Know your freight and get started using the new classification codes. That was the advice given to less-than-truckload shippers on a panel discussion about upcoming changes to the way their freight will be categorized.
The National Motor Freight Traffic Association, a nonprofit trade group that publishes LTL commodity classifications, is simplifying a 90-year-old rating system. The goal is to get the industry to adopt a density-based approach for categorizing freight, which will allow carriers to accurately price shipments upfront and ultimately remove waste from the supply chain.
The National Motor Freight Classification (NMFC) system will still rely on the four core freight characteristics – density, handling, stowability and liability – but an emphasis will be placed on density. Density ratings are being expanded from 11 subprovisions to 13, with generic headings being consolidated. Roughly 2,000 items are slated to be culled from a list of 5,000 as part of the latest revision.
The proposed changes were released late last month and are currently subject to a public feedback period. The final changes take effect on July 19.
Participants on a Thursday panel hosted by carrier Pitt Ohio advised shippers to start referencing the new class codes right away when putting a bill of lading together and to be sure the BOL has accurate information like weight and dimensions.
“Nearly all LTL carriers are using some sort of costing model, and the driving factor that you have to make sure that you get right when you enter into a pricing agreement is the density,” said Shawn Galloway, vice president of pricing at Pitt Ohio. “It only makes sense if our costs and our pricing are being driven by density that now we’re making the transition to where the freight invoicing is being driven by the same thing.”
The primary cost drivers for LTL carriers are distance, time and space. Distance and time are largely known factors as they can be easily identified on a standard BOL. Space has been more difficult to determine with carriers defaulting to a weight-based coding system in the past. However, with the broad acceptance of freight dimensioning technology, solving the space equation is easier and ultimately leading to more accurate pricing.
“If you get the density right and you have a decent dataset, there’s a 90% chance you’re going to get to the right sustainable, competitive price,” Galloway said.
The NMFC changes are expected to help minimize reclassifications, reweighs and surprises on final freight bills. Galloway suggested that shippers build a dialogue with their primary carriers to make sure they are prepping their freight in the most efficient way and to implement changes with their dock personnel now.
“Until you get this on the bill of lading, and you get the dimensions … it’s going to be very difficult for you to try to gauge some sort of impact,” Galloway said. “I don’t think your carriers are going to be very successful in helping you with that either if they don’t have this information at their fingertips.”
FAKs are costing you money
The panel also told shippers they are leaving money on the table by allowing their freight to be defaulted to a freight all kinds (FAK) designation. This happens often, especially for shippers that haven’t invested in dimensioners and don’t provide full shipment details upfront. This forces carriers to make assumptions, which leads to building in extra margin on a quote to offset the risk of underpricing a load.
“Carriers don’t want risk,” said Scooter Sayers, director of business development, LTL Solutions, at Cubiscan, a maker of freight dimensioners. He said shippers that have pricing tied to FAKs are likely to see costs move higher when the changes take hold.
“It’s no different than if you go to the grocery store and you’re forcing your grocery store to charge you the same price per pound for any type of beef you want to get, whether it’s ground beef or tenderloin. … They’re going to raise that average price up really high because they’re afraid all you’re going to do is buy tenderloin.”
Geoff Muessig, executive vice president and chief marketing officer at Pitt Ohio, said most carriers will begin allocating equipment to the shippers that embrace the changes early on, especially when the market turns up and capacity is scarce.
“As the marketplace turns and there’s need for more equipment, carriers are going to ultimately position their equipment where there’s more profit to be gained and that’s going to be where I understand my costs. At that point, it’s not going to be an evolution, it’s going to be something much worse for those shippers who are slow to adapt.”
More FreightWaves articles by Todd Maiden:
- A stand-alone FedEx Freight gives LTL investors another pure play
- Judge OKs sale of Yellow terminals to Estes, R+L Carriers
- Pitt Ohio adds Midwest carrier Sutton Transport to network
The post LTL panel tells shippers to start using new freight classification codes now appeared first on FreightWaves.
