aardvark supply chain solutions-an introduction to freight classification and pricing

An Introduction to NMFC Classification&

LTL Freight Pricing

NMFC: National Motor Freight Classification•Classification•Industry Standard for determining freight class•Publication (NMF-100AF), Software, Data

NMFTA: National Motor Freight Tariff Association•Owner of NMFC copyright•Non-profit industry association•1,200+ motor carrier participants•Antitrust immunity

Freight Classification Standards

NMFC OverviewStandardized information for approximately 10,000 articles

•Description of articles•Class assignments for LTL rating•Rules for shipping and handling•Packaging requirements and specifications

Rules for Shipping and Handling

Packaging Requirements and Specifications

Bill of Lading Formats

Participating Carriers Index

Classes and CharacteristicsCommodities are evaluated and grouped according to

four transportation characteristics•Density•Stowing•Handling•Liability (value and risk)

There are 18 classes (50-500):•Class 50 – Highest Density; iron or steel plates NOI•Class 60 – balls, shot-putting•Class 70 – ball bearings•Class 85 – baseballs•Class 500 – Lowest Density; ping pong balls

Value and DensityMinimum Average Density

(in pounds per cubic foot) Class Class

Minimum Average Value

Per Pound

50 50 50 $0.91

35 55 55 $1.78

30 60 60 $2.70

22.5 65 65 $4.48

15 70 70 $6.76

13.5 77.5 77.5 $9.00

12 85 85 $13.52

10.5 92.5 92.5 $18.00

9 100 100 $22.51

8 110 110 $24.77

7 125 125 $28.14

6 150 150 $33.79

5 175 175 $39.42

4 200 200 $45.05

3 250 250 $56.31

2 300 300 $67.56

1 400 400 $90.09

Less than 1 500 500 $112.62

NCC Density Guidelines NCC Value Guidelines

LTL COSTING AND PRICING

Breakdown of LTL Carrier Costs

62%11%

7%

6%

5%

3%

6% Wages and Benefits

Operational Supplies

Purchased Transportation

Depreciation

Taxes

Insurance

Miscellaneous

*LTL Industry Wage – approximately $39.12 per hour with benefits

The LTL Costing ModelGeneral LedgerLabor costs (wages, benefits, hours, etc.)Driver logsElectronic devices

•Driver – arrival and departure times•Dock – handling time and the number of times a shipment ishandled

Linehaul milesBalance – loaded and emptyLoad FactorsSubstitute service costs and/or creditsIndividual shipment information

•Revenue per shipment•Handling characteristics – loose pieces or pallets•Live load, dropped trailer, shipper load and count, etc.•Specialized equipment requirements – drums, long pallets, etc.

The LTL Costing Model (continued)Route density

•Stem time•Multiple pickup or delivery

Labor cost per hour – wages, benefits, etc.•Pickup and delivery•Terminal – origin and destination•Hub•Clerical

Linehaul costAccount History

•Payment History•Claims ratio•Tendering process

Common LTL Costing Variables

Class 100Density 9 PCFEquipment (2 pups 56’x8’x8’) = 3,584 ft3

Shipment weight 5,000 lbsCube utilization 15%

Linehaul cost per mile $1.11Pickup and delivery cost per minute $0.65Terminal cost per minute $0.36Hub cost per minute $0.36Billing and collection per shipment $3.51

National Carrier Shipment Cost

Savannah, Georgia to Omaha, NebraskaDirect miles = 1,239Carrier miles with two transfers = 1,485Circuity (extra mileage cost) = 19.9%

Cost PercentageLinehaul $316.77 65.17%P&D $ 86.24 17.74%Terminal $ 38.39 7.90%Hub $ 41.16 8.47%Billing & Collecting $ 3.51 .72%Total $486.07 100.00%

National Carrier Cost Per Shipment

65.17%

17.74%

7.90%

8.47%0.72%

Linehaul

P&D

Terminal

Hub

B&C

Regional Carrier Shipment Cost

Savannah, Georgia to Birmingham, AlabamaDirect miles = 394Carrier miles with one transfer = 436Circuity = 10.7%

Cost PercentageLinehaul $ 93.01 38.48%P&D $ 86.24 35.68%Terminal $ 38.39 15.88%Hub $ 20.58 8.51%Billing & Collecting $ 3.51 1.45%Total $241.73 100.00%

Regional Carrier Cost Per Shipment

38.48%

35.68%

15.88%

8.51%1.45%

Linehaul

P&D

Terminal

Hub

B&C

National vs. Regional Comparison

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Linehaul P&D Terminal Hub B&C

65.17%

17.74%

7.90% 8.47%

0.72%

38.48%

35.68%

15.88%

8.51%

1.45%

National Regional

Shipper Influenced CostPickup and Delivery

•Live load or unload•Drop trailer•Multiple shipments per stop•Handling units – pallets, drums, loose, etc.•Cube utilization – pyramid pallets, stackable, etc.•Have dock doors available for pickup and delivery•Have an adequate staging area for loading and unloading•Have shipments ready for pickup•Freight handling equipment availability•Have dunnage, bracing, and blocking materials available if required to properly secure and protect shipment

•Tender and/or pickup at the carrier’s dock•Properly marked or labeled shipments

Shipper Influenced Cost (continued)Terminal

•Handling units – pallets, drums, loose pieces, etc.•Loaded to ride to first hub•Special equipment requirements – drums, long pallets, etc.

Linehaul•Handling units/cube utilization•Lane balance•Lane density

Other•Payment history•Packaging – claims ratio•Tendering process – paper, electronic, etc.•Special requirements – inside delivery, appointmentdeliveries, COD, sort and segregate, no dock facility, etc.

Fixed CostFixed cost can be viewed as consisting of those expenses

which are incurred on behalf of the operation as a whole. They can only be avoided by abandoning the entire operation, or at least, very substantial parts of it and they cannot be traced to particular units of output.

Variable CostVariable cost represents the actual cost of providing the

service. It is normally the lowest price that would be charged for providing a service. To price lower than actual cost would create a loss on the actual service provided. Pricing at this level is not advantageous for the long term since it does not contribute to covering fixed cost or provide an adequate margin for reinvestment into the business.

Semi-Variable CostSemi-variable cost are the costs that increase or decrease

with changes in volume but unlike variable cost, do not vary in direct proportion. Thus, they have characteristics of both fixed and variable cost.

Incremental CostIncremental costs are the combination of variable

and semi-variable costs.

Fully Allocated CostFully Allocated or Total Cost includes variable, semi-

variable, and fixed costs.

Savannah to BirminghamShipment weighs 950 poundsClass 92.5, Density 10 PCF18 loose piecesSingle shipment Incremental Fixed Total

Pickup 15.69 3.76 19.45

Origin Terminal 4.87 1.03 5.90

Hub 5.02 1.06 6.08

Linehaul 30.59 4.33 34.92

Destination Terminal Handling 4.91 1.04 5.95

Delivery 17.30 4.00 21.30

Billing and Collection 2.90 .61 3.51

Total Cost 81.28 15.83 97.11

Revenue 91.50

Operating Ratio 106.1

Live Load - Single Shipment

Live Load - Multiple ShipmentsSavannah to Birmingham

Shipment weighs 950 poundsClass 92.5, Density 10 PCF18 loose pieces15 shipments Incremental Fixed Total

Pickup 4.19 .92 5.11

Origin Terminal 4.87 1.03 5.90

Hub 5.02 1.06 6.08

Linehaul 30.59 4.33 34.92

Destination Terminal Handling 4.91 1.04 5.95

Delivery 17.30 4.00 21.30

Billing and Collection 2.90 .61 3.51

Total Cost 69.78 12.99 82.77

Revenue 91.50

Operating Ratio 90.4

Drop Trailer – Shipper Load & CountSavannah to Birmingham

Shipment weighs 950 poundsClass 92.5, Density 10 PCF18 loose pieces15 shipmentsSpotted Trailer – 30 minutes Incremental Fixed Total

Pickup 1.76 .39 2.15

Origin Terminal 4.87 1.03 5.90

Hub 5.02 1.06 6.08

Linehaul 30.59 4.33 34.92

Destination Terminal Handling 4.91 1.04 5.95

Delivery 17.30 4.00 21.30

Billing and Collection 2.90 .61 3.51

Total Cost 67.35 12.46 79.81

Revenue 91.50

Operating Ratio 87.2

Drop Trailer – NOT StackableSavannah to Birmingham

Shipment weighs 950 poundsClass 92.5, Density 10 PCF18 loose pieces15 shipmentsSpotted Trailer, 2 pallets – NOT stackable Incremental Fixed Total

Pickup 1.76 .39 2.15

Origin Terminal 3.16 .67 3.83

Hub 3.68 .78 4.46

Linehaul 37.98 5.38 43.36

Destination Terminal Handling 3.14 .65 3.79

Delivery 14.30 3.28 17.58

Billing and Collection 2.90 .61 3.51

Total Cost 66.92 11.76 78.68

Revenue 91.50

Operating Ratio 86.0

Drop Trailer – Stackable FreightSavannah to Birmingham

Shipment weighs 950 poundsClass 92.5, Density 10 PCF18 loose pieces15 shipmentsSpotted Trailer, 2 pallets - stackable Incremental Fixed Total

Pickup 1.76 .39 2.15

Origin Terminal 3.16 .67 3.83

Hub 3.68 .78 4.46

Linehaul 30.59 4.33 34.92

Destination Terminal Handling 3.14 .65 3.79

Delivery 14.30 3.28 17.58

Billing and Collection 2.90 .61 3.51

Total Cost 59.53 10.71 70.24

Revenue 91.50

Operating Ratio 77.8

Reducing Your Transportation CostPackagingSales or Marketing decisions – standard order size,

packaging, etc.Properly described shipmentsHandling equipment requirements and availabilityFacility LayoutShipping and/or receiving hoursShipper load and count or consignee unload vs. live

load or unloadUse of technologyThird party (3PL) assistance and consultation

Distribution Shipments

Moving multiple long haul LTL shipments from origin as a full truckload to a common break point, then tendering them as individual, short haul LTL shipments

Works best with high volume shippers•Consistent high volume shippers•Seasonal high volume shippers•Products with specific delivery dates

Reduces LTL carrier shipment costCan reduce shipper costMay improve transit timeTechnology requirements

Direct LTL vs. Distribution LTLDirect LTL Example

Atlanta, GA to Boston, MA1,000 poundsClass 7070% discount

Distribution LTL ExampleTL from Atlanta GA, to Carlisle, PA40 shipments weighing 1,000 pounds eachClass 7070% discountTL cost: $950TL Cost per shipment: $23.75LTL Cost – Carlisle to Boston: $162.51

Direct LTL cost: $227.22Distribution LTL cost: $186.26Cost Savings: $ 40.96

Industry and Customer Trends

Increased use of technology1. To gather data2. Plan and route freight – equipment, labor, control cost3. Exchange information with customers and vendors4. tracking, tracing, tendering, rating, proof of delivery

Costing at the individual shipment level and by individual account locations

Faster transit times More efficient, reusable handling units – pallets, bins, etc.Use of analysis tools for modeling and profitability

projections of potential customers

The Future Of TransportationIncreased use of technologyMore detailed analysis of shipment costUse of cube measuring tools to improve costingDensity based carrier pricingContinued U.S. Import shipment growthShift in population Shift in lane and trade balanceIncreased use of distribution shipmentsSupply chain network optimizationSuper carriers offering complete service portfolios Single point of contact and bundled pricing agreements

1. UPS2. FedEx3. DHL4. YRCW

Summary / ConclusionNational carriers and regional carriers costs are very different

Both shippers and consignees can control the cost and operating

ratio of their freight

Supply chain network optimization is directly tied to cost and OR

Continued Industry consolidation

•Fewer options, larger carriers, bundled pricing for all modes

Technology creates easily accessible, detailed shipment data and

provides additional opportunities for cost savings and process

improvement through supply chain visibility and optimization