As many of you know, LTL pricing models today consider density as one of its key elements in determining shipper pricing. As we slowly move toward more density-based LTL rating it is still quite common to classify commodities by the National Motor Freight Classification (NMFC) definitions rather than by the actual density of the shipment. In the U.S., density is defined as the pounds per cubic foot which accounts for a shipment’s overall dimensions and weight. Classifying shipments by density is then broken into buckets that equate to a specific freight class. As an example, a class 85 shipment is defined by a density of 12 lbs. or greater but less than 15 lbs. (750 pound shipment on one pallet measuring 40”x48”x50” = 96,000”/1728 = 55.55 cuft and has a density of 13.5 lbs. per cubic foot for a class 85 rating)
A recent article by the Journal of Commerce’s Satish Jindel from the SJ Consulting Group in Pittsburgh, suggests that investors are missing this critical component when reviewing the financials for potential investment in a publicly traded LTL carrier. The historical standard rests on tonnage. Tonnage has decreased substantially as products have become lighter and smaller in size over the last two decades. The push is on as the analyst and investment community expect more exact measurements of a carrier’s financial health. The key metric, cube. Combined with tonnage we can gain a much clearer picture as to the operating health of the carrier.
In the last couple of years, we have witnessed the adoption of dimensional machines capable of displaying the dims, weight and overall density of each shipment. This has enhanced the operating ratios of the leading LTL carriers, thusly their recognition as a premium investment. Today, the top 20 LTL carriers account for 85% of the LTL market and with further enhancement of density-based rating we will see further alignment to recognizing the move away from the NMFC freight descriptions in common use today.
When does the LTL Industry Wake Up to Being Paperless?
Each day there are an average of 640,000 LTL shipments tendered. Approximately 25% of those shipments are tendered electronically with the remaining 75% still being a manual or paper tender. In contrast, the Parcel industry picks up 44 million packages per day with 95% being tendered electronically with no paper BOL involved. Many LTL carriers at the local terminal may forego an electronic tender if they have spotted equipment due to the frequency of the tenders that will hit the pick up board. With that said, what organization would not want electronic tender to measure and plan its workload?
It can be said that going paperless is a shipper issue but the reality is that it rests with the carrier, shipper and logistic service providers. The carrier leadership needs to promote advance electronic tendering and demand complete accurate information to generate an electronic BOL in their system for movement within their network. The shippers and their logistic service providers need to hold carriers accountable. No electronic tender equals no shipment in the carrier’s system until they choose to bill it. No shipment, no KPI to report, no on time pick measurement and carriers gain a day to two days on the transit window to improve on-time delivery performance. Performance measurement requires visibility.