Candy Hit With Higher Freight Costs An update from the National Confectioners Association Many candy manufacturers who ship their candy on trucks in less-than-truckload (LTL) shipments have noticed price increases for shipping between 30% and 60% in the last six weeks. The price increases are the result of a change in the classification rating for candy products established by truckers who are members of the National Motor Freight Traffic Association (NMFTA). What is the NMFTA? The NMFTA is a nonprofit corporation whose membership is comprised of more than 1,100 motor carriers. The National Classification Committee (NCC) at NMFTA develops and maintains the National Motor Freight Classification (NMFC). What are freight classifications? The National Motor Freight Classification (NMFC) is a pricing tool based on a comparison of commodities shipped in the U.S. To establish classifications the NCC evaluates the density, stowability, ease of handling and liability for all commodities that move in commerce. Based on these “transportability” characteristics, commodities are grouped into one of 18 classes (classes 50 through 500). These classifications then create a standard used in pricing negotiations for less than truckload (LTL) shipping. The NCC categorizes most candy together in a group called Candy Not Otherwise Indicated (NOI) and Chocolate Candy NOI and referenced using the item number 39970. This is a very broad and inclusive category covering everything from hard candy and chocolate to aerated confections. Until recently, candy within this category was given a classification of 65, which corresponds to an average shipping package density of 22.5 to 30 lbs/cu ft. Why was the classification for candy changed in October of 2005? In the fall of 2004 and early 2005, the NCC conducted a research program to evaluate the shipping characteristics of candy. Most of the data collected by the NCC was provided by motor freight carriers. The result of the research showed an average shipping package density 11.32 lb/cu ft. This density corresponds to a classification of 92.5, according to NCC procedures. The classification change went into effect on October 29. How did industry respond? Unfortunately, most manufacturers and the National Confectioners Association (NCA) learned of the classification change after it had already gone into affect and after the period for arbitration had closed. In December 2005, NCA hired expert outside counsel to assist the industry in coordinating a response. NCA then conduced it’s own survey of members and nonmembers on candy shipping characteristics. NCA collected data from 26 candy companies on over 100 product shipments. The density of the NCA data ranged from 6 –
49 lb/cu ft and the average was 24.3 lb/cu ft. This data supported submissions made to the NCC by Ferrara Pan Co. and the New England Confectionery Company. Range: 6 – 49.7 pcf Average: 24.3 pcf (Class 65) Density > 22.5 pcf: 51% Density > 30 pcf: 32% Density < 12 pcf: 12% The survey data was presented to the NCC in early Feb ’06 at an NCC quarterly hearing. Larry Graham, NCA’s attorney, and Bob Wagner (Ferrara Pan) argued at the hearing for candy to return to its previous classification of 65. While that position was not granted, NCA was successful in obtaining a sliding classification based on actual density that will provide immediate relief to confectioners that ship dense packages. For example, if a company ships packages of candy that have a density of greater than 22.5 lb/cu ft, then those shipments may be made at the Class 65 level. Similarly, if those packages have a density of 15 pcf, then they will be given a Classification of 70. Furthermore, in December of 2005, NCA submitted comments to the Surface Transportation Board, an economic regulatory agency affiliated with the U.S. Department of Transportation. The STB is evaluating the antitrust exemption for the National Classification Committee and whether the NCC has abused its market power in its classification-setting activities. NCA urged STB to follow the lead of modern economic policy, Congress, and manufacturers and to deny the continuance of this exemption. In its letter to the STB, NCA described the recent reclassification of candy based on density by the NCC that resulted in a significant price increase for shipping candy. Those comments are available online at www.ecandy.com. For more background information on this issue and for updates, please contact NCA or visit Industry Issues at www.ecandy.com.