1. LTL Industry Pricing Analysis
Presented by: Tim Lerchbacker

2. 2
Table of Contents
Section One LTL Pricing Analysis
Section Two Six Sigma Project – “Define”
List of Dependencies
1993 – 2006 Actual and Projected Rate Adjustments

3. 3
Section One - LTL Pricing Analysis

4. 4
“. . . shippers who weathered the logistics storm of the past 18 months aren’t
likely to enjoy a respite from rising rates any time soon.” 1
Clients, who have survived the last 18 months of rising cost, deteriorating service, and ever
increasing demands by senior management for increased efficiencies, will have to be even more
diligent and creative to be successful for the foreseeable future. This creativity must originate at
the strategic level and be pervasive at the tactical level - how we do business and how we meet /
exceed the expectations of our customer on a daily basis. A critical segment in this process lies in
supply chain enhancements. The largest single expenditure in the supply chain lies in the
transportation segment with trucking being the single largest subset.
The purpose of this document is three fold. First, to present a macro view of current industry and
economic conditions, specifically capacity and inflation, that will affect LTL rates for the reminder
of 2006 and beyond. Second, to present a historical review of industry wide rate adjustment
activity since 1993 and to correlate this data with specific economic data. Third, to suggest a
starting point for defining a high level Six Sigma project approach to leveraging Clients LTL spend,
with a focus on maximizing LTL service to Clients customers while providing the best possible LTL
rates across all business units.
Capacity issues.
US GDP projections for growth in 2006 range from 2.7% to 3.9% with the average approximating
3.3%2
. Further, it is projected that any weakness in the US economy will likely come on the
consumer side. Projections are that spending on the industrial side will continue to grow at a 7.6%
growth rate thus picking up any slack created on the consumer side. US industrial inventory levels
were very lean at the start of 2006 and it is projected that “rebuilding these inventory levels will
be a significant contributor to GDP growth in 2006.3
” As a result, the US trucking industry capacity
will likely be strained at best. The law of supply and demand applied simplistically, with
(industrial) demand approximating (carrier) supply, the result will be a propensity for carriers to
command higher rates and / or provide a reduced level of service.
Another significant factor in the Truck Load sector that will impact capacity is a shortage of drivers.
Bob Costello, chief economist of the American Trucking Association estimates currently there is
the need for up to 20,000 drivers. By 2015 that need could rise to 114,000.4
General industry
projections concur with Mr. Costello’s in the short-term, and project slightly less at 111,000 by
2015.5
Fortunately LTL carriers should not suffer from the same malady, with projections of driver
demand approximating supply, unless the truck load carriers make their employment proposition
so attractive as to start drawing drivers from the LTL carriers.
Inflation pressure.
The US has enjoyed a protracted period of economic stability and low inflation. Due to the effects
of 9/11, the current Iraq conflict, the price of fuel, (although noted the transportation industry, on
the supplier side, is able to offset some if not most of the higher fuel cost through fuel surcharges,)
to name just a couple contributors, inflation is on the rise. In the trucking industry, another

5. 5
significant factor that the truck load carriers particularly must calculate into their cost of doing
business is the higher cost of insurance and insurance deductibles. Thomas Albrecht, managing
director at investment analyst Stephens Inc., estimates the average bodily-injury and physical-
damage deductible among 12 publicly held carriers stood at only $443,000 per incident in 1999.
That figure jumped to $2.7 million in 2004 and $3.2 million in 2005.6
Below are three graphical representations, “Inflation Trends Since 1914,7
” “Annual Inflation
Rate,8
” and “Moore’s Inflation Predictor.9
” The first graph clearly depicts the cyclical nature of
inflation. Since 1919 the US has experienced five inflation cycles, three downward for periods of
14, 16 and 20 years, and two upward of 14 and 19 years. Based on this historical data, it is
projected that in 2002 the US entered its sixth cycle, this one of increasing inflation that is
projected to peak in 2018.

6. 6
The next graph, “Annual Inflation Rate” depicts the fifth and (probable) sixth inflationary cycles
starting in 1990 and running through July 2006.
The third graph, “Moore Inflation Predictor,” shown below projects inflations trends through June
2007 offering five probable scenarios.

7. 7
Historical rate analysis.
In doing my research, I contacted Elizabeth Baatz, a principal in the economic forecasting firm
Think Cap Solutions and contributing editor to Logistics Management, to ask her some questions
regarding research she had done on transportation rates / pricing across all modes. Ms. Baatz
shared her database of truck, air, ocean, and rail rate data that she has compiled. Her trucking
data goes back to 1993 and uses 2001 as the baseline for future projections.10
From this data I
prepared two graphical representations below.
The first titled “Trucking Industry Rate Increase 1993 – 2006,” shows what the yearly rate
increases were for years 1993 through 2005 with a 2006 projected. Note, Ms. Baatz projections for
2006 were reinforced and published in the July Issue of Logistics Management, “Pricing Across the
Transportation Modes - Trucking,” where she is projecting “aggregate trucking prices to rise 4 to
6% in 2006 and 3.5% in 2007.” “LTL prices will accelerate faster – up 6.8% in 2006 and 6% in
2007.11
” Immediately below the graph is the numerical data showing the percentage rate
increases by year.

8. 8
Trucking Industry Rate Increases
1993 - 2006
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
70
80
90
100
110
120
130
% rate chg Index (2001 = 100)
1993 1994 1995 1996 1997 1998 1999
% Rates
Changed.
0.7% 2.3% 2.1% 2.3% 3.0% 3.0% 3.5%
Index (2001 =
100)
79.3 81.6 82.8 85.4 87.5 90.8 93.7
Base
Year
2000 2001 2002 2003 2004 2005 2006
% Rates
Changed.
4.7% 2.9% 0.8% 2.8% 4.0% 5.9% 6.4%
Index (2001 =
100)
99.8 99.9 102.1 104.5 110.1 117.5 125.0
The second graph depicts and is titled, “Trucking Rates vs. Inflation. Vs. GDP.” Below the graph is
numerical data represented in the graph.

9. 9
Trucking Rates vs. Inflation vs. GDP
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0% 1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
% Rate Chg. Inflation GDP % chg Prev. Year
1993 1994 1995 1996 1997 1998 1999
% Rates
Changed.
0.7% 2.3% 2.1% 2.3% 3.0% 3.0% 3.5%
Inflation
12
3.0% 2.6% 2.8% 2.9% 2.3% 1.6% 2.2%
GDP % chg
13
Prev. Year
2.7% 4.0% 2.5% 3.7% 4.5% 4.2% 4.5%
2000 2001 2002 2003 2004 2005 2006
% Rates
Changed.
4.7% 2.9% 0.8% 2.8% 4.0% 5.9% 6.4%
Inflation 3.4% 2.8% 1.6% 2.3% 2.7% 3.4%
GDP % chg
Prev. Year
3.7% 0.8% 1.6% 2.5% 3.9% 3.2%
Six Sigma Project

10. 10
The conclusions that can be drawn from the information present above are:
LTL capacity through the remainder of 2006 for should remain stable,
TL capacity will remain tight,
Inflationary pressures are being felt at all levels within the US,
Trucking Rates can be expected to rise,
Armed with this data I as the Transportation Sourcing Specialist can proceed in the development
of a high level Six Sigma project document. What follows is a first effort to “Define” the project, by
establishing a problem definition, project objective, and presenting a list of questions I will need to
get answered in order to attain the project objective.

11. Section Two - Six Sigma Project – “Define”
- List of Dependencies
- 1993 – 2006 Actual and Projected
Rate Adjustments

12. Six Sigma Project Template
Project Name Leverage Trucking Spend
Group Name Black Belt Name
Department Name Transportation Team Members Tim Lerchbacker
Project Champion Name
Process Owner Name Each business unit's
transportation management group.
Total FTE's Performing Process TBD
Total Cost of Process (000's) TBD
Problem Statement Defect FTE's (if app.) Cost of Defect TBD
Currently, Client has 200 plus carriers servicing their trucking needs and their clients. The problem is to
determine to what extent Clients spend for trucking service can be leveraged. This problem may be
impacting how we are servicing our customers, maximizing shareholder value, and inflating the total
transportation spend for the Client. The Measurement process will start by reviewing all current
trucking contracts from all business units as to service commitments and price. The baseline will be
either, a. the Clients rates in existence from 2001 (if data is available,) up to and including their current
contracts, or b. the oldest rate data available by business unit up to and including their current

13. contracts. If 2001 rate data is available, this data will be base lined against the industry rate increase
data base lined to 2001 (attached) to determine what level of rate increases have been taken since
2001. Timeframe, to be determined.
Project Objective/Desired State State the Project Objective/Desired State and make sure it links back to the Problem Statement
The project's objective is to leverage the Clients business units total Trucking spend, to drive service
improvements measured against current and proposed Key Performance Indices' (KPI's,) increased
share holder value measured through increased profitability, and cost savings of XX percent across all
customers and business units.
Benefits ($000's) Cost Benefits Client/Employee Benefits
FTE Cost Savings TBD Internal/External Client Benefits
Other Cost Savings TBD Employee Benefits
Revenue TBD
Cost Benefits outside of Group
Total Cost Benefits TBD TBD
Dependencies
Description: Given the limited knowledge of Clients current transportation / supply chain operating
environment, I have created a list of probable questions that would need to be answered to determine
what, if any, significant dependencies may exist.

14. Potential to Leverage
Description: The potential to leverage the findings and possible improvements in service and price for
the business units extends beyond trucking to virtually all modes of transportation that Client currently
uses. With multiple mega supplier in the market, as well as lesser but capable suppliers, currently
working to leverage their involvement with Client, Client has the potential to improve supplier service
and rates across all modes.
Other Information Include any other information related to the Project as necessary
TBD, Obtain or develop high level process map for existing process at each origin.
TBD, What is in and out of scope for the project.
TBD, Project time-line.
TBD, Milestones.

15. Dependencies:
Determine what the external and internal customers want,
Verify the ability of the consultant to meet with, interview, or request information from
internal customers (sales, shipping, critical stakeholders etc.,) and potentially
external customers,
Verify the internal requirements to get copies of contracts and rate data back to 2001 or
the most current,
Establish what the mechanism is to review shipping data as to:
Origin locations,
Terms (FOB point,)
Destination locations,
Carriers used on a prepaid basis,
Carriers used on a collect basis,
Payment terms with the carriers,
Systems capabilities to route when a sales order is created,
Sales order mapping from order to shipped / delivered,
Are sales / shipping orders routed to a carrier’s automated shipping system
electronically,
Which carriers have automated data entry systems on site,
Analyze claims history,
Document shipping hours of operation at the shipping locations,
Verify when GE considers a sales order complete for revenue recognition,
Ascertain how partial orders are handled,
Review of shipping dock(s), number of doors, forklifts / pallet jacks, how non-palletized
material is handled (carts, hit the floor, belt, etc.),
If managed by a 3PL or contracted provider, review their SOP document(s) as approved
by GE,
Determine by carrier if GE is a daily stop,
Determine which carriers GE must call for a pick up,
Determine how GE measures service provided by its carriers (current KPI’s),

16. Determine what “ready to ship” product characteristics exist between shipping locations
/ business units, i.e., density, average shipment size, average number of pieces, any
insured or declared valuation, etc.,
Establish if the contracted rates are FAK or class rates,
Verify the expiration date for all existing contracts,
Determine who, by location, is enabled to route shipments,
Determine how proof of delivery is feed back to GE and if the POD is matched with the
sales order,
Determine the frequency with which GE formally meets with its carriers,
Determine proximity of carrier to shipping locations,
Visit carriers local terminals to ascertain probability for service interruptions due to
congestion at the local terminal,
Review carriers routings to determine how often shipments are likely to be routed
through a break bulk terminal, and when a shipment is routed through a break-bulk
terminal where the break bulk terminal is, then determine the likelihood that it will
be loaded direct to the destination terminal or possibly transfer through another
break bulk terminal,
Determine in contracted carriers provide dedicated customer service for GE
o Is it local or via a 1-800 number?
o If so, how is this function handled during vacations and illness?
o Is it 24/7?
Determine if contracted carriers have provided escalation charts with contact
information beyond the local terminal,
Determine internally, how customer shipping status inquiries are handled,

17. 1993 - 2006 LTL Actual and Projected Rate Adjustment1
Index
(2001=100)
% chya
(3/12)
ann %
ch
(12/12)
Index
(2001=100)
%
chya
(3/12)
ann %
ch
(12/12)
1992:Q1 79.5 -0.1 1.4 1999Q1 92.0 3.6 3.2
1992:Q2 78.4 0.7 1.5 1999Q2 92.3 3.8 3.6
1992:Q3 78.3 -2.4 0.1 1999Q3 93.2 3.6 3.7
1992:Q4 78.1 -3.7 -1.4 1999Q4 93.7 3.3 3.5
1993Q1 79.0 -0.5 -1.5 2000Q1 95.1 3.5 3.5
1993Q2 79.0 0.8 -1.5 2000Q2 96.1 4.1 3.6
1993Q3 79.0 0.9 -0.7 2000Q3 97.7 4.8 3.9
1993Q4 79.3 1.6 0.7 2000Q4 99.8 6.5 4.7
1994Q1 80.1 1.4 1.2 2001Q1 99.9 5.0 5.1
1994Q2 80.6 2.1 1.5 2001Q2 99.9 3.9 5.0
1994Q3 81.2 2.8 2.0 2001Q3 100.4 2.7 4.5
1994Q4 81.6 2.9 2.3 2001Q4 99.9 0.1 2.9
1995Q1 82.3 2.8 2.6 2002Q1 99.6 -0.3 1.6
1995Q2 82.6 2.4 2.7 2002Q2 100.4 0.6 0.8
1995Q3 82.6 1.7 2.5 2002Q3 101.2 0.8 0.3
1995Q4 82.8 1.4 2.1 2002Q4 102.1 2.2 0.8
1996Q1 83.7 1.6 1.8 2003Q1 102.8 3.2 1.7
1996Q2 84.4 2.2 1.7 2003Q2 103.1 2.7 2.2
1996Q3 84.6 2.4 1.9 2003Q3 104.0 2.8 2.7
1996Q4 85.4 3.2 2.3 2003Q4 104.5 2.4 2.8
1997Q1 86.5 3.4 2.8 2004Q1 105.4 2.6 2.6
1997Q2 86.8 2.8 2.9 2004Q2 106.9 3.7 2.8
1997Q3 87.2 3.2 3.1 2004Q3 108.5 4.3 3.2
1997Q4 87.5 2.5 3.0 2004Q4 110.1 5.3 4.0
1998Q1 88.8 2.7 2.8 2005Q1 111.1 5.4 4.7
1998Q2 88.9 2.5 2.7 2005Q2 113.0 5.7 5.2
1998Q3 90.0 3.2 2.7 2005Q3 114.7 5.7 5.5
1998Q4 90.8 3.7 3.0 2005Q4 117.3 6.6 5.8
2006Q1 118.9 7.0 6.3
2006Q2 119.9 6.1 6.4
2006Q3 121.8 6.2 6.5
2006Q4 125.0 6.5 6.4
1
Baatx, Elizabeth, E-mail with author, 2006
Feb.

18. 1
“Endurance Test,” Logistics Management, January 2006, 26,27,29,30, 32, Baatz, Elizabeth
2
Bureau of Economic Analysis, US Department of Commerce, BEA 06-33, News Release 28 July, 2006
3
Ibid
4
“A Culture of Innovation,” Logistics Management, April 2006, John D. Schulz, 57T
5
Ibid
6
Ibid
7
Internet, 2006 InflationData.com, www.InflationData.com
8
Ibid
9
Internet, www.fintrend.com/ftf/mip.asp
10
Ibid
11
“Pricing Across the Transportation Modes,” “Trucking” Logistics Management, July 2006. 17, Baatz, Elizabeth.
12
Ibid
13
Ibid