ABF parent ArcBest joins crowd in LTL “space-based” pricing, putting pressure on shippers
Effective Aug. 1, it’s going to be more expensive to ship air on ABF Freight System and other units of ArcBest Corp.
The parent of the nation’s seventh-largest LTL carrier is joining most of the rest of the major players in the $36 billion LTL sector by introducing what it calls “space based pricing” – what most of the rest of the industry calls “dimensional” or “dim-weight” pricing.
That will penalize shippers who use excess packaging in their shipments. That’s because instead of the rate being determined by its class rating, weight and distance, carriers now will be using “dim-weighting” electronic machines on their docks to calculate total dimensions of each package.
“The logistics industry continues to change rapidly,” ArcBest Chairman, President and CEO Judy R. McReynolds said in a statement. “We believe this initiative is the natural step for us to take now to ensure that the value we provide is appropriately reflected in the compensation we receive for our shipping and logistics services. We view this as a logical complement to the current weight-based pricing common in the LTL industry.”
The idea was borne from both technology, which measures packages more efficiently, and necessity. The boom in e-commerce is creating problems for carriers, whose trucks “cube out” before they “weigh out” as a result of the influx of light, bulky packages moving through their networks.
“The (LTL) industry in the last three or four years has rapidly embraced dimensioning (measuring) machines,” said Satish Jindel, principal of SJ Consulting, which closely tracks trends in the LTL sector. “It works and it’s cost effective—the payback comes in just a few months.”
Most of ABF’s major competitors – XPO Logistics, the YRC Freight units, FedEx and UPS Freight, among many others – are using some form of dim pricing on at least some of their shipments.
“They’re using it for costing and pricing and when they audit shippers to find someone claiming different characteristics in a certain weight class so they can rectify it,” Jindel said.
LTL carriers have been using dimensional pricing openly. Shippers know they are doing it. The idea is to keep everyone honest, Jindel said.
“What ABF is doing is basically making it clearer to people that when you provide us information, dimensions are an important part of it and we will be monitoring it for costing and billing,” Jindel said.
FedEx has alternative dim pricing approach if shippers are willing to its FedEx tariff. Other carriers use similar techniques.
For certain shippers, this could mean as much as a 10-to 15 percent rate hike, Jindel estimated. But for the entire LTL sector, Jindel said the additional revenue captured through dim pricing is less, around 7 to 9 percent, he estimated.
“The next revolution will come when the LTL guys use this information for better line-haul efficiency,” Jindel said. “For an industry as whole, the LTL trailers are at 70-to-80 percent capacity. In parcel industry, it is at 90 percent plus. That’s a big spread. Dimensioning information allows you to ensure you match dimensions to get better cubic utilization.”
ArcBest officials said they have noticed overall growth and ongoing profile shift of bulkier shipments across the entire supply chain. In addition, many shipping and logistics solutions now include unique requirements.
A simplified process will take effect in which customers provide freight dimensions (length, width and height). If not ArcBest will calculate those for them, as it has for many years, to determine applicable cubic minimum charges (CMC) that will supplement weight-based metrics when appropriate.
ArcBest said it has dimensional data on more than 90 percent of the freight shipped in its asset-based network. To assist in comprehensively capturing shipment dimensions and to help validate the shipment dimensions provided by our customers, the company said it will install static dimensioners at the majority of its distribution centers, expected to be in place by the time the CMC is effective on Aug. 1.
