Capacity Crisis: Four Mistakes Shippers Make Regarding Density-Based Freight

Density-Based Freight

The freight & transportation landscape is reaching critical mass. Capacity is a very real problem impacting companies in all verticals, especially those who ship density-based freight that present further challenges.

Not Properly Dimming Your Density-Based Freight

It’s no secret that the growth in the economy coupled with shortage of drivers and the ELD mandate has led to a serious capacity crisis in Less than Truckload and Full Truckload freight.  As carriers get smarter about how to price freight, more and more items are moving away from the standard NMFC system and being designated as density-based freight. In 2018, many products are now classified as density based, meaning they could has as many as 11 different freight classifications depending on the weight and dimensions- which determine its density.

8 BIG FACTORS TO CONSIDER FOR EFFICIENT LTL SHIPPING

 Much like air freight and parcel, LTL carriers are beginning to care less about what your product is and more about how much space it takes up on their truck, and some items, such as hose and tubing, represent the first wave of what will likely be an industry-wide shift to move all products to a density-based classification system. Canadian-based companies will already be accustomed to this as they do not utilize the NMFC system and all products are priced based on their density.

To avoid complications, such as carrier adjustments and variances, we recommend carefully dimming and weighing every single pallet that leaves your dock. If you do not have scales, we strongly urge you to make the investment—they will more than pay for themselves when you no longer have to deal with the inconvenience of future adjustments and variances. Consider putting a tape measure on the wall near your scale so that your warehouse staff can quickly and easily dim the pallet while or immediately after weighing it. Proper dimming will result in more accurate processing and as a result, less carrier adjustments that leave you holding the bill. As carriers invest in expensive dimensioners and similar products, warehouse teams need to match their efforts.

Failing to Properly Tier “FAK” in Carrier Negotiations

FAK is an acronym for Freight All Kind, which is simply a pricing mechanism that groups multiple classes of freight into a single class. It is commonly used as a strategy for shippers who either ship:

  • Many different freight classes mixed together on one pallet
  • Frequently within defined “bands” of density-based freight

Of the two, more shippers will more commonly fall into the second category. Consider, for example, that a healthy portion of the product you ship is classified at freight classes 100, 125 and 150. As a result, it may be smart to negotiate a FAK 100 for all freight classes between 100-150.

The benefit of doing it this way is that you will get to take advantage of a lower freight class on shipments classified at 125 and 150—as the FAK would dictate the shipment rates at class 100—and you would also benefit from fewer adjustments and variances because of carriers re-weighing or dimming your pallets.

For example, if you shipped a pallet and determined its freight class was 100, but the carriers measured your shipment at the terminal and determined a discrepancy, your shipment could be subjected to re-classification, potentially bumping up the class and changing the rate that you are billed. However, using the above example, even if the carrier changed the class from 100 to 125 or even 150, your billed rate would not change because of the negotiated FAK.

So, where do shippers go wrong? Most often, in my experience, I see FAK tiers that are poorly constructed, either by trying to cast too wide of a net—for example, trying to utilize an FAK for too large of a class range (50 to 300, for example)—or by failing to optimize the FAK for the classifications they most heavily ship products at. Many shippers utilize too large of a FAK to take advantage of what they deem to be ease of processing orders, however, by not properly building their tiers, they may be sacrificing discounts in exchange for FAK bands they are not even utilizing.

To avoid this pitfall, we recommend conducting a proper density study to examine your heaviest and most-used freight classes. Keep your FAK bands to ranges of 100 or 150 at most—for example FAK 50 for classes 50-150—and don’t be afraid to build more than one tier in your tariffs.

Not Taking Advantage of Technological Advancements

Logistics & Transportation as an industry has relied heavily on technology infrastructure and data since its inception; however, it is only in the last decade that LTL and traditional over-the-road freight has begun to catch up with the rest of the industry. Unlike small parcel, LTL carriers traditionally do not offer the same shipment visibility, billing accuracy and on-time delivery as the carriers who deliver your Amazon packages.

However, Software as a Service (SaaS) providers, Third-Party Logistics companies, and other providers have stepped in to fill the void between shipper and carrier, offering solutions that change the way businesses process freight, obtain visibility of their freight and pay invoices, thereby reducing labor and providing indirect cost benefits. Many companies are resistant to giving up control to an outside provider; however, you may want to take a closer look at technology and how it can improve your logistics if you are:

  1. Calling or quoting multiple carriers for every shipment on their website;
  2. Utilizing a static, paper routing guide for inbound or outbound shipments;
  3. Manually entering freight charges into an ERP or Accounting System;
  4. Lacking a mechanism for quickly identifying carrier adjustments and invoice variance;
  5. Finding that tracking shipments in transit is a chore.

Failing to “Spot Quote” Large, Bulky Shipments

The freight market has entered into what some are calling a “capacity crisis,” first rearing its head at the end of 2017 and completely disrupting the market in Q1 of 2018. Many things are contributing to the issue, such as drivers retiring at a faster pace than they are being replaced. Additionally, a growing economy and tightened government regulations around electronic logging and hours of service means that there is more demand to move freight, fewer drivers on the road and fewer hours being worked by the ones who are.

This has resulted in carriers putting increased scrutiny on non-traditional freight that disrupts their ability to maximize profit yield out of each trailer. Many manufacturers and distributors have fallen victim to excessive charges based on shipment length, or even flat-out refusal to carry the freight.

This is a widespread problem, as many carriers are adjusting their rules tariffs and changing their excessive length caps from 10’ to 8’, resulting in higher costs for shippers. Shipments such as these (lengthy, bulky, awkward) are not built for traditional LTL rates; as such, we recommend they be “spot quoted.” Spot quotes allow for carriers to offer a real-time rate based on the current market conditions—like a stock price—based on current capacity and availability in their trucks.

Spot quoting better guarantees that carriers will have space on their trucks for your product, but may also lead to more competitive pricing, since different carriers will quote different prices based on their needs in the moment. We suggest spot quoting at least three to five carriers for these shipments, to arrive at a fair price. If you work with a 3PL, ask them about their spot quoting capability, otherwise, you can always call your carriers directly and ask for a quote when needed.  

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