, some class 150, and in one instance I found where a class 250 is applied.  The real difference is in the pricing that is applied.  In many cases, the carrier dictates that their current base rates be applied.  Some carriers apply no discount, some 50% while others allow the clients negotiated discount to be applied.  They generally don’t allow an FAK structure to be used.  Some carriers specify that they will include unused space in the calculation, especially if your shipment cannot be stacked upon.  For example, pallets configured with a pyramid to prevent stacking, will be adjusted for the space up to the top of a trailer or 8 feet.  Again, the rules vary and some carriers use very elaborate language with various exceptions.

Here is why this is important.  The minimum cubic capacity rule will increase your freight charges.a lot.  One of our clients, unaware that their carrier implemented the minimum at 250 cubic feet was under the assumption their shipment would cost around $600.  The bill came in at slightly more than $1,300.  The rule was there and the client had no recourse.

So what should one do?  First, know the cubic capacity rules with the carriers you use, or the carriers your 3PL uses.  Know approximately how the carrier dtermines the price so if you have a shipment that will have that rule applied, you can at least route the shipment with the lower cost carrier.  You can try splitting the shipment into two shipments, but some carriers have rules against that and will apply it even using multiple bills of lading.  You can increase the weight of your shipment on the bill of lading to ensure you are at least 6 pounds per cubic foot.  However, with weight corrections possible, a carrier could adjust your weight down and apply the rule.  In that case, you could include rocks that actually increase the weight of the shipment beyond 6 pounds per cubic foot.

Any way you go, knowledge is important and you will have to become proficient at math (to calculate density) and apply rates.  A good TMS will help you in this

• Labor peace at the ports.  Recently 800 clerks shut down the world’s business port at Long Beach, CA and crippled the U.S. supply chain until federal mediators worked to solve the issue.  The port in Houston recently got a 30 day reprieve from a labor issue there.  As we try to balance a very tenuous economy, my hope is for labor peace at all ports and that reasonable people fairly negotiate solutions that work for all parties.
• ABF receives some concessions from the Teamsters.  ABF is negotiating its own contract with the Teamsters and being one of the very few LTL carriers operating in an organized environment is operating at a significant cost disadvantage to its competitors.  This is particularly true as ABF has to bear substantial pension and pension liability costs from all its unionized carrier brethren who no longer are in existence.  I hope they get the opportunity to compete on a fair cost basis.
• YRC continues to see improvement.  YRC has continued to survive against the odds and even has begun to turn the corner.  However, they are not earning sufficient returns to begin investing in new equipment in a significant way and pressures to improve wages and benefits will continue to escalate as they improve financial performance.  The last thing YRC needs is a recession and our government is doing all they can to help the economy stall.  I hope YRC continues its improvement and the economy doesn’t go into a stall.
• 3PLs find ways to add sustainable value.  There are too many 3PLs that simply re-sell carrier rates.  While that model may have worked in the past, the tea leaves I read suggest that 3PLs will need to provide sustainable value beyond just rates.  Shippers will increasingly want services that they cannot easily provide themselves. I hope that 3PLs find unique ways to deliver sustainable value beyond the pure rate it offers.
• LTL carriers simplify.  It is far too difficult to do business with LTL carriers.  Their pricing is too complex, their rules tariffs long and hidden and they continue to modify their pricing and rules without warning.  Carriers expect shippers to access their web-sites and provide no other tools to help shippers solve their real need, simplicity.  I simply hope that LTL carriers start thinking about how they can make it easier for shippers to engage them, and not how many “tricks” they can throw at a shipper.
• NMFC simplifies.  The move toward density-based pricing is on. Why are we waiting to slowly transition?  Approximately 80% of the National Motor Freight Classification changes were to adopt density-based class determination. LTL is the only industry to use this antiquated, subjective process that simply causes re-wrok and inefficiency.  I hope the NMFC is abolished and carriers adopt density-based pricing (that already exists).
• TMS adoption.  Far too many shippers rely on carrier web-sites, intuition, and guessing when routing, tracking and obtaining shipment data.  The costs for TMS, especially SaaS-based, are extremely reasonable and an ROI of months. I hope that shippers recognize the value of a transportation management software and make the investment necessary to lower both hard and soft costs.

That’s a pretty full plate for 2013. Hopefully, we can see some of my wishes come true.  What are your wishes for 2013?