Nieuwenhuizen Says:
|
Existing
contracts and tariffs
will prevail in determining
your future LTL spending.
What
do you say? Send
us your comments here
|
A
recent Surface Transportation
Board (STB) ruling has eliminated
the antitrust immunity of 11
collective ratemaking bureaus—including
those in the motor freight arena.
With the STB’s May 7 decision,
the authority of carriers engaged
in collective ratemaking was
terminated as of September 4.
What
impact will this have on Less-than-Truckload
(LTL) shippers? To get a complete
picture, we need to take a brief
detour to 1948.
Since
the Great Depression, the majority
of industries have been subject
to a number of antitrust regulations.
But motor carriers have been
exempt. The Reed-Bullwinkle
Act, passed by Congress in 1948,
explicitly permitted motor carriers—both
road and rail—to collude
in setting general shipping
rates. What’s more, the
industry’s governing body
made it extremely difficult
for would-be entrants to join
the “club” of motor
carriers. Such heavy regulation
led to complex pricing strategies,
with bloated base rates and
exorbitant discounts.
Enter
SMC3, the authority in collective
LTL ratemaking. SMC3’s
General Rate Committee (GRC)
meets every year to establish
book rates that will be charged
to shippers. Composed of SMC3
industry experts and representatives
from member carriers, the GRC
weighs the motor carriers’
business costs, revenue targets,
and profitability goals. With
these factors in mind, the committee
places agreed-upon rates into
effect for the following year.
Proponents
of SMC3’s industry-standard
CzarLite base rate maintain
that it will continue to be
the preferred LTL pricing system
in the industry. True, the Atlanta-based
firm will no longer have the
authority to poll member carriers
and set rates in accordance
with profitability goals. But
after 70 years as a dominant
influence in the industry, SMC3
understands the pricing dynamics
better than anyone. CzarLite,
advocates say, will continue
to use environmental variables
and leverage SMC3’s patented
Carrier Cost Index to model
cost data and formulate LTL
base rates.
SMC3’s
detractors assert that time
and technology will drive a
wedge between CzarLite and reality.
Without the input of the carriers,
CzarLite’s base rate will
be founded more on theory than
on fact. The STB decision has
also placed the National Motor
Freight Classification system
in jeopardy. Therefore, both
the freight classification system
and the corresponding base rates
could be turned on their heads,
maybe not in the next few years,
but certainly in the long run.
So,
what does this mean for your
LTL shipping operations? Nothing—provided
that you’re content with
your LTL contracts and expenditures.
Existing contracts and tariffs
will prevail in determining
your future LTL spending. Even
if your organization is unhappy
with the status quo and seeks
to obtain more favorable pricing
on your LTL shipping within
the next 12 months, existing
rates will still be valid baselines
to negotiate from.
However,
given that future tariffs from
the rate bureaus will no longer
be based on true cost inputs
from the carriers, actual rates
will become even further removed
from reality as time goes on.
Carriers will increasingly rely
on their own tariffs, and pricing
strategies will become more
blurred and diverse. As a result,
analyzing and comparing carrier
proposals will become an even
greater challenge than it is
today. This opens the door for
new pricing structures, with
dimensional (DIM) based pricing
being the most likely front
runner.
In
the parcel/express arena, UPS
and FedEx are already heading
down the dimensional pricing
path, and they will, in all
likelihood, introduce dimensional
pricing in their freight businesses
as well. DIM pricing does have
a technology impact, though.
Carriers and shippers alike
would need to invest in more
advanced scales and dimensional
scanners, with the possibility
that smaller carriers might
not be able to afford the necessary
investments.
As
events unfold, we will be keeping
a close eye on further developments
in this space. Stay tuned—there
is certainly more to come on
this topic.
Agree
or disgree with our guest expert's
perspective? What would you
add? Let us know your thoughts
for publication in the SCDigest
newsletter Feedback section,
and on the web site. Upon request,
comments will be posted with
the respondents name or company
withheld. |