How have parcel and less-than-truckload shippers responded to the switch to "dim weight" pricing? According to a recent survey, the answer depends on how well they understand the new rating scheme.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Parcel and LTL shippers that understand the significance of moves by the nation's two biggest carriers to apply "dimensional weight" pricing to all their U.S. ground shipments are the ones trying hardest to blunt its impact, a sign that the pricing change should be taken seriously by all shippers, according to a survey recently conducted by Niagara University, consultancy Supply Chain Optimizers, and DC Velocity.
The survey, taken of 146 parcel and less-than-truckload (LTL) shippers, found that about half had a good understanding of so-called "dim weight" pricing, under which delivery rates are based on a parcel's dimensions rather than its actual weight. In mid-2014, Memphis, Tenn.-based FedEx Corp. and Atlanta-based UPS Inc. decided to abandon actual-weight pricing on domestic ground shipments measuring three cubic feet or less and adopt dimensional weight pricing on those packages, which make up a large portion of their ground traffic. (Dimensional weight pricing on ground shipments measuring more than three cubic feet has been in effect for several years.)
Aware of the impact of the new policies, about 46 percent of the better-informed shippers have already negotiated pricing adjustments with their carriers and have made changes in their packaging processes to shrink parcel cube and avoid a significant rate increase that would accompany the change in the carrier formula, according to the survey. An additional 30 percent said they had pursued packaging changes without negotiating rate adjustments, according to the findings. Seasoned shippers were also more likely to use computer systems to help select the optimum box size, as well as to install "cut to size" systems where boxes are custom-formed based on their contents, the survey found.
By contrast, more than half of the shippers who said they lacked a strong understanding of the pricing scheme had taken no action as of the time of the study, and only 20 percent of those respondents had made any adjustments to their packaging, according to survey data. In all, about 27 percent of respondents said they had done nothing in response to the carriers' actions, meaning they had accepted the rate increases that accompanied the changes in the pricing model.
"There are various successful responses to dimensional weight pricing. Taking no action is not one of them," said Jack T. Ampuja, CEO of Supply Chain Optimizers and the survey's co-author along with Jim Kling, a professor at Niagara University in Lewiston, N.Y. Shippers that simultaneously employed multiple solutions seemed to achieve the best outcomes, according to Ampuja and Kling.
PAYBACK TIME
Over the years, parcel and LTL shippers have benefited greatly from the carriers' under-reliance on dimensioning equipment and systems. Though parcel carriers had the technology, they used it only for shipments measuring more than three cubic feet. As a result, they charged the actual weight for bulky, lightweight parcels, effectively underpricing portions of their trailer space. LTL carriers, without any equipment at all, resorted to tape measures and rulers, hardly a precise method for verifying product density. This allowed shippers to tender an ineffectively packaged consignment and still get away with being undercharged for the service, according to the authors.
Parcel carrier executives have said the expansion of dim weight pricing was necessary to properly compensate their companies for the space occupied by low-weight, high-cube shipments. The change would also deliver to shippers a wakeup call to re-engineer their inefficient packaging processes that just add cube to a package without providing any real value to the shipper, customer, or carrier.
More than 18 months into the dual initiatives, the explosive growth of e-commerce continues to drive traffic in these lighter, bulkier consignments, according to UPS Chairman and CEO David P. Abney. "Package weight keeps going down, but the cube keeps going up," Abney told reporters at a company event June 30.
LTL pricing occupies a world of its own. Rates are based on an intricate system of classification codes that were developed in the mid-1930s. Because charges based on classification codes are subject to interpretation, it is commonplace for shippers and carriers to get embroiled in post-delivery disputes over pricing differentials. LTL carriers that advocate dimensioning have said that it will not only yield more accurate pricing outcomes, but also reduce the frequency of so-called carrier chargebacks and the hassle that often accompanies them.
Carriers have a vested interest in promoting the dimensioning practice: By doing a better job of pricing palletized freight, carriers can recover the $65,000 cost of a dimensioning machine within 90 days, the survey's authors said.
The growing use of dimensioning equipment will force shippers to do a better job of preparing their freight for tender, Ampuja and Kling said. Those who observe the status quo will likely confront rates that are higher than they've ever paid before, they said. "The reality is that most shippers are not aware that the responsibility for proper packaging and palletization has now been pushed back to them, and most are not yet prepared to manage the function," they said.
One group that appears to be especially concerned about the impact is smaller shippers, who lack the volume clout to leverage carrier relationships to their benefit. "When we visit with smaller shippers and ask about logistics issues, dim weight pricing is typically the first topic they mention," the authors said.
PARCEL SHIPPERS MORE PROACTIVE
The survey was fairly balanced among users of the two modes, with 43 percent saying they shipped mostly with parcel carriers, 37 percent saying they shipped primarily with LTL carriers, and the remaining 20 percent split down the middle.
Parcel shippers have responded more rapidly than have LTL shippers to the carriers' pricing changes, according to the survey. About 65 percent of parcel shippers have made some adjustments to their packaging, compared with 34 percent of LTL shippers. Only 42 percent of respondents who identified themselves as LTL shippers had done anything in response to the dim weight initiative, according to the survey.
Most LTL shipper respondents to the survey said they weren't comfortable with the carriers' dimensioning concepts or with the equipment being used to perform the measurements. The unease was expressed by both the experienced and the relative novice: Some 27 percent of the more-knowledgeable respondents said they were comfortable tendering their freight for dimensioning; about 36 percent of the less-knowledgeable group said they were comfortable with the practice.
A cluster of the comments focused on criticisms of the equipment and the way it's used. One respondent mentioned that "dimensional pricing can be completely skewed by a minor change" in the process.
Clark Skeen, president of Quantronix, the Farmington, Utah-based maker of the popular "CubiScan" dimensioning product line, said palletized shipments are often asymmetrical in dimension and come in multiple shapes and sizes. This, in turn, can make it difficult for even today's equipment to capture an accurate scan, he said.
"There are systems on the market that are robust, reliable, and consistent," Skeen said in an e-mail. But users need to look closely at the performance records of any system, and in the meantime, take vendor claims with a grain of salt, he added.
Ampuja and Kling said customer complaints should fade once dimensioning systems are harmonized and eventually perfected. They emphasized that shippers who invest in proper packaging and palletizing processes will, over time, reap the benefits of lower pricing on their package and LTL consignments.
However, shippers with a lot of low-density freight or with inefficient packaging models face a more long-lasting problem, namely a hit to their budgets as dimensioning forces them to pay more for shipping, they wrote. Businesses that simply can't change the configurations of their products "will not find any easy solutions to the higher rates associated with dimensional weight pricing," they said.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
A Canadian startup that provides AI-powered logistics solutions has gained $5.5 million in seed funding to support its concept of creating a digital platform for global trade, according to Toronto-based Starboard.
The round was led by Eclipse, with participation from previous backers Garuda Ventures and Everywhere Ventures. The firm says it will use its new backing to expand its engineering team in Toronto and accelerate its AI-driven product development to simplify supply chain complexities.
According to Starboard, the logistics industry is under immense pressure to adapt to the growing complexity of global trade, which has hit recent hurdles such as the strike at U.S. east and gulf coast ports. That situation calls for innovative solutions to streamline operations and reduce costs for operators.
As a potential solution, Starboard offers its flagship product, which it defines as an AI-based transportation management system (TMS) and rate management system that helps mid-sized freight forwarders operate more efficiently and win more business. More broadly, Starboard says it is building the virtual infrastructure for global trade, allowing freight companies to leverage AI and machine learning to optimize operations such as processing shipments in real time, reconciling invoices, and following up on payments.
"This investment is a pivotal step in our mission to unlock the power of AI for our customers," said Sumeet Trehan, Co-Founder and CEO of Starboard. "Global trade has long been plagued by inefficiencies that drive up costs and reduce competitiveness. Our platform is designed to empower SMB freight forwarders—the backbone of more than $20 trillion in global trade and $1 trillion in logistics spend—with the tools they need to thrive in this complex ecosystem."