In the last of this logistics pricing series we look at urban and non-urban strategies
This is the last in a series of logistics pricing articles drawn from some 105 pricing strategies collected over the last 30 years.
Thus far, we have examined over 30 strategies and here we examine a basket of prices that have a geographic flavour.
URBAN PRICING STRATEGIES
High-rise delivery
As e-commerce and home delivery have grown massively over the last 20 years, so have the problems with urban delivery. Not only are congestion, parking and unloading considerations problematic, but CBDs and close-in suburbs have well established or growing levels of new high rise buildings. These buildings can take significant time to deliver to if there is not a ground floor mail or parcel delivery room or reserved drop area. Time adds costs and high rise delivery can add significantly to costs when compared to a single satchel drop to a ground floor retail shop. High-rise must be planned for from both a delivery round timing and congestion cost viewpoint.
Pricing for congestion pickup and delivery
A feature of last mile delivery strategies is that uncoordinated deliveries by multiple delivery vehicles often occurs within the same peak times. This can be offset somewhat by widening delivery windows and even moving to evening deliveries, but that too has its own problems, especially for the client. One major European logistics provider implemented sequential urban pricing. In essence, this was a congestion time pickup or delivery strategy with its own premium price. In planning, say for these pickup operations at peak times, the planning sequence needed to be re-examined in detail, and using optimisation software also became very useful to achieve this.
Radial pricing
Another strategy for diluting last mile problems is to implement, especially for pickups in peak hour times, pickups from clients using a concentric circle radial network method. In this way, a sorting or processing centre can be active from the somewhat quicker pickups and drop-offs from outer suburbs being brought to the sorting centre. More complex inner suburb and CBD collections can actually take longer and get to a sortation centre later than satchel/parcel arrivals from other radial pickup rounds servicing middle and outer suburbs. Although this sounds counter intuitive, multiple radial pickups can be effective. From a radial pricing perspective, the time and distance costs need to be weighed up against the critical time window to have all pickups processed and despatched for next day delivery or to other longer travel time destinations.
NON-URBAN PRICING SCHEMES
Directional pricing
The most common directional pricing observations are seen in forward leg and backhaul leg prices. Usually, the forward direction leg commands a higher per unit price, which is surprising as the market attracts higher levels of capacity available for taking the higher task from say a particular city. This does not mean there is a lack of competition. However, when moving from city A to city B, the backhaul task from B to A attracts a lower, tonne, pallet or truckload price. The high level of empty capacity and the lower freight level does drive competition and very much lowers the backhaul price. Also, there are considerations in the round-trip A to B and back to A so that a round trip profitability exists, be it small. However, this profitability concern is not a prime focus for either a freight forwarder or broker. Market directional prices may not apply, however, for specialist loads, like over-dimensional freight, or for specialist commodities, as normal market prices may not apply.
Triangulation
A common strategy to obtain greater vehicle and freight utilization as well as some extra cash flow is, where possible, to triangulate. This essentially means before a vehicle returns from a trip A to B, it returns by way of another stop, C. So, the total journey would be A to B to C and back to A. This can be a lucrative stop when a partial backhaul load from B to A can be ‘topped up’ with cargo at C, which is also destined for city A.
Regional or zonal pricing
Market prices may differ to a particular region. This could be a region in an outer suburban area or to a regional town. Often regional prices, on a per unit of freight basis, can be higher than prices on the corridor that passes this regional town. This situation occurs as there is a much lower level of freight carrying capacity to the region than the capacity on a major corridor.
Some regions can be aggregated into zones and each zone may have a different pricing level. Some urban zones could be dangerous, have poor infrastructure, or have a very large delivery area, etc. As such differing resources may need to be applied to pickups and deliveries to and within a certain zone.
Coastal envelope distribution and pricing
This was a strategy whereby regional areas of a country were serviced from a coastal hub. This coastal hub was often serviced by coastal shipping, however, this could have also been by rail, if a rail line existed. In Australia some dozen regional coastal hubs were used to service regional Australia for delivery of petroleum products, as an example. From the coastal hub, inland distribution was done by truck and sometimes by regional rail. The combination of the two or three modes that serviced that regional envelope, dictated a particular cost and pricing regime.
More recently there has been a lower level of dependence on coastal shipping, regional rail has grown somewhat, and the use of multi-trailered PBS trucks such as BAB quads and the continued growth in triple road train use has changed the historic pricing structures for this type of coastal envelope distribution.
FREIGHT PRICING STRATEGIES SERIES
Network link (density) pricing
Dr Kim Hassall is Chair of CILT-Australia and a Director of the Industrial Logistics Institute. It is intended that a series of Logistics Pricing Short Courses will be run through CILTA over the next 12 months.