Date post: | 20-May-2015 |
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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