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July 18, 2016 2:30 AM, EDT

FedEx Freight Adds Pricing Option Based on Distance, Dimensions

FedEx Freight

This story appears in the July 18 print edition of Transport Topics.

FedEx Freight has launched a freight box service that could have a big effect on the way less-than-truckload carriers charge customers, moving toward dimension- and distance-based pricing rather than the National Motor Freight Classification system, analysts said.

FedEx FreightBox will offer an alternative that would be simpler for small- and medium-size businesses, the company said.

“We understand that our customers need to focus on growing their businesses, not on navigating a complex LTL shipping process,” Sean Healy, senior vice president of strategic planning and engineering at FedEx Freight, said in a statement. He added that giving customers a more parcel-like shipping experience makes it easier for them to ship LTL.

The standard freight box measures 48 inches long, 40 inches wide and 38 inches high. The smaller freight box is the same length and width but 10 inches shorter.

FedEx Freight will charge a flat rate for up to 1,200 pounds. The shipper can place loose items inside the box or shrink wrap and palletize the freight.

“The new service will be highly profitable. It is being marketed to customers who wouldn’t normally use LTL,” said Donald Broughton, an analyst at Avondale Partners. He said the box is intended to attract incremental business to fill empty space on trucks, rather than giving existing customers an incentive to switch packaging methods.

Art Hatfield, an analyst at Raymond James, believes that moving away from the freight classification system is a positive step because carriers usually care more about space on the truck than the tonnage of the shipment.

“LTLs are becoming more prominent in final-mile delivery, so simplifying the price for the consumer and the e-commerce fulfillment companies is a good thing. I think this will move the LTL industry in the right direction,” he said.

The National Motor Freight Traffic Association has 18 freight classes based on four characteristics: density, ease or difficulty of handling, stowability and liability from theft, damage or spoilage. But some find the system confusing. For example, potato flour is listed at class 55, but corn flour is class 50, according to the association.

“They’ve really bastardized the function. It’s much too complicated. There is no reason for the complexity. It’s a mysterious thing and unfair in so many ways,” said Jack Ampuja, president of Supply Chain Optimizers and executive director of Niagara University’s Center for Supply Chain Excellence.

But the Commodity Classification Standards Board, which works on National Motor Freight Classification issues for the association, counters that the system isn’t confusing.

 

“I believe the example you’ve given demonstrates the utter simplicity of the NMFC. Shippers of potato flour know their products are assigned class 55, and shippers of corn flour know their products are assigned class 50. There’s no confusion there,” CCSB Chairman Joel Ringer said.

“No one characteristic tells the whole story; only an evaluation of all four characteristics can truly determine a given product’s transportability, and thus, its respective costs.”

Ringer calls density a “guiding principle” in the freight classification system, but it also has limits.

“From our perspective, this is less a pricing issue than a costing issue.

And density alone does a poor job of reflecting the costs associated with the transportation of LTL freight,” he said.

Memphis, Tennessee-based FedEx Corp. also announced that FedEx Freight will start zone-based distance pricing, which Ampuja believes other LTL carriers also will implement. He added that the FedEx Freight pricing appears to be reasonable if the shipment is near the 1,200-pound limit, after he compared actual quotes with his clients against the FedEx rate. But he cited an another example of a carrier for one of his clients who charged $122 to send a 1,000-pound load from New York to Memphis versus FedEx’s rate of $188.

The question is whether the new freight service will become popular and whether other LTL carriers will follow.

YRC Worldwide, based in Overland Park, Kansas, said it has a similar density-based option called Dimensional Freight Quote.

“We launched our DFQ instant quoting and booking service to help customers who don’t want to use confusing ‘class’ rules and want to be able to quote, book and ship in a matter of minutes,” YRC Freight President Darren Hawkins said in a statement.

Representatives at UPS Inc. and XPO Logistics declined to comment.

FedEx Freight ranks No. 1 on the Transport Topics list of the largest for-hire carriers in the United States and Canada in the LTL sector. YRC Worldwide ranks No. 2, XPO Logistics is No. 3 and UPS Freight ranks No. 5.