Executive Briefings

Is Trucking Ready for Reality-based Pricing?

Mileage-based rates within the trucking industry typically are not calculated using actual miles driven. Instead, they generally are based on historical zone-to-zone mileage or on the standard shortest possible route between two points. That's known as "practical routing," explains Craig Fiander, vice president of marketing at ALK Technologies, which provides mileage mapping software.

"In an auditing situation, shippers compare the mileage charged by the carrier with the mileage of the shortest route, and variations are generally kicked out as exceptions," he says.

There are reasons for discrepancies, however. One of the most common is the use of 53-foot trailers, which now are far more prevalent than 48-foot trailers, but which cannot always travel on the same routes because of size restrictions. Another is hazardous materials. "If I am carrier hauling hazmat in the Northeast corridor, my mileage will be anywhere from 3 percent to 18 percent longer than the standard shortest or practical route, yet many rate calculations continue to be based on practical routing," Fiander says.

Shippers have their own concerns, such as how to gain transparency to toll fees that often are bundled and incorporated into freight rates.

All these problems could be addressed if the industry moved to reality-based pricing, Fiander says, adding that actual miles cold be calculated with existing technology. "We just think that everyone should look into reality-based pricing," Fiander says. "It is not that we think the industry will want to adopt rates based on this kind of detail overnight, but by doing street-level routing and analysis, carriers or 3PLs would know exactly what their costs are and could use that information in negotiations however they deem appropriate."

Of course, Fiander notes, this cannot happen until the economy improves. "But now is the time for carriers to begin developing the data," he says.

To view this video in its entirety, click here.

"In an auditing situation, shippers compare the mileage charged by the carrier with the mileage of the shortest route, and variations are generally kicked out as exceptions," he says.

There are reasons for discrepancies, however. One of the most common is the use of 53-foot trailers, which now are far more prevalent than 48-foot trailers, but which cannot always travel on the same routes because of size restrictions. Another is hazardous materials. "If I am carrier hauling hazmat in the Northeast corridor, my mileage will be anywhere from 3 percent to 18 percent longer than the standard shortest or practical route, yet many rate calculations continue to be based on practical routing," Fiander says.

Shippers have their own concerns, such as how to gain transparency to toll fees that often are bundled and incorporated into freight rates.

All these problems could be addressed if the industry moved to reality-based pricing, Fiander says, adding that actual miles cold be calculated with existing technology. "We just think that everyone should look into reality-based pricing," Fiander says. "It is not that we think the industry will want to adopt rates based on this kind of detail overnight, but by doing street-level routing and analysis, carriers or 3PLs would know exactly what their costs are and could use that information in negotiations however they deem appropriate."

Of course, Fiander notes, this cannot happen until the economy improves. "But now is the time for carriers to begin developing the data," he says.

To view this video in its entirety, click here.