Strategic freight management requires shippers to always stay forward-looking and consider the ways in which the global economy may impact operations. From bookings through dispute resolution, inclusive of accounting, analytics, and other added services, the importance of timeliness and quality, remain high on the bar for successful operations. Throughout the strategic freight series, we sought to give shippers practical advice on what to expect and how to evolve, but with the end of January already upon us, it is time to add a final detail as we prepare to move closer into our next series of supply chain trends and their effects. It is time to think about how the LTL freight class rating system, originally created 90 years ago, and how to calculate freight class is changing. For those still hopeful for an easier time with freight rating and LTL freight class management, the time is close. However, it is equally important for shippers to consider a few things about what is happening today and why the expectations for 2020 seem a bit less stressful than the industry has been since 2017.
The Capacity Crunch Appears to Be Slowing Despite the Challenges
Despite the biggest fears for capacity in 2018, the state of the U.S. trucking market seems on the verge of stabilizing. As explained by Ari Ashe of JOC.com, the balance between capacity and demand was nearly in harmony at the end of 2019. Meanwhile, the low point of spot rates has passed, and the market today remains ripe for carriers to reap greater revenue. How?
Spot rates are on the incline, and more carriers are working to meet spot freight demand versus traditional, contracted freight. The rationale is simple; higher rate freight is always going to take a priority. With that in mind, available capacity and balanced supply and demand will naturally lead to more shippers looking for ways to force carriers’ hands.
The Move to LTL Digital Shipping
LTL Freight Class for NMFC Continues to Evolve and Grow Ever More Complex
New NMFC changes went into effect on January 4, 2020. The changes include drugs, chemicals, medicines, nonfrozen foodstuffs, appliances, posts or poles, flashlights, lanterns, spotlights, pans and pots, oxygen in handheld canisters or containers, heaters, virtual reality headsets (a new one for the NMFC), kilns, fireplace grates, stairs, strapping synthetic fiber, traps, compounds, garage doors, and obsolete item cancellations and removals. More than 200 specific NFMC codes changed description or use at the start of the year, making it again more complicated for shippers to manage freight. When it comes to LTL freight class rating, knowing the differences can amount to huge savings or stiff penalties. As the rates grow more complex, shippers will want a more reliable, easier-to-use rating model. Enter dimensional freight pricing.
More Carriers Will Start Consider the Value of DIM Pricing Compared to NMFC
Dimensional (DIM) pricing offers an opportunity to abandon the antiquated NMFC rates and base cost on the actual size and mass of shipments. That makes sense, but it does little to improve on understanding shipment compatibility. In other words, some items cannot ship in the same container, and the NMFC keeps that part clear. According to Don Newell via JOC.com:
So far, there has been no great rush by LTL carriers to dump the NMFC and go all-in with density or dim-weight. In the United States, only the small package carriers (USPS/UPS/FedEx) use these schemes extensively. But then they pretty much always did in one way or another. Think about the oversize package fees they’ve been applying for years.
UPS and FedEx went whole hog on dimensional pricing back around 2015. The Post Office increased their dim-weight rates this year.
But try to find true dimensional weight or density-based pricing in the LTL industry. I found a couple that seem to fit the bill. All I did was Google “LTL dimensional weight” and found one major carrier that has a “dimensional freight quote” where you enter pallet (or “handling unit”) weight and dimensions (“dims” from now on) and click to get a rate.”
No one knows exactly what will happen, but a merging of the traditional NMFC LTL freight class rating system and DIM pricing might be viable. However, it will need a simpler breakdown to determine product shipping compatibility.
CASE STUDY: LTL Freight Class Moving to DIM Pricing…Carriers are Buying Dimensionalisrs, But So Are Shippers
Take this case study of a shipper who shipped primarily dimensional based freight as a manufacturer of industrial-grade flexible hose and ducting, and supplies hose accessories such as couplings, connectors, cuffs, and attachments. Their existing system failed to provide the necessary visibility into actual shipping costs vs. what was being charged to the customer, and it did not provide reporting on shipping volumes by destination over time, data that was essential to have if Flexaust’s logistics were to improve. Additionally, they needed to reduce the number of disputes resulting in reclasses and reweighs.
Flexaust wanted to stay ahead of rising freight costs by improving efficiency. Reduced shipping costs would be an additional benefit that would result from achieving the main goals of maintaining headcount, improving negotiating power by being more data-driven, and proactively heading off disputes.
Leigh Elliot, Materials Manager, and James Hall, Production Manager, both of Flexaust, had a discussion with Jaron Klopstein of Motus Logistics, an agency partner of Cerasis who sells Cerasis solutions and technology. They saw that by partnering with Cerasis they could empower their team to handle more volume without increasing hours.
The solution recommended by Motus Logistics was the implementation of Cerasis Rater TMS supported by services from Cerasis including Cerasis Freight Claims Management & Invoice Auditing and Carrier Rate Negotiation.
The number of disputes began to fall after the Cerasis Rater TMS implementation, but Flexaust was eager to see if it could fall further. Upon the recommendation of Motus Logistics, Flexaust tapped FreightSnap dimensioning technology to add automated dimensioning to the shipping process. An integration was developed which would bring the dimensions directly into Cerasis Rater TMS.
Post-implementation, all the Flexaust shipping data are available in one place and are easily tracked and aggregated. The Cerasis Rater TMS gave Flexaust data visibility not only at the shipment level but also aggregated by type of shipment and location. This information could be used to negotiate better rates with carriers.The number of disputes has fallen substantially.
Flexaust tracks shipping costs as a percentage of sales. In 2018 the company was able to maintain this percentage at 3.2% during a time period where most shippers were experiencing an increase in shipping costs. In 2019, Flexaust has experienced noticeable shipping savings, down 5% from the previous year. Disputes are down by 75% with dispute resolution nearing 100%. The company was able to expand shipping volume with the same headcount, avoiding additional labor costs.
The partnership between Flexaust, Motus Logistics, Cerasis, and FreightSnap has taken Flexaust’s logistics operations to a new level. The increased visibility makes it possible for Cerasis to negotiate better rates with carriers on behalf of Flexaust. The Flexaust team also has the data needed to determine which additions or changes to distribution points will yield the greatest efficiency and better service as conditions change. This increased agility coupled with keeping the shipping staff lean will continue to serve Flexaust well going forward.
Experts Believe 2020 Will Be Much Calmer, Excluding the Uncertainties Always Present in Global Trade
The coming year will also move closer to much calmer waters regarding the cost and efficiency of freight management.
As reported by Jack Glenn via FreightWaves:
Donna Kintop, senior vice president of Client Experience, North America at DDC FPO (of The DDC Group), predicts a less volatile market throughout 2020.
She recommends carriers prepare themselves for the off chance that economic and political climates do turn sour. She suggests companies focus more on automation and invest in their workforces by focusing on improving employee skills and talents.
[Carriers] can continue to manage capacity. That will help balance the rates a bit. We’ve got the election coming up this year, and people are concerned with trade wars and tariffs, but if those things remain relatively stable, we should have a pretty smooth year going forward.”
Careful Management of LTL Freight Class Is Critical to Ensuring a Successful 2020, Regardless of What Trends Might Come to Fruition
It is time for shippers and carriers to start thinking about the future. Strategic decision-making, while great, requires a careful view of freight rates and what’s happening right now in the market. With the market continuing to ebb and flow, LTL freight class standards will change, and the same will occur across all modes and without exception. Those that wish to stay competitive and relevant must invest in technology, such as a dedicated TMS, like the Cerasis Rater, now. It is that simple.