The LTL industry has been on a path to adopt dimensional, dim-weight, or space-based pricing for some time. As more carriers shift from traditional weight and class-based rates to pricing based on the size of freight and the space it occupies in a truck, shippers will need to adapt their freight operations and budgets. At GlobalTranz, we work closely with our carriers to fully understand new pricing initiatives and provide shippers with innovative strategies to adapt as quickly and economically as possible.
Just this month, ABF—a national top-10 carrier—joined many of the other major LTL companies (YRC, XPO Logistics, UPS Freight, amongst others) with density-based pricing, when it introduced its newest version via a cubic minimum charge (CMC) program, which supplements weight-based metrics. A recent article in Logistics Management reported that ABF “has dimensional data on more than 90 percent of the freight shipped in their asset-based network.” ABF is now utilizing static dimensioners in most of their major distribution centers.
While FedEx and UPS were early adopters of dimensional pricing, more of the nation’s top LTL carriers have slowly followed suit. That adoption speed, however, has increased steadily this year. With the explosion of e-commerce, many LTL and parcel carriers were losing money on shipments of large, light items. Carriers get paid based on what they can load into a trailer, and consequently, trucks were “cubing out” with less room for heavier weighted items.
The density-based pricing model was designed to slow this trend. Now there are approximately 390 density-based classifications that supplement the 18 more weight-based NMFTA (National Motor Freight Traffic Association) classifications. The larger carriers and even some shippers have purchased and installed sophisticated dimensioners, which use lasers to accurately measure the dimensions of pallets, packages, and goods.
These devices cost an average of $80,000, however, the investment can typically be recouped through more accurate pricing, fewer rebills and optimized packaging. Less expensive dimensioners (roughly $35,000) are now finding their way to the marketplace, enabling small and midsize companies to accurately measure shipment dimensions.
Does Dimensional Pricing Increase Shipping Costs?
Because shippers now must pay for space on the truck, not just weight, shipping costs can rise depending on the product, weight, and dimensions of what you are shipping. We have seen increases between 10 and 20 percent on some low density, yet space eating shipments. For instance, companies that ship oddly shaped goods like bicycles, treadmills, and stair steppers can expect higher prices. These type of products take up more space in a trailer than a 2,500-pound low-profile pallet of nuts and bolts but weigh much less.
Another challenge is how shippers will implement dimensional pricing into their operations since legacy technology and software is designed to support the long-standing NMFTA class scheme. So far, many shippers are manually estimating dimensions while they update existing systems. Eventually, shippers will need to invest in technology to bridge that gap between the old and new. At GlobalTranz, we’re in the process of upgrading our TMS to include all facets of density-price based ratings, so our shippers can easily access through our GTZ Technology Platform.
3 Strategies for Reducing Dimensional Pricing Costs
When shippers ask for tips on how they could reduce their shipping and dimensional pricing costs, we suggest:
- Use packaging that minimizes the size of the overall box or crate you use to ship your products. Avoid filling a large box with packing peanuts to hold something half its size.
- Load pallets evenly on the sides and top. On the sides to reduce the pallet footprint, and on the top, because if it’s level, you can stack pallets two, three or four high, essentially forming a “column” of pallets.
- Consider training programs to help your warehousing, packing and loading dock employees efficiently pack and load pallets. Standardize your processes, which will help keep density-based prices down long-term.
The Era of Dimensional Pricing is Here
As e-commerce and low-density freight continue to proliferate in the marketplace, carriers will continue to adapt their models to make the most effective use of their trailer space. Dimensional pricing is simply another step in the evolution of the industry, leveling the playing field for all stakeholders.
For more insights and ideas on how GlobalTranz can help you transition into the era of dimensional pricing, contact us.