Carriers that offer less-than-truckload (LTL) shipping have been among the hardest hit by the most recent economic downturn, with thousands of small companies filing for bankruptcy in the past few years.
But many LTL carriers that have survived so far are betting that a new pricing strategy could save the industry.
Until recently, most LTL shipper charged simply by the weight of the package and how far it was being shipped. The problem is that the standard 53-foot trailer will usually “cube out” — meaning all its available room will be taken up by packages — before it “weighs out”, or reaches its maximum weight requirement, which usually is 80,000 pounds.
Three-Dimensional Scanners
But new technological breakthroughs has resulted in dimensional pricing, which uses three-dimensional scanners to measure the size and shape of a package, which is then used to calculate how much the shipper should charge based on how much space the package will take up in the vehicle. That allows shippers to charge more and still be able to maximize the space in cargo holds.
“Dim” machines already are being tested by some of the world’s biggest carriers, including FedEx Freight, YRC Worldwide, Old Dominion and Saia. And smaller carriers are following suit.
Bill Logue, CEO of FedEx, said dim pricing is essential if the LTL industry is to be saved.
“We need to simplify this process,” Logue told Logistics Managment. “It’s not going to happen overnight. Different customers will have different needs. It will be a long-term, dual type environment. It will take a long time.”
US Postal Service Goes Against the Flow
Both UPS and FedEx have said that they will implement dim pricing in their small package units starting next year. But the US Postal Service very publicly announced that they would not be using the pricing system. Industry observers have said the move came because the USPS was seeking to capture a larger share of shipping from online retailers.
Yet Logue said FedEx thinks it can transition to dim pricing without losing a large portion of its LTL customers.
“The LTL industry is complicated because it’s tied to class pricing system,” he said. “We use zone density based pricing that is very clear. A large portion of our business is small to medium customer that wears many different hats. Simplification is very important. They are used to it on parcel side.
“There is a large customer base that could move to simplified process as you build it,” Logue said. “Others could migrate to it. Whatever is right for that customer.”
FedEx Freight is already testing overhead dim machines in its regional centers to capture dimensions. For the time being, that information is simply being used to build the costing models the company will use when it shifts to dim pricing next year.
The tricky part will be convincing customers that dim pricing is actually a smarter way to go, Logue admits.
“If you can make the customer process more time effective and easier, customers will migrate to it,” he said. “There are challenges. But if you can give an expedited solution that works, they will migrate to it. That small- and medium-sized customer is looking to reduce time and improve value. If you put it out there, it will be well received.”