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Can a high-tech tape measure change how LTL shipments get priced?

The old classification model has not totally given way to dimensioning machines

The CubeTape in action. (Photo: Parcel Tools)

For years, Tony Bauer, an Australian transport executive, has pitched an invention that he said accurately captures LTL shipment dimensions using a mobile tape measure device and supporting software. The product, called CubeTape, allows shippers to walk around the freight, scan its dimensions, weight, reference number and photos. The data would then be uploaded into a predesignated platform before the shipment is picked up. 

With precise data elements in hand, a detailed bill of lading can be generated allowing carriers to more accurately price the trailer space that the freight occupies, Bauer said. The data and images can also be referenced after the fact in the event of a freight claim or an invoice correction, he said. Murky dimensioning data often results in reweighs and remeasures, which occur after the freight is tendered. This will often result in a re-rated invoice and higher freight charges. (Shippers rarely get rebates for errors in their favor).

Bauer’s company, Parcel Tools, has seen CubeTape gain traction with LTL industries worldwide. In the U.S., e-commerce giant Pitney Bowes Inc. (NYSE: PBI) uses thousands of devices to measure parcels’ dimensions before they ship.

The one market that’s been impossible to crack, Bauer said, is the U.S. LTL industry. Bauer plans to push CubeTape hard in the U.S. market starting this July.

It may seem ironic that, in an era of whiz-bang technology, the concept of LTL carriers being fairly compensated for the trailer space that shippers use remains elusive. The crux of the problem, according to Bauer, is that it isn’t compulsory to include shipment dimensions on BOLs. Without the actual dimensions, it becomes educated guesswork at best for carriers to accurately calculate the price per cubic foot of the freight filling up their trailers, he said. Shippers, in turn, could be assigned an incorrect classification for their goods, which could cost them dearly. The rising cost of all aspects of transportation operations only raises the stakes.

Things are changing. Many intermediaries working with LTL shippers now require dimensions to be submitted with the BOL before the freight is tendered to the carrier. In addition, dimensioning machines are increasingly being utilized to deliver accurate dimensions.  As of last year, there were between 1,000 and 1,200 “dimensioners” in use, according to a person familiar with the dataset.

The machines are costly and immobile, however. They often fail to scan the entire container, Bauer said. Another problem with dimensioners — and one that Bauer’s device is purportedly designed to alleviate — is that the shipments don’t get scanned until they arrive at a carrier’s receiving dock, thus leading to congestion at a key pain point. Providing dimensions at the front end through a hand-held device will increase network fluidity, he said.

The concept of density-based pricing, feasible only by knowing a shipment’s dimensions, is where the LTL industry is going, industry executives have said. It’s taken a long time to get there, however. More than a decade ago, LTL executives were predicting that dimension-driven pricing was right around the corner. Yet many in the industry cling to an old-fashioned, and some would say timeworn, pricing method of commodity classifications because it’s what they know and are comfortable with.

Class still in session

That dimensioning technology is not mainstream in LTL, or that freight can’t be priced based on the relatively straightforward concept of what the trailer space sells for, reflects the mode’s unique way of shipping and pricing. An LTL carrier loads and unloads a product multiple times while it is en route. In addition, freight from multiple shippers share the same trailer. The differing characteristics of each pallet make it hard to set rates using a one-size-fits-all formula.

That’s why since the mid-1930s, rates have been calculated by a formula that assigns a numeric class to each shipment. There are 18 classifications in all, ranging from 50, which applies to high-density items like steel rods, to 500, which represent low-density, high-cube items like ping-pong balls. Each commodity also has a code that lays out four criteria — density, handling, stowability and liability — that determines the difficulty of shipping an item.

Products assigned a higher classification are more expensive to ship because they are bulky and occupy a disproportionate amount of trailer space despite their lighter weight. A lower classification, by contrast, translates to cheaper shipping costs because the items are more compact and easier to handle. 

Historically, products with multiple classes were assigned a median classification known as freight all kinds (FAK). Developed to make it convenient for shippers to tender freight without itemizing each item, FAK rates are less prevalent today because neither side is willing to bet that they are getting a fair pricing deal.

In theory, matching a commodity with a specific classification should make it easy to assign a rate and make it transparent for both parties to accept. However, the classification system fails to take into account the true carrier costs of the commodity type, its weight, its cube and its length of haul. It overrides the basic objective of the shipper-carrier exercise, which is to set a proper price per cubic foot for the trailer space being leased.

The classification system became a source of mistrust in the historically contentious relationship between LTL shippers and their carriers. Shippers used the formula to misclassify their freight in efforts to get a better rate. Carriers, meanwhile, left millions of dollars on the table because they didn’t have the processes in place, at least at the front end of the delivery, to challenge the shippers. 

While a shipper might get hit with an upward revision in its freight bills after a carrier re-weighed and remeasured the freight, the process didn’t do the carrier any favors. Carriers would be forced to spend time and resources to examine the freight, and then dicker with the shipper over interpretation of the product classification.

Rex R. Oliver, who spent 33 years at LTL carrier AAA Cooper Transportation, now a part of Knight-Swift Transportation Holdings Inc. (NYSE: KNX), and is now director of operations at Atlantic Logistics, a 3PL in the truckload sector, said he’s reminded by past LTL customers of how much money they made off of Cooper when the carrier charged it an FAK rate. 

Cop on the beat

Carriers have gotten smarter over the years and investing in dimensioning technology has been part of the learning curve. That is a welcome change. Dimensioning would go a long way toward resolving disputes over shipment classifications and pricing. Carriers could set their rates based on actual trailer space requirements. Shippers could see, and thus have a hard time disputing, the physical characteristics of their freight. Gone, for the most part, would be the endless carrier reweighs that benefit no one.

Oliver said that dimensioning is not a cure-all, and that it’s critical for carriers to better educate their customers on the processes behind the pricing of trailer space and why it has mutual benefits. 

Oliver equates dimensioning to a police car making the rounds in a troubled apartment complex. Just like the patrolman would be a symbol of legal authority, gain the trust of the different factions and keep them in line, dimensioning would be the ultimate arbiter of LTL transactions and would serve as the mechanism to build trust between shippers and carriers.

“Dimensioning is going to keep everyone honest, and it will do away with all the ambiguities associated with the FAK,” said Oliver. He added, however, that if the transition from classifications to dimensional pricing is to take firm hold, “everyone has to be all in on this.”

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.