LTL Dynamic Pricing – GOOD NEWS for Shippers
Posted on April 21, 2022
Written by broussard_press
2021 and 1st quarter 2022 did not bring a lot of good news for shippers in the LTL market. Capacity issues, increased accessorial costs and rising fuel surcharges have increased the Less than Truckload (LTL) costs 7-10% since Q1 2021. Buried in all the bad news there is good news for shippers, carriers are offering Dynamic Pricing for domestic and Canadian cross border LTL shipments. Dynamic Pricing has been around for a long time in the truckload and volume-based spot price market, you probably know these are backhaul rates, until now it has never been available to the LTL market, and it is only available if you have the right Transportation Management System (TMS) to send and receive the necessary information to take advantage of the Dynamic Pricing. This is a Win-Win for both the carrier and the shipper, carriers can find the right freight to fill excess capacity daily, and shippers are taking advantage of some very aggressive rates that may be better than their contract rates, pushing more revenue to the bottom line and lowering your delivered cost to your customer.
Dynamic Pricing was originally put in place by carriers to replace tariff pricing for small and medium shippers. However, shippers were reluctant to give up their contract rates for fear that the Dynamic rates would be higher than their contract rates, as a result this ended up being justified so the carriers now run the Dynamic rate vs the Contract rate and applies the lower of the two. For the carriers to be able to make the comparison shippers need a TMS system that sends the required information to the carrier based on the information received the carrier analyzes the shipment and provides a quote back based on the current lane capacity. API technology makes this possible, although this will not work with TMS systems that use rate tables that are loaded in the background, this does not send an API quote request to carrier. The TMS should also communicate with the carrier not only to get the quote but to book the load by an electronic pickup request, so the carrier can account for the shipment.
How your TMS communicates with the carriers is key when Dynamic Pricing is in play. The TMS must send the origin zip or postal code, destination zip or postal code, any accessorial, class for each shipping or handling unit, weight for each shipping or handling unit and the dimensions of each shipping or handling unit so you can get an accurate quote back. If you are missing any of these then you will not get a Dynamic Rate back, or, you will get a quote back that is not accurate and you may miss out on getting a Dynamic Rate.
Because Dynamic Pricing is based on available space, it is imperative that the quote request include dimensions of the shipment yet not all TMS systems do this. Not only are the dimensions necessary for Dynamic Pricing, it can also open doors to other contract pricing programs such as Density Based pricing. Regular LTL contract pricing is based on a class system designed by the NMFC that determines your rate per hundred weight (cost per 100 lbs.) based on Density, Stowability, Handling and Liability, Density Based pricing is based on the space and weight your shipment takes up in the trailer, the merits of your shipment are not a rate based on industry characteristics of the products you ship. Even if density pricing is not right for you, being able to enter the dimensions in your TMS can help you accurately determine the NMFC class of a shipment, reducing re-class and re-bill issues.
With Dynamic Pricing the only way the carrier knows to apply the Dynamic Rate is if there is a quote number associated with the shipment. If your TMS is not receiving the quote number from the carrier and including it on the Bill of Lading, you are more than likely not going to receive the quoted amount applied by the carrier. This can lead to the carrier not honoring the quote, or lost time trying to get the carrier to apply the quoted rate creating time and energy into post auditing carrier invoices.
Shippers that are taking advantage of LTL Dynamic Pricing are adding revenue back to the bottom line and lowering the delivered cost of goods to their customers, therefore improving customer service and customer retention. We are seeing signs that shipping volumes are declining, creating capacity for carriers, capacity that carriers are going to want to fill by adjusting rates to fill it. Do you have the tools to take advantage of the Dynamic Rates carriers are offering? To learn more about which carriers offer Dynamic Pricing call your carrier sales reps or refer to the carrier websites.