I interviewed Hank Mullen who discussed Cube, Volume, Density, Dimensional Weight, and How to Convert These to Space-Occupied Pricing.
It’s great to speak with you again, Hank. We’ve done several interviews in the past, and this one, I’m looking forward to going into a little bit more depth on the topic. The title of this interview is “Cube, Volume, Density, Dimensional Weight, and How to Convert These to Space-Occupied Pricing.” My first question, if you could provide a brief background of yourself? Then my question is: Do you know the difference between volume density and space-occupied pricing?
Yeah, that’s the whole crust of the biscuit. I’m 46 years into transportation now. I’ve worked with UPS in consolidated freight waste, ground transport, ran the UPS center in Watertown, LTL out of West Palm Beach. I have done over-the-road actual driving of the big rigs, local deliveries. I essentially grew up in the industry, since 1969. All of the things that I’m watching here, everybody says, “How do you know all this?” To be 100 percent honest, every time I made a mistake, I remembered. You’ve got 40-plus years of “don’t do this.” I can tell you why: It doesn’t work. Plus, I’ve worked with some huge corporations and really gifted people, so I had a lot of great mentors as I was growing in the industry.
My whole thought right now is: very few people understand classification pricing. It is extremely complex. What they really don’t know is when you sign the bill of lading, which is item 360 in the NMFC, everything that’s in that carriers rules tariff and in the NMFC are incorporated by reference. You agree to over 800 pages of NMFC and anywhere from 30 to 120 pages of rules tariffs. I thought, This just doesn’t work anymore. It’s cumbersome if you have a problem. You go through contracts and everything, so you’ve got to sit down and think about how you’re going to use this system. That’s the biggest problem everybody has. This is just impossible to replace or to make comparisons with what I’m paying now and what I’m to pay and how I make changes as my imbalance is changing and customers request a lot more space of the carriers’ equipment.
Thanks. What are your recommendations, then, for moving forward?
Three things. I think the most important thing is to realize that, like I said, it’s not your father’s Oldsmobile. You’re going to have to bring the IT people in and say, “Can we do this?” What you’re going to ask them to do is make a call on a cloud-based system that goes directly into the carrier’s pricing module. You say, “Give me a rate for these criteria” and the standards, from-to, weight. The thing you’re obviously going to do is how many cubic feet in UDUs. The IT people are going to look at you and say, “You called me in here to ask if we could make a call to a cloud-based system? Then they get up and walk out because it’s so simple. You’re getting a direct-response rate from the carriers’ pricing at corporate. It’s all downhill from there.
We have a system that’s been doing that for over three years. There are 23 different things you can set up to balance all of the nuances that are in freight—inbound-outbound, availability, release value, day of shipment, payment terms, it goes on and on. That’s the biggest thing. This is not hard to do.
The second thing I think people have a problem with is how you make these comparisons. Well, if you look at the National Motor Freight Classification Class 100, there’s a cost per hundred that is also scale-associated, which is nine pounds a cubic foot. You have 18 freight classifications, and they have varying pounds per cubic foot. The way it worked when it was set up is Class 100 was the basis. If you had Class 50, it was half of Class 100; and if you had Class 200, it was two times Class 100. If you look at what’s happened to the years, Class 50 is no longer 50 percent of 100; it’s 57 percent. The carriers have taken the smaller freight classes—50/55, 60/65—and really kind of padded them. It changes by lane and by distance.
The easiest way to come to an agreement is agree upon everything’s nine pounds a cubic foot or a percentage of on any given lane, any given day, on any commodity. You could end up with what would be, instead of Class 70, 15 pounds a cubic foot, you might have Class 71.4 or 64.4. It’s all based on the amount of space a carrier has at any given time, and it can change on a daily basis. People say, “That’s really, really complicated.” I said, “Have you ever made an airline reservation? That’s all it is; it’s exactly what it is.” If you look at the way the airlines work, you might call at 11 and get a price, and at 11:30, when you call back to book it, it’s changed. That’s because the space they have to occupy on that particular flight is full or 90 percent full. It’s not a new idea. It’s used in the reservation systems on the saber for over 110 air carriers, and it’s been that way for, God, I don’t know, 30 years. It’s not a new idea; it’s just the idea that we have to get into real-time pricing because the carriers have such a hard time with capacity.
For example, if you’re in Dallas and you want to ship to Georgia, you say, “I’m going to ship on Monday and Tuesday,” they’re going to say, “Could you do Wednesday?” You’ll say, “Why?” They’ll say, “Because we have sixty percent of our equipment that’s going over there and it’s not full; I’ll give you the best price on Wednesday.” Of course, you can’t do that immediately; you have to consider your customers and everything, but it’s usually worth a good 15 to 20 percent reduction. You’re essentially shopping back haul by lane, inbound-outbound, by day of week and that’s powerful.
The kicker is, the people over there in Georgia know how much space they need. Why would you send a twin screw 53-foot trailer out when you can use a 26-foot straight truck on a cash-all basis? Sorry, union guys. It just makes you so much more efficient. That’s what it’s all about: getting all the efficiencies we can and driving out this intimacy system that has cost the * (9:09—unclear) carriers billions of dollars because they just can’t adapt to it that fast. That’s just huge. Your third one—and it’s on our Web page, Dynarates.com, and it’s under the shippers.
There’s a good explanation of the difference between cubic space, occupied density, volume, and it’s written by Bill Pugh. He was the executive director of a corporation called the National Motor Freight Traffic Association, or the NMFC. Bill retired in 2007, when the Surface Transportation Board got rid of all the antitrust revisions that the carriers had. If you go to the NMFC now and look at their policies and procedures, Section 11A says the carriers have the right of independent action. They don’t have to do this as a group anymore. But nobody seems to realize that it’s 100 percent legal and it’s the Surface Transportation Board’s 656 antitrust ruling.
Everybody’s scratching their head, saying, “How are we going to use this?” The Surface Transportation Board clearly stated this opens up the options for all kinds of new pricing and they’re right. The last time something like that happened that was really significant was the 1980 Motor Carrier Act that just freed up all the transportation. Believe it or not, if you were taking washing machines down Main Street in Detroit and a competitor saw you and they had the rights and you didn’t, you couldn’t do that. It was the biggest form of communism I’ve ever heard. The Motor Carrier Act says anybody who wants to join this, do it; and within a year or two, there were two or three thousand more carriers with a savings to the shippers in billions of dollars. Jimmy Carter, he’s the one who got it done. Three Presidents before him tried to do it and couldn’t get it pushed through; not even Kennedy. Nobody could do it and he got it done and it’s huge. It just frees up what we can do. Everybody’s going to say, “This is confusing.”
Like I said, from the start, about 80 to 85 percent of the LTL carrier’s pricing is contracts. When you see a 4.95 increase from some LTL carrier, if you have a contract, it means absolutely nothing to you; you’ve locked in your rates and everything for whatever you’re going to do. That’s the simplicity of it, and it has all kinds of implications in the first place when you do it. Just do the simple cost savings. If you’ve got a $20 million budget, a $2 million budget, or $100 million budget and you’re paying a freight-bill auditor—we did one in Texas. The very first thing we did was eliminate that, and that number was $300,000. We essentially told the carriers, “You audit us, we’re not going to audit you.” It’s very, very common.
That’s the bottom line. This is not complicated but you’ve really got to sit down with your carriers and use what’s call vested outsourcing. If you do some Google searches on that, you’ll see some huge corporations that are doing it and the numbers are staggering. I strongly suggest you do that vested-outsourcing Google search and read some of those. The second paper that was written was Unpacking Transportation Pricing, and that was one that Pete Moore, Lynnette Guess, and myself wrote. It’s about 30 pages, it’s really intense, but it breaks it all down, and you begin to realize it. There are 10 or 15 of those papers now, so that’s another thing you might want to take some time to read. It takes some time; it’s really intense. Like I said, that kind of bottom-lines it.
Thanks, Hank, for sharing again, and I look forward to continue to have discussions with you as things progress and if you have more insight into this topic.
I appreciate this. I’m looking forward to hearing the responses from this.
About Hank Mullen
Principal, at Third Law Sourcing.