Logistics Viewpoints

A complete analysis of logistics trends, technologies, and services

5 Reasons Why LTL Rates Are Changing & What to Expect

Guest Commentary | By •

If you’ve been in transportation or logistics for any length of time, you already know that nothing stays the same for long. Recent less than truckload (LTL) rates and capacity levels have been below the historical levels we saw from 2005-2010. But that could change—and it’s already started.

Most general rate increases (GRIs) happened late last fall. They’re typically on an annual cycle, so we expected to see them come this fall. But they’re here already. The increases aren’t any larger than expected, but because they’re happening earlier in the year, they still add up. And it’s possible—in fact it’s happened before—that we could see two GRIs in a twelve-month cycle. This is similar to the way ocean rates rise; if the demand exists, rates may rise multiple times.

LTL shipping changes don’t exist in a vacuum

While the autumnal GRI may be here sooner than usual, the shift isn’t exactly coming out of left field. Other aspects of the transportation industry face similar changes and challenges. Transactional truckload rates are also up rather substantially, and the upcoming ELD mandate may affect truckload efficiency later this year. These types of changes promote a lot of movement between LTL and truckload service.

Top 5 reasons why LTL rates are increasing

There are probably an infinite number of reasons why we’re seeing LTL pricing changes, but we’ll focus on what we believe are the top five—the reasons large enough to tip the scales for everyone, not just a specific company or industry.

  1. There’s more e-commerce, and it’s changing the game. With the advent of “free shipping,” consumers no longer hold their online order until they can justify the shipping costs. Since products sold online ship directly to consumers’ homes rather than to brick and mortar stores, there’s more emphasis on the final mile than ever. And all of these small shipments are adding demand in the LTL space and potentially lessening the demand for full truckloads.
  2. Manufacturing is growing too. According to the ISM index, the manufacturing sector shows nine consecutive months of expansion. That means more transportation, for both the raw materials used in the manufacturing process as well as for the finished product that’s being moved to distribution centers (DCs) and customers.
  3. Carriers are using technology to price better. Just as shippers use historical shipping data to improve their supply chains, LTL carriers are adopting technology that helps them be more efficient and better understand what freight is profitable and what freight isn’t.Dimensionalizers are just one example of the latest technology that carriers are using. Dimensioning machines can accurately calculate the amount of space a shipment needs within a trailer rather than rely on the national motor freight classifications (NMFC). These tools lead carriers to be more accurate in allocating cube and weight, which can affect shared capacity pricing.
  4. Driver shortage. It’s summer time. The season when everyone wants to be outside—including drivers. People like taking their vacations during nice weather, and enough drivers taking summer vacations can throw off a carrier’s coverage. Even more pressing is the number of drivers that leave their driving jobs for construction jobs every summer. Combined, these situations are adding a great deal of pressure to the availability of drivers.
  5. Operations changes. While new LTL carriers rarely come on the scene, we do see acquisitions and consolidations among existing LTL carriers. This can cause capacity that was once readily available to leave the market entirely.

In addition, several regional LTL carriers are adjusting their service areas, adding stress in the areas most affected by changing service boundaries.

How you can ease the burden of an LTL price increase

It’s safe to say that rate increases are inevitable and oftentimes unavoidable. That’s not to say that it’s impossible to soften the blow.

If changes to your LTL rates are significant, consider finding a third party logistics provider (3PL) to work with. Often, their knowledge, combined with a consultative approach, can help you uncover other ways to affect your supply chain—from modal optimizations to consolidation strategies. They’ll be able to help you determine if small parcel, consolidation, LTL, or multi-stop truck is your smartest move.

As vice president of LTL Transportation at C.H. Robinson, Greg West manages sales, operations, carrier management, training, and all other aspects involved in growing the company’s less than truckload (LTL) business. He holds additional responsibilities in growing the company’s consolidation centers and European Groupage business. Before joining C.H. Robinson in 2004, Greg spent 17 years at Roadway Express in operations and sales positions. He has also served as Education Chairman and as President of the CSCMP Minnesota Chapter. Greg holds a degree in Finance from the University of Iowa.

Guest Commentary: Time for a New Class of Freight Rating

Guest Commentary | By •

“I want to know the real, total cost of my shipments before I make them.” Over the years, we have talked to a lot of shippers and logistics companies who are in the “rating gap.” These shippers don’t need a full TMS, which includes sophisticated planning and execution, but clearly require a highly-functional contract management system or service to determine their expected real total freight cost.

What is the Gap?
Here is a diagram of where and why the rating gap exists. This “Gap” has been very difficult to bridge because complex rating is so difficult that only a TMS with sophisticated rating capabilities can deliver solid “total costs” estimates.

LTL Rating Suite GAP (Source: 3Gtms)
LTL Rating Suite GAP (Source: 3Gtms)

To get correct cost or up-charged sell rates, you can start with basic rating, but you’ll have to know a lot more. You also have to take into account some basic pricing parameters, such as:

  • Type of freight cost – rate base, pallet, mileage, cube, area, flat rate, etc.
  • Client routing requirements
  • Geographic limitations
  • Direct or Interline Service
  • Accessorial charges
  • Client Requested Accessorial charges (i.e. Liftgate, Residential Delivery)
  • Automatically Added Accessorial Charges (i.e. Fuel Surcharge, High Cost Delivery Areas)

Here are common reasons why you need the real total costs:

  • Properly accrue your shipment costs for accounting reasons (i.e. reporting or Sarbanes-Oxley compliance).
  • Provide your customers with accurate shipping choices in the sales process.
  • Manage markups to your customers.
  • Make sure you are not going to lose money on free shipping offers to customers.
  • Provide vendors with a simple web portal to determine correct mode and carrier.

Why does the Gap Exist?
The major issue is that LTL shipments are really hard to correctly rate. Too many shippers are relying on base rates (e.g., YRC 2013) to get a good approximation. This rarely yields anything close, and the difference between expected charges (based on base rate) and actual total charges is usually 20 to 200 percent off. It’s so difficult that a whole industry exists to audit freight bills from carriers because so many are significantly different from the expected charges.

In addition, many TMS solutions lack sophisticated rating capabilities. Also, TMS vendors are not really incentivized to decouple their rating engine and contract management system from the TMS, which forces some shippers to buy more than what they need just to get rating capabilities.

Should I Care About the Gap?
Yes, a valid question because complex issues take time to consider. But here are two examples of what happens inside the Gap, beyond the base rate:

2000 lbs., Atlanta to New York City, 3 pallets:
Base rate: $ 375.96
Real cost: $ 740.26

2000 lbs., Atlanta to New York City, 4 pallets:
Base rate: $ 376.96
Real cost: $ 1,213.26

I won’t get into the details for above, but if interested, I have placed these examples on our website.

In Closing:  Some Numbers
ERP and TMS systems do not have a good track record in regard to contract management technology. In fact, a survey in American Shipper (Transportation Procurement Benchmark Study 2013) shows 60 percent of small/medium shippers are using manual/spreadsheet for contract management and only 4 percent of these shippers are using the contract management module of their TMS.

The fact that less than 40 percent of shippers even use a TMS is also related to this gap. I believe there are plenty of shippers who either have not found a suitable TMS or don’t want to buy a full system just to do comprehensive rating. A sharper point is that most TMS technology is not capable of such rating, or else more than 4 percent of shippers would be utilizing their TMS’ contract management module.

Do you see this gap in the industry? I’d love to hear your comments and input.

Geoff Comrie is Vice President of Business Development at 3Gtms. Geoff founded Transite Technology in 2002, and led the company from inception until the merger with 3Gtms in early 2013. Over the years, Comrie has attained a recognized level of expertise on LTL rating, and is a frequent speaker and discussion contributor on this topic. He has twenty years of experience in technology sales and management, with companies such as Pansophic and Siemens. Geoff is a graduate of Western Illinois University with a bachelor’s degree in computer science.

Guest Commentary: Modern Transportation Management Systems Make LTL Neutral Rate Bases Obsolete

Guest Commentary | By •

Long ago, a LTL (less-than truckload) neutral rate base (NRB) was promoted as way for shippers to more easily compare shipping costs between carriers because carrier contracts and the actual rating process were both complex. A NRB was seen as a compromise based on simplicity, but neither the business interests of the shipper or carrier were optimized.

I believe, however, that neutral rate bases have outlived their purpose.

Today, modern transportation management systems (TMS), with robust contract and pricing management capabilities, have negated the need for a NRB and allow for both shippers and carriers to reap the rewards of a well-negotiated, collaborative contract.

How is this done? There are many LTL carriers in the U.S. and not one of them services every part of North America equally. For many reasons — too many to get into here — some regions and lanes make stronger business sense than others. And when the needs of the shipper are aligned with the strengths of the carrier, both the shipper and the carrier enjoy a profitable and healthy relationship.

It is well known that almost no two carrier contracts are identical, even year-to-year by the same carrier. What appears to be a conspiracy between carriers to make their contracts difficult to compare is more a reflection of how well carriers know their costs to the penny. This results in complex and different rate structures — what kinds of costs are associated with certain kinds of freight, how much to charge for specific accessorials, how much it costs to service various lanes and facilities, and so on.

Modern Contract and Rating
This is where highly-detailed contract management systems are invaluable in quickly determining the complete and actual costs of a shipping transaction. These systems account for every detail and nuance, providing shippers with reliable, least-cost choices within seconds.

There are many contract management (CM) systems around. Strategic and functional value boils down to detail and process, not the pretty colors of a user Interface. It can certainly be intimidating when you first look at a very granular CM system because it just “looks complicated” due to all of the carrier contract information that needs to be entered. But the work is absolutely necessary and can mean the difference between getting back a simple estimate versus the actual cost, or even if the freight can be delivered to a certain address.

Hard Work + Detailed Input = Reliable Output

I cannot overstress this point.

Here’s a real-life example of what can happen if a contract management system isn’t robust enough to consider important details:

You have a 2,000 lb. shipment moving from Atlanta to New York City, with a freight class of 55, requiring an inside delivery by the carrier.

ABC, an “undetailed” contract management system, returns a hundred-weight (CWT) rate of $93.99, yielding a gross freight charge of $1,879.80. After your well-negotiated discount, the net freight charge would be $375.96.

You ultimately choose to use this carrier because, according to the transportation management system’s utilization of ABC contract management, this was the least cost carrier.

Unfortunately, this shipment is going to cost you much more than $375.96.

ABC does not take into account the additional accessorial cost for Inside Delivery even though it’s clearly stated in the carrier contract. ABC simply has no capability to have this detail recognized in the contract management system. Inside Delivery has a cost of $14.50 per CWT, yielding a total charge of $290 for this accessorial.

Further, ABC doesn’t recognize there is an automatic additional delivery charge of $60 for delivery into the borough of Manhattan.

So the total cost is actually $725.96, not the $375.96 returned by ABC.

Ouch!

In summary, to lower your transportation costs, use your own negotiated carrier contract in tandem with a modern transportation management system. This delivers lower shipping costs and better accuracy, which is important in delivering fundamentally good customer service and if you are looking to build a certain margin into your shipping services.

But, if you are still going to use a neutral rate base, then do a bit of homework. With carrier acceptance being neutral, pick a neutral rate base that is not really governed by the carriers, is cost-effective and offers the highest value, because your financial benefit, as shown above, can be compromised by up to 20 percent. In addition, look for a NRB that uses modern technology that any current and future software can use, offers the most rating options, and offers friendly licensing terms.

You can view transportation management as simply moving freight from one point to another. Or you can view it more strategically, as a way to save money, increase customer retention, and as a profit center. It is this strategic perspective that is driving shippers and 3PLs to adopt sophisticated transportation management systems. But as you evaluate TMS solutions, it’s important to remember that it all starts with well-negotiated carrier agreements, and the utilization of a robust contract management system.

Geoff Comrie is the CEO of Transite Technology. He has twenty years of experience in technology sales and management, with companies such as Pansophic and Siemens. Geoff has funded Transite from its inception in 2002 and has been the primary driver for product strategy, sales, and operations. Geoff is a graduate of Western Illinois University with a bachelor’s degree in computer science.

Guest Commentary: Logistics Flow Control: How to Control What You Don’t Control

Cloud/Software-as-a-Service | By •

Who would think that the movie Forrest Gump would provide a great analogy for logistics operations? Unfortunately, the movie quote “Life is like a box of chocolates. You never know what you’re gonna get” applies to the inbound operations of too many retail and distribution companies. Despite the best laid plans using concepts such as collaborative planning, the flow of products from suppliers too often fails to match the requested quantities or delivery dates. Our work with customers in the retail and distribution markets shows that the multiple parties involved have execution processes and supporting technologies that are in conflict, causing actual inbound delivery performance to vary greatly from plan. This is particularly true when the freight is “prepaid” by the supplier and moved via less-than-truckload (LTL) carriers to the retailer/distributor’s distribution center (DC).

The problem is that the “sum of the process and technology pieces” from the retailer, supplier and LTL carrier don’t provide for effective coordination of information and actions across the inbound logistics chain. For the typical inbound logistics flow, shipments are planned for delivery by suppliers, given to LTL carriers for execution, enter the LTL carrier’s network and eventually make it to the retailer’s dock door. Both the supplier and carrier would rightfully claim that they have planned with the intention to make the retailer’s requested delivery date. Even though they have an agreed upon plan, in fact, the supplier and carrier transportation management systems (TMS) are “pushing” product at the retailer with no real idea if the retailer can accept it at the time the supplier and carrier plan. In addition, the serial set of decisions is adding time into the execution process that can cause shipments to be late.

For example, with retailers/distributors using some form of dock appointment scheduling process or technology, the LTL carrier typically cannot schedule an appointment until it has knowledge of the shipment, which typically means goods in hand and evaluation all of the deliveries it needs to make. At that point, because of DC capacity constraints, the retailer/distributor’s schedule may not offer a delivery window that makes the contracted date. Or the LTL carrier is not aware of the impact of “slight” changes to the delivery date, and changes it to allow more deliveries to be consolidated before scheduling an appointment. In the end, the goods fail to show up on time and depending upon the contractual agreement, fines are levied on the bewildered supplier.

To be on time and know exactly what is arriving, the retailer, supplier and LTL carrier need to collaborate during the end-to-end shipment execution process. We call this form of collaborative execution Logistics Flow Control. What makes the Logistics Flow Control concept different is that it spans the entire purchase order (PO) to DC dock door process. The retailer, supplier and LTL carrier are all involved. Inventory/shipments are planned and maintained in one place and “pulled” to a logistics chain-wide synchronized delivery appointment. The Logistics Flow Control concept provides all three parties with a unifying process with a single goal and supporting technology where they all have PO/shipment visibility. Because all of the POs are known, they can be appropriately consolidated in advance and appointments can be prescheduled with confidence that the retailer will accept them upon delivery. Using a simplified “360⁰” scorecarding metaphor, the impact of changes made by any of the parties can be instantly assessed and made aware to the others.

Concepts such as Logistics Flow Control can also change how retailers communicate and manage rapidly evolving PO priorities with their suppliers and in-transit goods. For example, with the advent of a major hurricane this past summer, one retailer used the Logistics Flow Control concept to reprioritize goods in transit, to move up deliveries for items such as flashlights, batteries and water, and hold back other nonessential goods from blocking DC capacity. Without a unifying process, the retailer could not have quickly coordinated not only the suppliers, but the carriers with goods in-transit.

The merging of software-as-a-service (SaaS), logistics networks and retailer, supplier and carrier communities is making concepts like Logistics Flow Control possible. Logistics Flow Control is a true multi-party process where a combination of network integration and human interaction are required to make it effective. Cloud technology is the perfect place for collaborative execution approaches like Logistics Flow Control as it offers a single place where all inbound logistics participants can access the data and services.

Chris Jones is the Executive Vice President for Marketing and Services at Descartes. He has over 20 years of experience in the supply chain market, holding variety of senior management positions including: Senior Vice President at The Aberdeen Group’s Value Chain Research division, Executive Vice President of Marketing and Corporate Development for SynQuest and Vice President and Research Director for Enterprise Resource Planning Solutions at The Gartner Group.

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