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LTL Space-Based Rating: Are You Ready?

Posted on November 13, 2017

The trend that’s seen the small parcel market move towards DIM-based pricing is starting to happen with LTL shipping. And, with many of the major LTL carriers moving in this direction already, it seems the industry has reached a tipping point. It’s a matter of when, not if, a space-based model for LTL pricing is the norm.

This is a topic Pierbridge CEO Bob Malley recently wrote about on the Logistics Viewpoints blog in a guest post titled - Palletization Software Can Help LTL Shippers Avoid Potential $6b in Space-based Rating Adjustments.

Unfortunately, just because something is inevitable doesn’t mean it will be easy. Space-based rating is not a simple proposition for shippers or carriers to manage.

Of course, the biggest driver for this change is coming from carriers who want to increase the capacity utilization of their trailers. This has become more difficult as last-mile LTL deliveries of bulkier shipments have, according to the Wall Street Journal, grown 40% since 2010.  Although the traditional NMFC freight classification system is meant to reflect shipment density, it’s far from perfect in determining the density of mixed freight and carton sizes. Without a clear vision of how the pallets will be built or how many they’ll be, estimating costs is impossible.

The biggest barrier to adoption, and push back, are shippers who lack the technology or tools to accurately determine shipment density and calculate LTL costs under DIM-based pricing.

Many shippers are finding a solution to this problem – for both their LTL and small parcel shipping – with Pierbridge’s Opdimizer tool. It enables shippers to overcome several specific challenges and barriers inherent to DIM-based pricing. And, there are many.

Opdimizer uses advanced algorithms to instantly determine the most cost-effective way of packing cartons and stacking them on pallets, taking into account SKU weights and dimensions, carton sizes, and business rules related to packing cartons and stacking them on pallets.  Opdimizer also considers transportation costs, including individual companies’ discounts and carrier DIM factors. An optimal configuration for one carrier may not be the same for another. With DIM pricing a lot of the old assumptions don’t apply anymore – such as how the cheapest cost for a shipment is not necessarily the fewest number of pallets. Or, that sometimes paying the DIM rate is cheaper than paying based on actual weight.

Considering all these constraints and making the best carrier selection is not possible without technology. Opdimizer simplifies what is otherwise a very complex calculation.

Aside from eliminating guesswork, Opdimizer’s calculations are fast – in milliseconds. This allows complex rate shopping during day-to-day rate estimations in order entry and purchasing, logistics planning, and fulfillment operations.  Opdimizer’s API can even support estimations in an ecommerce site’s shopping cart.

Shippers have quickly realized that there is little about space-based pricing that is intuitive. The calculations behind it, and carrier rules that govern it, are messy and complex – not to mention likely to evolve further as the practice gains acceptance. Above all else, it’s increased the disparity between estimated costs and actual carrier invoice costs which now include unexpected DIM fees.

Smart companies are finding ways to use technology, like Opdimizer, to make routing decisions that consider space-based pricing. It’s a tool that can help improve their logistics operation in the short term, as well as position it for the inevitable changes to come.

This article is exclusive to Pierbridge.com