Modernized Base Rates Simplify LTL Price Contracts
Authored by SMC³ on October 10, 2019
LTL transportation has grown exponentially in the last few decades. As U.S. population centers have shifted, so have the flows of freight. Shippers and 3PLs are using years-old, or even decades-old, base rates as a guide for pricing freight simply because they’ve always used them. Simply put, many stakeholders aren’t working with data that reflects the true realities of today’s freight market.
In 1990, the trucking industry carried 2.6 billon tons of goods throughout the United States, accounting for 40 percent of all domestic freight movements, according to the Department of Commerce. This activity was handled primarily by three main carriers — Yellow, Roadway and Consolidated Freightways; in total, 35 operating LTL carriers shipping general freight accounted for $13.7 billion in revenue. Roughly three decades later, that revenue total now eclipses $38 billion, according to SJ Consulting.
America’s largest population centers in the 1990s were located in the Northeast, and, along with manufacturing centers in the Midwest, large cities in New York, Pennsylvania and elsewhere received an outsized flow of the nation’s freight. By 2018, the Western states had benefitted from decades of significant population growth. Companies have also moved west as offshore manufacturing increased container traffic through West Coast ports. These shifts have taken time, but it’s safe to say that LTL shipping is vastly different than it was even a decade or two ago.
Changes in the domestic economy and the population exodus from the Northeast have changed the way carriers carry freight, altered how shippers send their goods, and realigned how 3PLs think of domestic transportation. It’s easy to see if you take a look at the data. In 1990, Utah’s population came it at just more than 1.72 million people, according to the U.S. Census Bureau. By 2018, that number had exploded to more than 3.16 million, a population rise of more than 80 percent. Contrast that with the population change in New York state during the same period at just more than 8 percent.
Carriers have had to adjust their operational networks to serve these new customer centers, and their service offerings reflect these changes. Shippers who seek to price freight transportation costs in the modern LTL market with outdated rate data simply aren’t optimizing their company’s freight spend.
Old pricing benchmarks still work in today’s marketplace because carriers offer shippers complex discount programs on these outdated rates, essentially rebuilding these base rates, either by region, state-to-state lane or by specific ZIP codes. This discounting practice comes at significant cost; the shipper has to manually load LTL pricing contracts and organize rigorous audit processes. Quote-to-invoice discrepancies, invoicing errors and bill disputes have cropped up due to outdated base rates.
Shippers and 3PLs face a multitude of pricing and service options in the modern transportation landscape; each of today’s top LTL carriers has different network needs and service offerings, and that is reflected in the way they calculate LTL shipping rates. Without a neutral, standardized pricing foundation that takes shifting freight flows and modern market pressures into account, it’s impossible for customers to accurately and reliably compare one LTL carrier to the next. Shippers and logistics services providers can simplify their LTL pricing with a modern base rate that reflects the country’s demographic profile and the flow of domestic freight.
SMC³’s modern base rate CzarLite® is an accurate reflection of current LTL freight flows; it gives customers a streamlined rating experience. Whether utilizing the classification or density rating system, whether shipping 500 pounds or 8,000 pounds of freight, CzarLite optimizes the rate implementation process and reduces rate negotiation complexity for all involved. The solution is a must-have for shippers and third-party logistics providers seeking to operate efficiently and effectively as the less-than-truckload market continues to evolve.