Innovative Pricing Strategies Hold the Key to More Profitable LTL Partnerships
For the last year, shippers and carriers in the LTL industry have faced unprecedented challenges. First came the widespread shutdowns and disruptions of shipping lanes caused by the COVID-19 pandemic. Then, the resulting inventory shortages led to an industry-wide capacity crunch as retailers and shippers worked rapidly to begin replenishing inventory levels. Now, even as the pandemic subsides, driver shortages and increased ecommerce activity continue to prevent carriers from catching up as they enter one of the busiest shipping seasons of the year, the summer.
Throughout this journey over the last 13 months, many of the time-tested pricing and costing strategies shippers and carriers have used for years have come under new scrutiny. Changes to shipping lanes, shipping volume and other emerging transportation inefficiencies are now forcing both shippers and carriers to re-evaluate what a symbiotic, profitable partner relationship should look like.
As a part of the SMC³ LTL203: Carrier Pricing and Cost hybrid online education curriculum, during the Basic Fundamentals of LTL Pricing & Costing course, Brian Thompson, chief commercial officer for SMC³, and Eddie Sorg, vice president of yield management for ArcBest, joined current students for a deeper discussion of what these changing dynamics look like and how both carriers and shippers can reimagine their workflows to create more efficient, profitable partnerships.
For shippers—it’s time to become the model customer
More than ever before, carriers are focused on efficiency. With constant demand for LTL services and no end in sight, carriers are looking for new ways to squeeze more productivity into every single trip.
While some of these efficiency gains are primarily the responsibility of carriers—such as minimizing deadheading and maximizing freight volumes—there is still plenty that shippers can do to better support carriers as the capacity crunch continues.
For starters, Sorg suggests shippers should begin to look at new ways they can improve efficiency at every touchpoint with their carrier partners. That starts with constant communication.
“The best thing that shippers can do with their carriers is communicate,” Sorg said. “There will always be some disruption, but the more you make it a priority to give your carrier a heads up, the better.”
Other strategies include looking at ways to reduce packaging, improve cargo density and increase efficiency at pickup and delivery. Thompson says not only will focusing on these factors help your carriers out in the short-term, but they’ll also quickly lead to long-term cost savings for your shipping operation too.
“The more you can do to help carriers reduce their costs, the more that can lead to lower prices down the road,” Thompson said. “It creates a win-win situation for both you and your carrier.”
For carriers—it’s time to consider more accurate pricing strategies
For years, base rates and freight classification systems have provided a baseline for carrier pricing. But as pricing technology continues to advance, carriers now have a lot more information at their disposal when it comes to identifying what a particular shipment will actually cost them to move from point A to point B.
One way more carriers are seeking to bring new data into their pricing models is through dimensional pricing. Dimensional pricing allows carriers to better reflect the total cost of carrying shipments—beyond simply their weight. By introducing these additional factors into the pricing model, carriers can deliver accurate quotes to shippers that reflect the true cost of the service.
“Under the traditional model, you might make money on 7 out of 10 contracts—that seems pretty good right?” Sorg said. “But what that really means is that you might be overcharging some customers to make up for undercharging others. By considering how dimensions affect the amount of cargo and the unloading times required, you can get a fair price to everyone for their specific freight characteristics.”
Another way some carriers are achieving more accurate pricing during the initial quoting process is by adopting dynamic pricing programs that combine shipper cargo details and current available capacity to deliver the right price at the right time. By offering these dynamic prices based on real-time capacity for a given day or shipment size, carriers can optimize their routes and encourage shippers to choose capacity that maximizes profitability and efficiency for both sides.
Together with dimensional pricing, these advanced tools are helping take the guesswork and complexity out of pricing, as both shippers and carriers look for better ways to identify and predict their true business costs in the post-pandemic world.
Want to hear more about these topics from industry experts around the supply chain? Check out the 2021 hybrid online education schedule to learn more about online, flexible learning.