Do you understand LTL “Blanket” pricing and how it’s used by 3PL’s?
If you contract with a 3PL to manage your LTL freight, or are just considering the idea, it’s an important term to understand.
The concept of “Blanket” pricing provides valuable insight into the relationship between 3PLs and carriers. As a shipper, this knowledge can be the key to receiving better pricing and service – but more on these benefits later.
How does “Blanket” pricing work?
Most carriers operate with a series of base rates that vary by region and type of cargo. These rates are similar to “rack rates” in hotels – providing a basic rate to make quoting easier. Establishing a type of floor for rates, “Blanket” rates serve to keep competition from undercutting this baseline while allowing for quick transactional processing. However, as with hotels, carriers offer discounts to 3PLs based on volume. This allows carriers to remain neutral and let the 3PLs compete between themselves and set their own margins to win shipper’s business.
While “Blanket” pricing makes things easier for the carriers, it does nothing for the shippers using the 3PLs on “Blanket” rate contracts.
For example, 3PLs will typically have contracted “Blanket” rates for a period of time. So if a customer starts doing business with a 3PL eleven months into the 3PL’s contract, customers may enjoy those rates for just one month before an increase takes place. When rates change most shippers see those costs passed on by their 3PL, with no explanation or offer of other options.
3PLs will also steer volume to a small number of LTL carriers seeking to maximize their own discounts. This is seldom done for the benefit of shippers and often at the sake of service. These types of contracts can also affect the liability limits offered by a carrier and the amount recoverable in a claim.
Like carriers, “Blanket” rates are often preferred by 3PLs because they simplify rate management. Not having to consider the specific factors that make a shipper’s business unique gives them less to worry about. But, in many ways it’s really about being lazy and it is not doing any favors for the end customer – you the shipper.
So what to do? The answer for many is to insist on “account specific” pricing from the 3PL. Smart shippers will not settle for “Blanket” pricing, and in our next post we’ll talk about ways to get it.
If you can’t wait for part 2 to see how this strategy would work for you and reduce your bottom line, I have developed a simple 3 step process that can quickly identify your savings potential without a lot of effort on your part. Contact me, Mike Rogers, for a quick call and together we can determine how you can implement this strategy into your Supply Chain game plan. I can be reached at miker@4way.com
