Friday, October 18, 2013

Breakpoints - defined and justified

Over the years I've occasionally encountered Agents who have been resistant to honoring tariff "breakpoints", but I'm not sure how widespread the resistance is. I'm going to explain the reasoning on why we believe breakpoints should always be honored, and why we therefore apply breakpoints in PricePoint.

First, let's be clear on what a breakpoint is (some may have a different name for it). A breakpoint is simply applying a larger chargeable weight/volume than actual, because the larger size actually creates a lower price due to the tiered structure of the tariff. For example:

5800 lbs @ $75.00/cwt = $4350
6000 lbs @ $70.00/cwt = $4200

In the above scenario, the higher weight / lower cost breakpoint should be applied.  Why?

Most importantly, it's simply the practical thing to do. All things being equal, what justification is there that a smaller shipment should cost more money than a larger shipment?

On a more academic level, breakpoints simply provide a more rational price curve, which is beneficial to sales efforts in terms of not senselessly overpricing a competitive quote.

Consider the following hypothetical tariff:

Now see the following price charts of that tariff, based on breakpoints being applied vs. not applied.

Breakpoint application provides a smooth upward trending price curve, which is rational to increasing shipment size. Without breakpoints, prices erratically jump up/down as the shipment size increases.

For all of these reasons, PricePoint automatically checks for and applies breakpoints on quotes (preventing costly human error oversight). When applied, the quote detail screen displays the higher "Chargeable" shipment size, directly below the actual "Declared" size. A random study of PricePoint quotes revealed that breakpoints are applicable in roughly 1 out of 3 quotes.

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