In order to understand density priced shipping, start by understanding traditional freight rate classifications. These rates define how much a particular kind of load will cost, as defined by National Motor Freight Traffic Association (NMFTA) and made available through the National Motor Freight Classification (NMFC). Products are classified by specific parameters:
Then, products are divided into 18 freight classes with different freight charges. The classes were designed to help companies reach standardized pricing when working with different carriers or third parties and to assist the carrier in assessing transportation characteristics of commodities. Density is supposed to be the primary characteristic in such classifications, unless another parameter is dominant for freight price formation. Very often, within such a system, shipments must be reclassified or reweighed, which is a time-consuming process. Since multiple factors constitute a single classification, the pricing equation is complex and difficult to compare to other transportation modes.
Density based pricing is already being used in parcel carriers, air and ocean transportation; it is becoming more common with economy globalization and e-commerce growth. This method can be seen as an answer to truckload optimization for U.S. LTL carriers. Density pricing means that the shipping price is based on package volume that matches the amount of space a package occupies in relation to its weight. This way, the dimensional weight method combines physical volume and actual weight of a particular shipment to determine shipping cost.
How density is calculated:
Measure a packages’ length, width, height and weight (for example, 40″x 45″ x 60″ and 500 pounds) and use following algorithm:
1) Multiply length, width, height and divide it by 1728
40″x 45″ x 60″ = 108000
108000/1728 = 62.5 (cubic feet)
2) Divide actual package’s weight by cubic feet
500/62.5 = 8 (pounds/cubic feet)
3) The result is the density of the package
Density could also be measured in kilograms per cubic meter.
Since the classification system has many disadvantages and causes lots of manipulations with rates and discounts, density priced shipping is supposed to be the best step toward a more careful and equitable rate system. Pros of density based shipping:
However, such crucial changes for most carriers, shippers and third parties will cause new obstacles in implementing the systems. NMCF classifications were in place for 70 years, and switching to a different classification will require time and effort:
There should be a clear understanding between shippers, 3PLs and carriers on the objectivity of such a system. Density priced shipping should be easier to use and fair to all parties, but it requires investment in technology and trainings.
What to Read Next: