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White paper calls on 3PLs to reduce liability limits on LTL shipments
A PAPER issued by transportation and logistics consultancy CarrierDirect says third party logistics (3PL) providers should lower carrier liability limits to secure capacity and better rates from less-than-truckload (LTL) carriers.
The document also adds that 3PLs can become strategic partners of LTL carriers in tight capacity environment by reducing a major pain point for carriers, reports American Shipper.
"The secret to stronger relationships is hidden in ideas such as lowering carriers limits of liability, moving to density-based pricing or embracing rate optimisation through dynamic pricing," the paper said. "Examples of the current liability system breaking down are plentiful because of the inflated limits provided in a blanket-type structure."
The paper cites the example of a 2,000-pound shipment of cotton balls from Chicago to southern California using the National Motor Freight Classification (NMFC) code, with each 0.41-pound bag valued at US$4, putting the total value of the shipment at $19,512.
If the LTL carrier ABF, which publishes liability of $25 per pound at that NMFC class, picked up that freight, the shipment would be covered for up to $50,000 if it's damaged or lost, which is $30,487 over the actual value of the freight.
In addition, paper then assumes that ABF has published a 76 per cent discount on its rate with a 25 per cent fuel surcharge, bringing the total transportation cost to $850.38.
"Since ABF is publicly traded, we know that ABF's 2014 (fiscal year operating ratio) was 97.4, meaning that the profit on this shipment is $22.11," the paper said.
"If ABF loses one 2,000-pound shipment of cotton balls, they need to move 883 shipments to break even, which is one shipment per day for 3.5 years, or $750,462 in revenue to break even on the $19,512 claim.
The paper said 3PLs can stand out from the pack with LTL carriers as a strategic partner by suggesting that limits of liability be lowered to $1 per pound across the board.
"Doing so, however, is not a quick play to get better pricing," the paper said. "The public markets demand a better return on invested capital from motor carriers, which leads industry experts to anticipate a four to six per cent increase in LTL rates over the next year."
The document also adds that 3PLs can become strategic partners of LTL carriers in tight capacity environment by reducing a major pain point for carriers, reports American Shipper.
"The secret to stronger relationships is hidden in ideas such as lowering carriers limits of liability, moving to density-based pricing or embracing rate optimisation through dynamic pricing," the paper said. "Examples of the current liability system breaking down are plentiful because of the inflated limits provided in a blanket-type structure."
The paper cites the example of a 2,000-pound shipment of cotton balls from Chicago to southern California using the National Motor Freight Classification (NMFC) code, with each 0.41-pound bag valued at US$4, putting the total value of the shipment at $19,512.
If the LTL carrier ABF, which publishes liability of $25 per pound at that NMFC class, picked up that freight, the shipment would be covered for up to $50,000 if it's damaged or lost, which is $30,487 over the actual value of the freight.
In addition, paper then assumes that ABF has published a 76 per cent discount on its rate with a 25 per cent fuel surcharge, bringing the total transportation cost to $850.38.
"Since ABF is publicly traded, we know that ABF's 2014 (fiscal year operating ratio) was 97.4, meaning that the profit on this shipment is $22.11," the paper said.
"If ABF loses one 2,000-pound shipment of cotton balls, they need to move 883 shipments to break even, which is one shipment per day for 3.5 years, or $750,462 in revenue to break even on the $19,512 claim.
The paper said 3PLs can stand out from the pack with LTL carriers as a strategic partner by suggesting that limits of liability be lowered to $1 per pound across the board.
"Doing so, however, is not a quick play to get better pricing," the paper said. "The public markets demand a better return on invested capital from motor carriers, which leads industry experts to anticipate a four to six per cent increase in LTL rates over the next year."
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