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The Effects of Technology and LTL Pricing in the Freight Industry

The Effects of Technology and LTL Pricing in the Freight Industry

Earlier this month, uShip announced that its less-than-truckload spot marketplace grew by 228 percent in the first quarter of 2016 in comparison to the same time last year. The idea for a spot marketplace, which seemed innovative and strange two years ago, is now proving shippers’ continuous interest in non-contract rates for small freights. It seems like the LTL marketplace is affecting the industry more than anyone really expected.

The Effects of Technology and LTL Pricing

Since its beginning two years ago, the marketplace has grown significantly and now includes 30 LTL small and large trucking companies, including carriers such as FedEx Freight and UPS Freight. uShip currently has a base of over 350,000 registered freight shippers online, of which nearly 25% use the LTL marketplace. More and more of them are no longer restricting themselves to only domestic freight shipments, but are instead relying on international carriers, too. This shows the huge potential of the platform that brings together the benefits of scale and favorable dynamic pricing.

Not surprisingly at all, the main factor that allowed the quick popularity of the marketplace is the rapid development of technologies and the increased reliance on e-commerce.

Many consider Amazon as the first mover in this territory because it transformed online shopping and package delivery from luxury to daily convenience that is no longer considered only in B2C markets. Today more and more cargo and freight shippers are adopting technologies and software systems in order to increase their profitability in the transportation industry. This is also because shippers today expect the same type of treatment and service as customers expect from them. And this includes the opportunity to go online and compare LTL price rates.

The prices of LTL shipping have increased in the past years, despite the overall decrease in the prices in the whole transportation sector. This is because the hub-and-spoke systems that LTL companies rely on don’t have any excess capacity. The more efficient use of resources is not as common for full-truckload companies. This stability in the high prices, however, makes competition between the big players even more intense. This is quite unfortunate for small and mid-size LTL companies because it makes it harder for them to compete with larger players. The way these large companies define their pricing often depends on complex policies including tariffs and freight class. The marketplace eliminates these boundaries for the smaller LTL companies and allows them to stand closer to these large shippers in a consumer consideration set of alternatives.

uShip’s online marketplace gives the stage to small companies because it allows the user to click through different alternatives all competing solely on price. Moreover, it lets carriers take advantage of dynamic pricing and apply yield management strategies. By observing changes in consumer and market behavior, they can make the most out of any situation. Especially when it comes to back-haul lanes. It might be difficult to utilize a truck’s capacity when it is traveling back from point B to point A on an uncommon route, but the marketplace helps the carrier price accordingly to the situation and decrease inefficiencies.

The marketplace allows carriers to reach shipping customers directly, much like companies in the tourism sector.

Carriers can act a lot like hotels and target consumers with prices adjusted accordingly to market conditions varying by the season, for example. This strategy allows for higher asset optimization and increases the profitability of the most successful segments while maintaining strong yield levels. In one way, the marketplace changes the way carriers plan their pricing strategies. While using a broker is still common, now they can look and evaluate the market conditions daily and plan the most profitable daily strategy. The transportation sector will be seeing more of these strategic innovations as real-time decision-making continues to be optimized with the advancement of technologies and software tools.

Just like any innovation that disrupts the routine processes in an industry, the LTL marketplace has attracted opposition too.

Some people have been concerned with the safety issues that such systems bring. If the marketplace is not responsible enough, they claim, there might be some illegal trucking companies offering the lowest prices on their websites. Fortunately, the uShip does not deal with such cases. In addition to that, opponents of dynamic pricing claim that the LTL marketplace achieves higher profitability mainly through the manipulation of the consumers. This, however, seems to be a matter of perspective because what some call “manipulation”, others call “convenience” and “a possibility for choice”.

It is interesting to observe how technologies have allowed more innovations in LTL pricing that support and enhance the marketplace.

Dimensional-weight-based pricing is also a practice used by more companies today, including uShip. It helps shippers compare dimensional and class-based rates and optimize their spending. The continuous appearance of new models and tools in LTL pricing shows not only the technological progress in the industry but also the dissatisfaction with the current procedures and pricing schemes. For many, the National Motor Freight Classification system is a huge burden, and carriers are in need of more convenient pricing policies that minimize costs and provide a better return. This should only hint that there are more innovations to come in this field.

Observing these trends in LTL pricing reminds us of the state of the airline industry a couple of years ago when passengers became conscious about their airline choices. It was then that companies started utilizing their capacities, services, and benefits in accordance with each consumer’s preferences in order to leap out of the crisis. Now shipping carriers are becoming smarter about how they operate their networks too. LTL dynamic pricing will have a huge effect on supply chains but is only one small rock in the pile of changes that will occur in transportation management. Technology will be leading the industry forward and it will make freight rate pricing something to observe carefully in the years to come.

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