September 2011 | Commentary | In Perspective

It’s Time for Freight Classification Reform

Tags: Trucking, Legislation, Public Policy, and Regulations

If the volatile economy hasn’t made the case, demographics might. The motor carrier pricing structure needs an overhaul.

It's not a new argument that the legacy National Motor Freight Classification (NMFC) standard, which groups commodities moving in interstate, intrastate, and foreign commerce into one of 18 classes, is cumbersome and complex, and doesn't mesh with today's freight market realities. Raise this discussion at an industry conference and watch the room divide into two factions – more like a scene from West Side Story than a professional association meeting.

The NMFC uses density, stowability, ease of handling, and liability to classify freight. Before starting a rumble, consider that the NMFC retains some strengths.

Using density to classify freight makes sense because carriers are selling space on a trailer. A shipment's weight and cube is the lowest common denominator in a less-than-truckload environment where carriers mix different commodities from different shippers.

Stowability overlaps with density because some freight characteristics can affect efficient loading. Restrictions on top loading or the shape of a load, for instance, can require the space above the load to go unused. Density and weight alone don't account for this.

Strap an automotive exhaust system to a pallet, slap on a label, and you have a unitized load, but not one that can be handled in a mixed-freight environment without special care. This extreme example, offered by an LTL terminal manager, hits density and stowability, as well as ease of handling. And, it leads right into liability because there is probably no chance a fast-paced freight terminal can process that load without damaging it.

A simplified approach to describing shipments in the terms used by the NMFC would go a long way toward keeping its strengths. Give the task to an 11-year-old and perhaps we'll get an app for that.

One reason we need more simplicity is that fewer people understand the nuances of the legacy tools we're using. As a professor told a group at last year's Council of Supply Chain Management Professionals conference, once he retires, no one in his department will know the NMFC. How will we teach it if we are losing that experience and knowledge base? We'll be sending new logistics professionals into the field who are NMFC-illiterate.

A newer generation may have the advantage because they'll hear the freight classification arguments as they evolve. Lane balance and lane density issues will always enter into pricing. Accessorials for extra services are also relatively easy to explain. But, how do you price for time? Not speed, time.

Dock inefficiency at origin and destination eats up driver hours. Shorter hauls with more stops and more traffic reduce the efficiency of a driver's available hours. Mileage-based compensation doesn't fit nearly as well in this environment, and this is the environment we are working in.

We're coping with a complex pricing tool to identify freight characteristics, then rolling right into an increasingly complex system to price that load's movement. For the sake of shippers, carriers, and consignees, we need to focus some resources on reforming pricing structures. Economic deregulation should have opened up an opportunity, but our attachment to legacy systems has created a jumble rather than a hybrid.

The only place to discuss pricing structure collectively is under the umbrella of the classification system. Let's get it done.