Old Dominion Freight Line Inc. has begun a trial program in which it offers one all-in rate to LTL shippers before their freight is picked up, a step the carrier said represents a major advancement in the backwater processes of costing, pricing and paying for LTL transportation.
Old Dominion (NASDAQ: ODFL) is testing the program, called One Rate, One Time, with one of its third-party logistics provider customers, Todd Polen, the company’s vice president of pricing services, said in an interview with FreightWaves on Friday.
Testing will continue for a number of months as Old Dominion expands its partner universe and irons out the inevitable kinks, said Polen, who noted the program has been in the works for three to four years.
Under the initiative, shippers will be responsible for digitally submitting shipment information to Old Dominion. The carrier will then verify the data and furnish one invoice prior to pickup that covers the base rate and all appropriate accessorial charges that cover its services beyond the basic linehaul.
All accessorials would be baked in to the rate except for “reconsignment” charges under which the initial consignee declines to accept a shipment and it needs to be rerouted, Polen said.
Shippers that can execute would be rewarded with better pricing through the enhanced use of efficient digitization tools, Polen said. They will also avoid the unpleasant scenario of being hit with higher carrier charges after the fact due to inaccurate information and then fighting with the carrier over differences of opinion about the shipment profile.
One of the initiative’s priorities is to develop granular address information so addresses can be properly validated before shipments are tendered, Polen said. He pointed out that address validation is the “biggest pain point” for shippers and carriers. Old Dominion estimated that about 10% of all shipment information contains faulty address information. In a growing number of cases, shippers provide nonexistent addresses, it said.
Old Dominion will not require shippers to buy into the program and will not wield the proverbial stick to get them to bite into the carrot, Polen said. “Our goal is not to drive our customers away,” he said. The main objective is to use more automation to achieve a fair price that’s conveyed in a simple fashion, he said.
Polen said the program is not designed to replace the 87-year-old formula that prices a commodity based on how it is classified under predetermined criteria. Polen said the traditional approach, which continues to work well for many of its users, can function in tandem with the new program.
The all-in initiative will benefit shippers looking for an all-inclusive pricing approach that, once the rate is accepted, precludes any post-shipment hassles, he said.
In almost all walks of American life, a customer receives an all-in price from a provider prior to buying a product or service and either accepts or rejects the proffer as a condition of the transaction. The $50 billion-a-year LTL industry operates in a parallel universe, however.
Shippers are required to provide specifics about their loads on bills of lading. However, the onus is on the carrier to inspect the shipment and all related documentation to ensure that it lines up with the information provided on the BOL. Any discrepancies, which would only be identified through a fair amount of carrier legwork, often end up in time-consuming and sometimes trust-eroding haggling with the shipper. The current model has spawned lucrative cottage industries in pre- and post-auditing services.
Polen likens the current practice to a supermarket shopper at checkout telling the cashier what they purchased and how much they cost and then leaving it up to the cashier to check each item to prove that the customer is telling the truth. “We are the only industry on the planet that functions this way,” he said. The way LTL operates today is “not effective and it’s not efficient,” he said.”
Truckload and parcel carriers wouldn’t conceive of doing business in such a manner, according to Polen. They don’t because there is much greater shipper emphasis on investing in automation due to higher shipper spend on truckload and parcel, he said.
“We’re the last industry in transportation that’s not become digital,” Polen said.
Thomasville, North Carolina-based Old Dominion is considered by virtually everyone who follows LTL as the industry’s best-run carrier. Old Dominion’s operating ratio — the ratio of expenses for every revenue dollar generated — is in the low 70% range. This means it spends roughly 70 cents for every dollar in revenue. Such a ratio is extraordinary in a high-fixed cost business like LTL.
Old Dominion has also been at the forefront of using dimensioning machines to capture a shipment’s accurate physical profile. This helps the carrier properly price the freight that cubes out its trailers. Most LTL shippers don’t have such equipment and rely on tape measures to calculate their freight’s dimensions.