7 Factors that Determine LTL Pricing

LTL shipments typically weigh between 151 and 20,000 lbs. LTL carriers will usually apply a discount on shipments starting at 151 lbs on one pallet and up to 5,000 lbs on 5 pallets. Shipments larger than 5 pallets can still ship with an LTL carrier but these moves are normally considered volume moves and are spot quoted by the carrier’s rate department.

LTL Pricing Factors

LTL rates can be very confusing. Unlike truckload which has rates usually based on a per-mile rate or a price per-hundred weight plus a fuel charge, many factors regulate LTL rates which will most definitely impact the cost of a shipment.

Less-than-truckload (LTL) mode of shipping is used for smaller shipments that are too large to be sent as parcel but too small to fill an entire truckload. LTL carriers collect freight from various shippers and consolidate that freight onto trailers for line-haul to the delivering terminal or to a hub terminal where the freight will be further sorted and consolidated for additional line-hauls.

In most cases, drivers start the day by loading up and heading out to make deliveries first, then begin making pickups once the trailer has been emptied for return to the terminal for sorting and delivery next day; thus, most pickups are made in the afternoon and most deliveries are performed in the morning.

Here are 7 factors that determine LTL pricing:

  1. Minimums. The pricing that is increasing the fastest with LTL carriers is the absolute minimum charge (AMC). This minimum charge is the charge below which a carrier simply will not go. Carriers are constantly requesting a 2-3% increase on contract rates, but $5 increases in the minimum charge. If the minimum charge is $70.00, a $5 increase equates to a 7.1% increase. Carriers are doing this because the costs a carrier experiences for a minimum charge shipment far exceeds the costs they experience for heavier shipments
  2. Distance. Typically, the longer the haul, the higher the price per-hundred weight will be. Many LTL carriers only serve a specific geographic region so you must consider how many zip codes a carrier services directly. If a shipment is sent to a location outside a carrier’s normal service area, the trucking company will transfer the shipment to another LTL carrier for final delivery. This is called interlining, a practice that may result in higher costs due to lower discounts and higher minimum charges.
  3. Base Rates. All LTL carriers establish their own base rates. These rates are quoted per 100 pounds (aka – CWT),  and will vary from carrier to carrier and from lane to lane. The CWT calculation is based on the freight classification. A good fact to point out is carriers will modify their base rate depending on their need for additional volume and increase gross costs for lanes where they have a good balance between trucks and freight.
  4. Freight All Kinds (FAK). Freight all kinds is an arrangement between the client and the carrier that enables multiple products with different classes to be shipped and billed at the same freight class. For example, a client that ships multiple commodities ranging from 50 to 100 could negotiate an FAK with the carrier to rate all items at class 70. This can be a source of significant savings for clients by reducing the amount paid on higher class shipments.
  5. Weight. Rates are structured so that the more a shipment weights, the less you pay per hundred pounds. As the weight of the LTL shipment increases and approaches the lowest weight in the next heaviest weight group, it will be rated at the lowest weight category and rate in that weight group.
  6. Classification of Freight. Every piece of freight has a classification within the LTL world. Classes are published by National Motor Freight Classification (NMFC). NMFC has established 18 different classes ranging from 50 to 500. The class is determined by product density, value, stow-ability, handling and liability. Lower classes represent very dense freight that is difficult to damage and is easy to handle. Lower classes have lower rates. Conversely, higher classes represent lighter / less dense freight that typically takes up more space. The higher the class, the higher the rate will be. For additional information on freight classification see our post – 4 Characteristics that Determine Your LTL Freight Class.
  7. Accessorials. Accessorial charges stem from extra services performed by the carrier that goes beyond the typical dock to dock / business to business pick up and deliveries. Common examples of these charges are lift gate service, residential pickup or delivery, limited access locations (i.e. jails, prisons, churches, schools, storage units) and inside delivery. Accessorial charges can be negotiated to a flat rate or even waived altogether. A fuel surcharge is the most common accessorial as it’s typically factored in on every shipment.

If you lack the specifics of your freight as it relates to the above information, it could lead to a 25-40% increase in your freight charge. Fortunately, the unnecessary costs are avoidable. Getting to know these 7 characteristics of an LTL freight rate will help you control costs.

What do you think? Are there any other factors that affect LTL pricing? Leave your comments below!