FedEx Freight unveils flat-rate pricing formula for less-than-truckload shipments

FedEx Freight, the less-than-truckload (LTL) unit of FedEx Corp., has introduced a flat-rate pricing scheme for freight that can be fit into two versions of corrugated box equipment, the unit's CEO disclosed today.

The "FedEx Freight Box" will be offered in two sizes. The larger, whose dimensions run 48 inches x 40 inches x by 38 inches, require a pallet. The smaller version will come with an integrated pallet. FedEx will provide the equipment, which will then become the customers' property and can be reused, according to Michael L. Ducker, the unit's head.

Ducker said the equipment is currently available for use in Dallas and Houston and will be rolled out across the lower 48 states by late summer. He spoke to DC Velocity at the NASSTRAC annual shipper conference and expo in Orlando.

With the product, a shipper can stuff up to 1,200 pounds of freight into each box and be charged a set rate depending on the shipment's distance—based on eight geographic zones—and time-in-transit. FedEx Freight offers a faster, premium-priced "Priority" delivery service and a less time-sensitive but cheaper "Economy" service.

Tariff pricing will apply to the shipments, Ducker said. The rates are subject to any general rate increases that LTL carriers traditionally impose at least once a year, and sometimes twice, according to the company's literature. Hazardous materials are excluded from the program.

Though any shipper can use the product, it is being marketed to small to midsize shippers, because they generally have fewer resources than larger shippers to manage shipping dynamics that aren't their core competency, Ducker said. Offering an "if it fits, it ships" approach to shipping will dramatically simplify the process for the small to midsize segment, which accounts for most of the unit's growth as measured in average daily volumes, Ducker said.

By providing a flat rate for whatever fits in the boxes, the product also appears to move the LTL industry closer to a more uniform approach to pricing and further away from the commodity "classification" formula that has governed LTL rates for 80 years. Under the scheme, goods are classified based on four elements—density, stowability, handling, and liability—that reflect a shipment's "transportability." Critics maintain the classification system fails to accurately calibrate a carrier's cost of carriage with what it should charge. As a result, carriers routinely misclassify their freight and underprice their trailer space, critics have said.

Though an increasing number of carriers are using machines with technology that shows a shipment's dimensions and how much space it will occupy (FedEx Freight has 45 of those machines, according to Ducker), many still use tape measures and rulers to estimate a shipment's configuration and its fit. The problem is compounded by the industry's slow uptake of IT visibility tools, since it's hard for carriers to price what they cannot see.

Ducker said FedEx Freight does not view the product as dimensional pricing by another name. "We look at it as a product offering," he said, adding that "supplying packages to our customers is a FedEx hallmark." Still, he agrees with the basic premise that the industry needs to move away from the classification scheme because it erodes the providers' basic value proposition. "The only thing you are selling is space and speed."

Ducker took the helm of FedEx Freight in January 2015, after a stint as chief operating officer of FedEx Express, FedEx's air and international unit. FedEx's parcel business has for decades used specialized technology tools to measure the dimensions of shipments to ensure proper compensation for their carriage.

Editor's note: An earlier online version of this story erroneously stated that discounts would apply to the service. The service is not discounted.