How Old is Your Rate Base - Does it Matter?
03/03/2016
Phillip Riback - Vice President for Development
There seems to be a competition among traffic managers as to who has the oldest LTL rate bases. We have some clients whose pricing is based on tariffs from the last century! We all know that over time, the rates rise, so logically it seems to make sense. Older rate base = lower list prices. But nobody except the retail customer with a single shipment a year actually pays list price, and if you are reading this, you are not that shipper. Everyone else gets a discount. Sometimes a very large discount!
When carriers develop their rate base, they take into account their costs associated with getting freight from shippers to a terminal, between terminals and finally from the terminal to the consignee. They look at distance to major highways, real estate expenses, traffic patterns, proximity to target shippers and consignees.
Rate bases are structured around US Postal ZIP codes. There are currently over 43,000 ZIP codes in the US. As populations wax and wane, new ZIP codes are created by splitting old ones and others are eliminated due to mergers. According to the US Postal Service, an average of 4,700 changes in ZIP codes occur every year. Make sure that your Transportation Management System (TMS) can accommodate adding ZIP codes manually if you are using an older tariff.
The past decade has seen tremendous upheaval in the LTL trucking industry in terms of mergers and acquisitions. We all recall the difficulties that YRC Freight experienced initially when Yellow Corp acquired Roadway Corp in 2003 and USF Corp in 2005. When these large mergers occur, there is an imbalance in terminals requiring companies to close some and combine others.
Some changes in cost are beyond the control of the carriers. A rural area with good highway access grows and traffic slows. Tolls are added or removed from a highway. A bridge is closed for repair for a year or two limiting access to the terminal. A new bridge is opened facilitating access.
As carriers’ analytics become more sophisticated, they can see the effects that the changes have on their shipping costs. These changes are then reflected in the rate base. So newer rate bases are more closely related to the carriers’ costs and there is less need for them to pad the discounts to balance the losses in one lane with extra profits from another. Take advantage of your TMS to make sure that the rates with a new rate base compare to the rates you received with the older one. We have been seeing discounts as high as 91 or 92% for our larger shippers when they use recent rate bases.
So don’t be afraid of using a newer rate base. You will likely lower your freight spend. Just use the freight analysis portion of your TMS to make sure your discount is adequate to justify the change.
4/19/2016 - How Using a Little Data Can Add Up to Big Savings
1/22/2016 - Corporate vs Carrier Rate Bases - Who Cares?
