The less-than-truckload (LTL) industry has long practiced what can best be described as "deficit pricing." Some might think it's counter-intuitive (and effective) to have a pricing model designed to create a loss or to reduce operating margins. Rest assured, it isn't.
Like other bad habits it's acquired through the years, the LTL industry routinely gives away money by the way it prices its services. In the case of deficit spending, carriers charge the same amount per hundredweight in order to recognize economies of scale that result from an increase in weight.
The problem is caused by the weight bands used to recognize such economies. The LTL industry developed its pricing bands with a much wider range because it handles shipment weights that range from 100 pounds to 10,000 pounds. The bands extend from 100 to 500 pounds, 501 to 1,000 pounds, 1,001 pounds to 2,000 pounds, 2,001 to 5,000 pounds, and, finally, 5,001 to 10,000 pounds. As a result, the LTL carriers have the same rate per hundredweight for all shipments ranging from 100 to 500 pounds and similarly for all shipments ranging from 2,001 to 5,000 pounds. In the parcel industry, by contrast, rates will change with each pound but the weight tops out at 150 pounds.
To make matters worse, to avoid charging more for a lighter shipment than they do for the heavier shipment, LTL carriers rate the shipment at its actual weight at the higher hundredweight rate, then compare it to what the charge would be at a higher weight with a lower hundredweight rate. Then they bill the shipper for the lower amount.
An LTL carrier was kind enough to share the details of this pricing insanity. One shipment of a Class 100 commodity weighing 950 pounds was moved from ZIP code 29073 to ZIP 75201. The actual charges were computed at $2,933 but billed at $2,460, a reduction of $473, or 19 percent. In another case, a Class 60 item weighing 4,500 pounds was moved from ZIPs 30301 to 23211. The actual charges were computed at $3,801 but billed at $3,276, a reduction of $525, or 16 percent.
Let's get this right: The carriers take on extra work (including re-weighing the shipments) to collect lower charges by adjusting the weight to a higher number so they can apply a lower rate per hundredweight to charge less than if it was just billed at its actual weight of 4,500 pounds! Common sense would indicate that if a shipper has a lower rate for a 5,000-pound shipment, then it should be told to put extra product in the shipment to increase the weight. That doesn't happen, however.
Some people involved with developing LTL tariffs will claim there is a law requiring carriers to use deficit pricing. In that case, why are the parcel carriers not in compliance? ShipMatrix, which has visibility to parcel rates for thousands of shippers, shows that many shippers have contract rates which result in a lower charge for a heavier parcel. For example, the rate for a 6-pound package is lower than on a 5-pound package. If parcel carriers were following such a "law," they would raise the weight of the 5-pound parcel to 6 pounds, and then bill the shipper at the lower rate.
It is clear that LTL uses an antiquated and broken pricing model. Carriers rely on rate tables that date back to 1988, before some pricing analysts in the LTL industry were even born. In addition, with several hundred rate tariffs and a very aggressive discount structure that exceeds 90 percent in some case, LTL pricing makes the mattress business, with its 80 percent discounts off list price, look attractive by comparison.
Carriers and shippers are familiar with the idiosyncrasies of LTL pricing. However, few are aware of the specific problems created by deficit pricing.
The practice actually pre-dates deregulation, reverting to a period when LTL carriers used calculators to determine charges and consumers used rotary dial telephones. However, while the rest of the world has made quantum leaps in technology consumption, the LTL industry is stuck in the 1970s.
The carriers should start by replacing the weight bands that are used at smaller increments; for example, they could make the changes at 100-pound bands, or even 50 and 10-pound bands and then reduced to 50 or even 10 pounds. With the industry making extensive use of computing power, changing the weight bands as suggested herein should be a high priority.
Another positive effect of eliminating the deficit rating mechanism will be fewer invoice adjustments by audit and payment firms. While that will not be welcome news for those firms, it will be a blessing for the carriers and their shippers.
For decades, LTL carriers have tried to improve their profitability with annual or bi-annual rate increases. Yet, during all these years, they have failed to revise the rate table that results in deficit pricing. It is ironic that a far more fragmented truckload industry has a healthier pricing model than its LTL counterparts where the top 25 carriers control about 90 percent of the market.
With tight capacity prevailing in LTL, the timing is right to get rid of deficit pricing. It will yield an instant increase in operating margins sorely needed to catch up with the rates of return generated by parcel and truckload carriers, and to reinvest in its drivers, equipment and technology.
(Satish Jindel is President of SJ Consulting Group, Inc., a consulting firm focused on the transportation sector with offices in Pittsburgh, PA and Jaipur, India).
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.