It’s been a couple of weeks since the last article and I apologize for that - other than the usual busy and occassional mental blocks, I have no other excuses.
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The dictionary defines dynamic as “always active or changing” which speaks to the heart of supply chains in terms of optimal capacity placement and pricing.
The ability to optimize routes utilizing algorithms, artificial intelligence (AI) and other technology tools has been around for a while, replacing manual tools such as spreadsheets and in some cases, nothing at all.
The benefits of using such technology tools are typically to reduce costs and save time.
So, add dynamic pricing to dynamic routing and a carrier can not only reduce costs and save time but also provide more accurate pricing based on demand.
As Bill Cassidy writes in a recent JOC article, “the use of dynamic pricing is poised to expand in the less-than-truckload (LTL) sector as changes wrought by the COVID-19 pandemic transform the LTL market.”
Indeed, not only is dynamic pricing ready for takeoff in the LTL market but also in the last-mile.
Last-mile dynamic pricing
UPS will likely be the first national last-mile carrier to introduce dynamic pricing based on technology investments it has made in recent years and its focus on profitable volume.
“What carriers want is freight that fits their network,” vice president of LTL innovations for HaulSuite, Lance Healy told Cassidy.
The same is true for UPS. “We're controlling the volume that comes into our network because we're laser-focused on revenue quality. We used to think that every package was the same. We don't think that anymore. So for some shippers, we're no longer delivering their packages, and that's OK with us. UPS ceo Carol Tome told analysts on Oct. 26.
UPS introduced its Dynamic ORION (On-Road Integrated Optimization and Navigation) in 2020 which reoptimizes routes in real-time and based on changing conditions. As the routes are optimized in real-time, it’s just a matter of time before pricing is incorporated into ORION.
During UPS’ investor and analyst virtual conference in June, UPS executives discussed their Next Generation Profit initiative, a cross-functional program that, among other things, allows UPS to “optimize pricing for each customer and better align our cost to serve with the value we create.” During the discussion, UPS CFO, Brian Newman said, “We are continuing to evolve the platform to leverage technology that will adjust pricing in a more dynamic manner to maximize overall profitability.”
While it’s a bit unclear if FedEx is also working towards dynamic pricing, its announcement of FedEx Dataworks in 2020 may provide a bit of insight.
FedEx Dataworks is focused on “harnessing the power of the rich FedEx data ecosystem to transform the digital and physical customer experience. FedEx Dataworks will create solutions that build the network for what’s next by collaborating across the enterprise to integrate the technology and services customers expect and deserve”, according to the company’s press release. This includes capturing information at every stage of delivery a package passes through, from creating a label and scanning it all the way through to its last-mile delivery. Algorithms are created from this data and build the best possible routes.
In August, FedEx chief marketing and communications officer Brie Carere told Business Insider that accurate delivery estimates were a top priority for FedEx customers. Testing with a major e-commerce customer was underway in August according to Sriram Krishnasamy, CEO of FedEx Dataworks.
It may take a while before FedEx introduces dynamic pricing but as Krishnasamy noted in the Business Insider, "We have between 17 and 19 million packages a day. And each one of those packages is extremely rich in data from across the world to 220 countries in every single industry vertical."
What dynamic pricing may mean for shippers
As pricing begins to be optimized in real-time, most of the 100+ surcharges we currently know could “disappear” along with those annual average rate increases of 4.9% and 5.9% which no one really believes anyway.
Instead, pricing will likely be determined based on current demand and available capacity on any given route at any given time.
There will probably continue to be certain surcharges such as fuel, residential and large package and as such, UPS and other carriers that will eventually offer dynamic pricing, will need to provide itemized breakdowns of charges in real-time to shippers.
This could be a plus for shippers who will be able to budget and manage such costs by having shipping cost details available in real-time. Another plus will be the ability for shippers to challenge potential errors quicker and thus, in theory, receive refunds in real-time if the errors are proven true.
In addition, accurately forecasting capacity needs by routes will become even more important to shippers as will parcel contract negotiations.
Online platforms such as ShipSights and TMS platforms that have invested in parcels and offer such real-time tools may prove even more useful for shippers as dynamic pricing in the last-mile moves towards reality.
- Cathy
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I wear a number of hats these days. Besides running a logistics market research firm, catch my weekly articles on air cargo, freight forwarding, and the express markets, as well as a monthly podcast on Air Cargo World. I also do a bit of analyst stuff for the Journal of Commerce and I’m trying to figure out how to measure returns for the Reverse Logistics Association. Lastly, I assist companies with content and other needs.