Shippers, carriers planning for ‘modernization’ to NMFC that will impact LTL pricing, efficiency

Shippers and less-than-truckload (LTL) carriers are preparing for major changes in ratings of their freight shipments beginning in March that can be summarized in three letters—KYC—or Know Your Classification.

Enlightened shipper interests are hoping these changes will create dialogues with carriers to find common ways to cut costs and create efficiencies in freight moves and dock practices.

“The overall goal of this is modernization,” Richard Ellis, vice president of pricing for Estes Express and a 40-year trucking veteran, said during a recent online seminar sponsored by TranzAct and the National Industrial Traffic League. It was held as the National Motor Freight Traffic Association (NMFTA) is preparing major National Motor Freight Classification (NMFC) changes to take effect in the first quarter of this year.

The first group of reclassifications will affect about 2,500 classifications, or about 30% of all LTL freight, Ellis estimated.

These changes will impact carriers, shippers and third-party logistics providers (3PLs). Carriers are hoping shippers will see this as an opportunity to engage in better negotiations with their carriers and outperform their competition. Other shippers will see it as a threat to their business if it causes their LTL costs to go up.

“This is arguably the most important change (after motor carrier deregulation) in pricing in the LTL industry’s history,” Mike Regan, chief relationship officer and founder of TranzAct. “Pricing in the LTL space has been typically more art than science. But that is changing.”

Because of data sharing, weight is no longer the sole criteria in freight pricing, Soon, it will be a combination of weight, dimensions, as well as distance, Regan said.

The emphasis will soon favor more strategic partnerships rather than purely transactional ones, Regan said.

Eliminating waste in packaging and pallet configurations will soon be emphasized in LTL moves. So will delays in load tendering times as well as other wasteful dock practices.

“Much like the airlines, there will be a price related to this,” Regan said. “More and more shippers will be paying for the waste.”

Geoff Muessig, chief marketing officer at Pitt Ohio, a major Eastern LTL carrier, said it “certainly is not the intent” to be confrontational with shippers over these changes.

“Weight is convenient and easy but usually what is convenient and easy leads to waste,” Muessig said. He is recommending large shippers buy dimensional pricing machines—about $80,000 apiece—that could pay for themselves in a few months. “The change is necessary,” Muessig said. He said there often is a disconnect between what the shipment looks like on paper and what it actually looks like on a pallet or handling unit.

“It’s going to be much more of a collaboration between the shipper and carrier on how they can optimize and change,” Muessig added. “But they are necessary. Costs are rising in the trucking industry. They are well documented. We need to optimize and eliminate waste.”

Shippers may need to change their expectations on how they interact with their carriers, these carrier officials said. “This change in pricing structures is going to take some of the transportation costs and put it back on operations,” Muessig said.

Steve Robinson, CEO of the Supply Chain Project and a former UPS and Roadway executive who also worked for Walmart and Starbucks during his 45-year career in transportation, said “an entirely new world” in freight transport is coming.

“It’s a necessary response by the LTL industry,” Robinson said of the classification changes. “There is some cleanup that needs to be done in terms of KYC—know your classification.”

As Ellis of Estes explained, he once spent two hours in a private talk on LTL pricing and classification at a major cosmetics manufacturer. He said “not one” of the participants understood the arcane process.

“They told me they didn’t care,” Ellis said. “We have to make sure these people understand this process by modernizing the system.”

Ellis estimated that Estes is using dimensional pricing on about 70% of its freight. Using proper freight dimensions and classifications “will become even more important” in LTL rates going forward.

To help enlighten these types of shippers and ensure that NMFC updates aren’t occurring at once, NMFTA has implemented a phased-in approach, with the first changes coming in Docket 2025-1 in March. The upcoming phases that will be incorporated by the NMFC consist of:

• Standardized density scale for LTL freight when handling, stowability and liability issues are not present;
• Unique identifiers for freight with special handling, stowability or liability needs;
• Condensed and modernized commodity listings; and
• Improved usability of the ClassIT classification tool.

Both the NMFTA and NMFC expect the changes to streamline workflows, enhance communication and visibility and increase the overall satisfaction of everyone involved.

NMFTA officials estimate the changes will move as many as 3,500 single-class items to 13 subcategories. The LTL sector is expecting more carriers to push for “density-based pricing,” which will likely increase LTL costs.

Regan of TranzAct, which specializes in improving LTL efficiency for shippers, has said “that a whole bunch of shippers are not really well versed on what density-based pricing means” or understand how it will affect their costs.

Some background: Historically, the way freight has been rated in the LTL sector is by classification. The National Motor Freight Classification (NMFC) used four criteria to aggregate products into freight classes:

• Density;
• Handling (or susceptibility to being damaged); 
• Stowability; and 
• Liability (value of the product being shipped).

Classes could go anywhere from class 50 up to class 500. The beauty of this system is once products were “classed,” determining the cost to ship them was simply a matter of determining an individual shipment’s weight and distance to its destination.

Density-based pricing, which began in the last decade, changes things for shippers. Whereas, in the past, commodities were assigned a classification dependent on the average density, a.k.a. pounds per cubic foot, (and other criteria) for all products moving under that description, now LTL carriers are using dimensioner-measuring technology to obtain accurate density information on every shipment being put on their trailers.

In short, LTL carriers no longer have to rely on averages. What this means is the product description is no longer the sole determinant of the freight class. Instead, the NMFC is being amended to include more and more density-based classifications within a product description category.

For more information, visit www.nmfta.org.