A paper issued by transportation and logistics consultancy CarrierDirect says third party logistics (3PL) providers should lower carrier liability limits to secure capacity and better rates from less-than-truckload (LTL) carriers.

The document also adds that 3PLs can become strategic partners of LTL carriers in tight capacity environment by reducing a major pain point for carriers, reports American Shipper.

"The secret to stronger relationships is hidden in ideas such as lowering carriers limits of liability, moving to density-based pricing or embracing rate optimisation through dynamic pricing," the paper said. "Examples of the current liability system breaking down are plentiful because of the inflated limits provided in a blanket-type structure."

The paper cites the example of a 2,000-pound shipment of cotton balls from Chicago to southern California using the National Motor Freight Classification (NMFC) code, with each 0.41-pound bag valued at US$4, putting the total value of the shipment at $19,512.

If the LTL carrier ABF, which publishes liability of $25 per pound at that NMFC class, picked up that freight, the shipment would be covered for up to $50,000 if it's damaged or lost, which is $30,487 over the actual value of the freight.

In addition, paper then assumes that ABF has published a 76 per cent discount on its rate with a 25 per cent fuel surcharge, bringing the total transportation cost to $850.38.

"Since ABF is publicly traded, we know that ABF's 2014 (fiscal year operating ratio) was 97.4, meaning that the profit on this shipment is $22.11," the paper said.

"If ABF loses one 2,000-pound shipment of cotton balls, they need to move 883 shipments to break even, which is one shipment per day for 3.5 years, or $750,462 in revenue to break even on the $19,512 claim.

The paper said 3PLs can stand out from the pack with LTL carriers as a strategic partner by suggesting that limits of liability be lowered to $1 per pound across the board.

"Doing so, however, is not a quick play to get better pricing," the paper said. "The public markets demand a better return on invested capital from motor carriers, which leads industry experts to anticipate a four to six per cent increase in LTL rates over the next year."