Less-than-truckload carrier FedEx Freight said Tuesday it has launched a program to price freight tendered by select customers based exclusively on the shipment’s weight and dimensions, how much space it occupies aboard a trailer and when it needs to arrive.
The pilot program, called “space and pace,” will provide straightforward quotes based on a shipment’s weight, dimensions and origin and destination ZIP codes provided by the shipper, the LTL unit of FedEx Corp. (NYSE: FDX) said. After receiving the shipment, FedEx Freight will use dimensioning technology — the company calls it “Dimension in Motion” — to verify the information.
The program bypasses the age-old product “classification” formula that has governed LTL pricing since the mid-1930s. The National Master Freight Classification formula sets class rates for shipments based on density, handling, stowability and liability. Each shipment is assigned one of 18 numeric classifications ranging from 50 for heavy, dense items like bulk materials to 500 for light, bulky items like pingpong balls. The formula is overseen by the National Motor Freight Traffic Association (NMFTA).
The different codes were designed to ensure that rates accurately reflect the costs of moving a wide variety of shipments tendered by multiple carriers. However, the formula is complex, often confusing to comprehend, and lends itself to differences of opinion between shippers, carriers and intermediaries over how a shipment should be classified. This often results in after-the-fact disputes, chargebacks and time and resources allocated to resolving disputes.
Over the years, technology has emerged that can accurately determine a shipment’s weight and dimensions, which allows carriers to proffer pricing based on the amount of space the freight occupied and the delivery commitments associated with it. FedEx Freight offers Priority and Economy services that set different prices depending on transit times.
FedEx Freight, like other LTL carriers, already uses dimensioning equipment to help determine pricing. The new initiative appears to be the first time that the carrier, the largest in the industry in terms of revenue and volume, will avoid the classification formula entirely in favor of dimensional-based pricing.
In a statement, Mike Lyons, vice president of LTL revenue quality for FedEx Freight, said the goal is to ensure customers “receive accurate pricing on the front end in order to reduce the frequency of price adjustments and disputes on the back end.”
The move was lauded by several LTL experts as a logical step in the progression to distance FedEx Freight from the classification formula.
“Any method that engages with the customer in an easier way than the traditional class rates is a good thing for the industry,” said Todd Polen, vice president of pricing for LTL carrier Old Dominion Freight Line Inc. (NASDAQ: ODFL), considered by most experts to be the best-run LTL carrier.
In July, Old Dominion announced a trial program, called “One Rate, One Time,” that offers one all-in rate to LTL shippers before their freight is picked up. Shippers digitally submit information to Old Dominion, which verifies the data and furnishes a consolidated invoice that covers the base rate and all appropriate accessorial charges that cover a carrier’s services beyond the basic line haul.
Scooter Sayers, a long time LTL executive who runs his own consulting firm, said the moves by FedEx Freight and Old Dominion reflect the carriers’ ability to do a better job of building fair and accurate rates and to not rely on the classification formula to guide the process.