Cost Analysis—Dealing with the LTL Cube
Authored by SMC³ on March 21, 2023
It’s rare that a carrier hauling LTL shipments between freight terminals (linehaul) closes the trailer because it has reached maximum weight. They close the trailer because it’s full – with no room for other shipments.
Seldom does the freight weight constraint (about 48,000 lbs. in the U.S.) come into play. Cube is the constraint, and cube needs to be the basis of allocating linehaul cost to individual shipments.
Even full trailers have unusable space around all freight because nothing fits perfectly in the trailer. There are a variety of reasons for this. Freight configuration is a typical culprit. The freight could be very narrow, or an undersized pallet may take up space that could have been filled by a full-sized pallet. Non-stackable freight is another consideration—if freight can’t be stacked, it’s unlikely to fill the space to the ceiling of the truck. Poorly secured freight also poses issues, as shifting during one leg of the trip could prevent freight from being fully loaded on a subsequent leg. All of these scenarios pose a considerable expense for carriers.
Maximizing Profitability with Cost Intelligence Systems
SMC3’s Cost Intelligence System (CIS) introduced a “stowability factor” to increase shipment cube to reflect the unusabled space around it. A typical default stowabilty factor is to add 30% percent more to the cube of all shipments. Carriers can manipulate this factor to adjust the physical cube of a shipment to better reflect the unusable space it causes (and adjust the rare few causing less unusable space than normal).
Cost analysis that includes the stowability factor helps carriers improve profitability. CIS provides insight into the profitability of individual shipments and loads, and enables carriers to get accurate, credible costs that can be rolled up for specific customers, freight terminals, or lanes. CIS contains unit costs and statistics developed directly from each carrier’s general ledger and operating data.
The Power of Accurate Cost Analysis
Each LTL shipment uniquely combines weight, pieces, density, origin, and destination. These shipments are susceptible to loss, damage, and handling requirements. All of this makes cost averages meaningless. Such shipment cost variances must be properly accounted for if carriers are to make valid pricing, marketing, financial and operational decisions.
SMC³’s CIS costing model contains unit costs and statistics developed directly from each carrier’s general ledger and operating data. Carriers using CIS for pricing may also have a separate costing model with budgeted or projected unit costs.
Whether carriers are more concerned with customer profitability, analysis of existing traffic, or the development of cost-based rates for pricing and traffic activities—or all of the above—CIS can be tailored to fit to provide resounding results.
All Roads Lead to Carrier Profitability
The Cost Intelligence Systems give carriers the ability to determine true shipment level profitability that can be rolled up to any level to analyze existing or prospective freight and efficiently develop cost-based rates. With the SMC3 CIS, carriers can rely on a flexible yet dependable system that continues to improve and adapt to industry changes and concerns. In the end, carriers have a powerful tool to cost and price more accurately so they can be more profitable.
To learn more about how you can maximize your company’s profitability, learn more here.