Change is constant. Throughout the supply chain, we see changes in material costs, demand, fuel surcharges – you name it. So, why in an industry that is constantly affected by change, are we stuck using static rate tables or routing guides? A dynamic industry requires dynamic pricing to get the best results.
The Benefits of Dynamic Pricing
As more LTL companies adopt new technology and adapt to the digitization of the industry, the more you will see carriers, shippers and 3PLs move to a dynamic pricing model. However, some shippers and 3PLs are nervous about this prospect because they fear the lack of budget certainty. While it does allow for pricing to go up during a tight capacity market, it also allows for rates to drop when there is increased capacity or carriers need to fill trucks in certain lanes. Therefore, it is actually a win-win for carriers and shippers/3PLs.
For carriers, dynamic pricing allows for on-the-spot, real-time pricing changes to account for capacity. The fuller carriers keep their trucks, the better off they will be, and shippers/3PLs can snag lower rates for shipments in real time. LTL carriers can use dynamic pricing models to correct lane imbalances, test pricing, adjust for seasonality, expand new geographies and have the agility to adjust pricing as their networks change.
While dynamic pricing may seem as though it gives carriers all of the power, there are benefits for shippers/3PLs as well. As noted above, to help carriers fill needed lanes, shippers will be able to take advantage of in-lane, real-time rate reductions as well as incentives to book and tender subsequent shipments when picking up on the same day at the same location or on a certain day of week. Many LTL carriers already offer such incentives today to shippers using the carrier’s software program or via an API connection. As shippers/3PLs move to API connectivity to rate shop in their TMS and as transportation services become more commoditized, LTL carriers will need to continue to evolve their dynamic pricing and incentives to remain competitive and show their value, which will balance the carrier-shipper/3PL relationship.
Dynamic pricing models may eventually replace the RFP process. For now, they will continue to work in tandem, and as long as contracts are still in place, shippers/3PLs will never have to pay more than their contracted rate with their preferred carriers. They will only benefit from lower-than-negotiated rates when offered. Utilizing a dynamic-pricing API in their transportation management system will also allow shippers/3PLs to work with new, regional or local carriers to best service their customers.
The New Frontier of LTL Logistics
As technology integrations continue to improve digitization and automation of logistics processes, dynamic pricing models will increase in popularity. In an industry with ever-changing factors that affect rates, yearly contracts with annual negotiations do not make much sense.
If you have any questions about dynamic pricing and how implementing freight-pricing APIs can help benefit your company, please feel free to reach out to me firstname.lastname@example.org or (813) 753-9146 or schedule a meeting at https://meetings.hubspot.com/rrubino.
For even more information regarding dynamic pricing, download our guide, "Leveraging APIs in a Dynamic LTL Pricing Environment."