Opinion: Reality-Based Carrier Pricing and Driver Pay
By Craig Fiander
Senior Director, Marketing
ALK Technologies Inc.
This Opinion Piece ran in the Jan. 28 print edition of Transport Topics. Click here to subscribe today.
Events in the year just ended could foreshadow changes in the way trucking is priced. While some developments involved new trucking technology, others have resulted from legal, legislative and regulatory developments.
The latter include the Surface Transportation Board’s successful move to abolish the ability of carriers to arrive at rates collectively. The STB’s decision to terminate antitrust immunity for collective rate-making activity went into effect Jan. 1, pointing the way to profound changes in the way a number of motor carriers set freight rates.
Another development that could affect pricing is the growing trend for elected officials to see tolls as a politically palatable way to raise revenue for infrastructure maintenance and development. Examples include New York City’s attempt to institute so-called “congestion pricing” — essentially a toll by another name for entering certain parts of Manhattan. That effort was stymied, but only for the time being. If New York ultimately succeeds, it could set a precedent for other U.S. cities.
Elsewhere, larger, more frequent toll increases are coming. Privatization — exemplified by the lease of the Indiana Toll Road — could lead to even more rapid toll escalation on privately run facilities.
Whether imposed by government or a private company, substantially higher tolls are coming — whether we like it or not — and their effect on transportation pricing will be considerable. For transportation providers, tolls no longer can be treated as overhead or a pricing afterthought.
On the other hand, tolls will apply only in some areas, along certain corridors and across specific river barriers. To generalize, such toll costs would be unfair to a majority of shippers. Toll charges should be allocated where they are paid and applied only to the relevant shipments.
In general, dollar amounts for tolls will increase and so will the proportion of transportation costs represented by tolls. Anyone with an interest in transportation pricing needs to stay on top of the trend and the specifics.
On the technology side, recent offerings make it possible to anticipate and allocate exact toll costs for any shipment and bill those costs accurately to the customer. To fairly price their own products and manage logistics most effectively, shippers should — and ultimately will — demand reality-based toll pricing. The smart ones will pay willingly, but only for the tolls they can verify themselves.
We now have the ability to provide precise billing and
dispatch mileage from the shipper’s dock to the receiver’s door. This precision offers an opportunity to supplant traditional mileage estimates based on decades-old methods with the actual miles a given trip requires.
In years past, it made sense to price transportation based on mileage between key points within larger zones, beginning with city centers. Shippers paid for mileage between two representative points rather than from one street address to another. Sometimes they paid for more miles, sometimes for fewer. Over time, the logic went, it all evened out.
Today, there is simply no need for such deliberate imprecision. We have technologies enabling us to calculate precise mileage between virtually any two points — not just cities and zones but from one street address to another — in real miles, not in symbolic distances such as household goods mileage.
On the carrier side, real miles offer the opportunity to eliminate a long-standing driver complaint: When drivers are paid by the mile, you typically find discontent with household goods mileage. Mileage differentials may average out but not in driver perception. Most drivers will tell you that, for many trips, they drive significantly more miles than they are paid for. Whether or not this is the actual case, drivers certainly believe it is.
Charging customers — and paying drivers —for real miles removes that perpetual irritant in driver relations.
Up to this point, we’ve been talking about truckload carriers, but the same principles — and the same Surface Transportation Board decision — will apply to less-than-truckload carriers. Carriers will have to arrive at rates individually and with a keener eye for competition. Real miles and real tolls — actual costs — will be critical in formulating rates that will attract freight but still provide a reasonable margin of profit.
It’s safe to say that a shift to real miles and actual tolls pricing will be a change some shippers and carriers will resist. But over the long term, its essential equity will prevail. The business community at large will come to see it that way, and a new tradition will evolve.
Founded in 1979, ALK Technologies, Princeton, N.J., is a developer of truck-specific routing, mileage and mapping software solutions.
