Today’s ground transportation environment has seen the impact of not only a lackluster economy but also the effects of other factors leading to increased cost of Less-Than-Truckload common carrier transportation services. As a result, carriers are focused on margin retention and improvement and sacrificing market share by culling low margin business. We should expect to see increases in prices within the next few months as trucking companies ensure their prices are compensatory to the services they provide.
Just as we are seeing in the deregulated airline industry, fares differ by carrier and many additional services or conveniences such as checked luggage or food come at an additional expense. As a result, finding a low airfare to board one plane may, overall, end up costing more when you add a checked luggage fee and business class seating, than a higher airfare with lower or waived luggage and business class fees.
Carrier rate bases can vary significantly, depending on their lane balance needs and the cost of performing standard services in their geographic service regions. LTL discount percentages can mean little at face value as most rate bases vary considerably from carrier to carrier. In addition to class less discount rates, carrier accessorial charges will vary, some significantly, allowing a quote with a low base rate to end considerably higher with the addition of accessorial charges such as fuel surcharges, limited access fees, residential delivery fees, weight and class change fees, over length, hazardous material or lift gate charges as well as many other requested services. These accessorial charges often lead to surprises on carrier invoices. These charges can be found in a carrier’s rules tariff and buyers will find that rules tariffs are lengthy and subject to change without notice.
Here are a few examples of surprises that shippers find on their freight invoices:
- Limited Access – Limited access fees can be assessed on both commercial and non-commercial delivery sites. A flat or per hundred weight charge may apply. Generally speaking, a limited access location is defined as meeting any of the following conditions:
- Not open to the walk-in public during normal business hours.
- Not having personnel readily available to assist with the delivery or pickup function.
- Not having access to loading dock or platform.
- Sites where carriers are delayed with security related inspections and processes prior to freight tender.
- Examples would be private residences, camps, churches, government facilities, farms, schools, prisons, carnivals, mini-storage facilities, nursing homes, outpatient medical facilities and other such locations.
- Over-Dimensional or Excessive Length Charges – Varies by carrier rules tarrif and can apply on shipments with a single handling unit with lengths generally in excess of 10 linear feet. These charges are subject to a minimum fee and can increase depending on the length of the product.
- Weight Change Charges – Shipments subject to a weight change after inspection may be assessed a flat fee to cover the cost of carrier invoice changes in addition to the increased cost associated with the higher shipment weight .
As a result of the wide variances of rate bases and accessorial fees, it is important to evaluate carrier options prior to tendering shipments to an LTL carrier. Short of checking each quoted carrier’s rules tariff for accessorial price application, the most practical tool available is a transportation management system (TMS) that houses a comprehensive listing of additional fees. Accessorial charges such as limited access, over-dimensional or excessive length, and weight change charges may not be known at time of carrier tender. However, you have the ability to control the costs that you know up front. Consequently, whichever method you choose to utilize, accessorial and special service charges can add up and potentially cost more than a shipper may anticipate. A good 3PL and TMS can help you navigate through the myriad of additional charges and protect your margin by helping you with quote your shipments accurately.
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 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:
- 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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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!
Many companies today are working in an environment of fierce competition and razor sharp profit margins. What separates the top performing companies from the rest of the pack is how well they are able to adhere to standard operating procedures and continue to improve upon those processes. One example of this is how companies control the carrier selection decisions that are made by their suppliers and how these suppliers are being utilized. When there are hundreds or even thousands of vendors to reign in, this can be a daunting task for many companies to manage. How can companies ensure they optimize savings opportunities without experiencing a reduction in service levels?
- Understand your supplier network: Determine where your key suppliers are located and how often are they shipping product to your facilities. Could shipment order quantities be increased to reduce the frequency of LTL shipments? Reducing the frequency of shipments will reduce the occurrence of minimum charges and ultimately yield larger freight savings and lower cost per pound over the course of the year.
- Create visibility into your freight expenditures: By developing reporting that captures where you are spending your LTL transportation dollars at the vendor level, a company can better understand where there may be opportunities to reduce cost. Which shipments do you pay the freight for and have control of today and are their opportunities to convert pay terms to maximize savings? A reputable third party logistics provider can capture this critical information with the use of a transportation management system (TMS).
- Consolidate your supplier base: Are there opportunities to buy more products from regional suppliers to reduce transportation expense? Companies do need to have redundant sources of supply as contingency and for leverage in negotiations, but key regional vendors can be established in many cases. Reducing the length of haul can enable you to use more regional LTL carriers and in turn, potentially reduce your transportation expense while simultaneously improving your average transit times. Generally speaking, regional LTL carriers’ networks are better positioned to provide more reliable and faster transit times than their national LTL carrier counterparts.
- Monitor & enforce vendor compliance: Are your vendors sticking to the plan? Vendors need to understand and be held accountable for their carrier selection decision. If vendors are not selecting the least cost carrier, have they been given the authorization to do so? If a vendor violates the rules for carrier selection, hold them accountable by enforcing chargeback penalties. Having a single point of contact for your vendors will help to reduce the chances of incurring unnecessary expenses. Consider outsourcing the vendor compliance and carrier selection process to a third party LTL provider that has a robust LTL TMS. This will remove the expense and burden from the shoulders of in-house staffing as these third parties can provide flexible resource levels to handle surges in incoming requests.
- Communicate with your vendor base: Distribute a vendor instruction letter. To ensure an efficient transaction, this letter should detail who to contact to request an LTL shipment and what information will be required such as purchase order numbers, origin/destination contact information, freight class, and weight. When a shipment needs to be expedited or a carrier other than the least cost option needs to be selected for service reasons, ensure the vendors are aware of the proper procedure for authorizing these additional expenses in advance. Remember to provide feedback to your vendor base on their carrier selection performance- both positive and negative. Solid reporting at the vendor level that quantifies the cost of these lost LTL freight savings will help to change behaviors and provide negotiating power at supplier negotiation time.
Incorporating these behaviors into your vendor assessments will enable your company to monitor your vendor network, leverage opportunities for shipment consolidation, maximize vendor compliance to preferred carrier routing, and ensure vendors are aware of your standard operating procedures.
As we all know the economy has not been the greatest in recent years and everyone has seen the effects of the recession. Therefore, companies that are willing to outsource their shipping needs to a 3PL can save a substantial amount of money on their freight cost.
No matter what the need of a company might be, 3PL’s have the ability to establish set pricing with a multitude of carriers in order to fit the needs of companies they work with. A 3PL has the ability to take your needs, as a company, and find a carrier that will fit those needs at the most cost effective approach. There are a few basic reasons why 3PL’s are valuable for a company no matter what their needs may be.
- Personal Needs and Wants: Every company has certain specifications as to how they deliver their freight to their clients. Whether it is residential delivery, lift gate pick-up or delivery, inside delivery, appointment delivery and so forth. Any special services that the company may need, 3PL’s have the ability to narrow your choices down to the best carriers for your needs without you having to empty out your pockets for the services.
- Quality vs. Quantity: 3PL’s have the ability to know the type of service each of the carriers provides based on previous experiences. If you have a shipment that is time critical, depending on the carrier, you might want to spend the $20 extra and go with the more reliable carrier that will get it to its destination within the transit time. Although some carriers seem to have the best pricing, it does not always mean that their service is the best. 3PL’s have the experience to help our customers make the best decision based on their needs.
- “In Case of An Emergency”: Working with a 3PL that has access to a multitude of carriers can take a bad situation and turn it around. If a company schedules a critical shipment with a carrier and it comes to find out they will not be able to make the pick-up. 3PL’s have access to a plethora of other carriers so one quick phone call could turn the situation around and get your shipment out in a timely manner.
No matter what the need, want, or situation of a company may be, 3PL’s have the ability to meet those needs due to their ability to work closely with a large number of carriers. The three reasons listed above are just a tiny piece of what a 3PL can offer a company looking to save money on freight costs, but not lose out on customer service.
When it comes to moving Less-than-Truckload shipments from point A to point B, one of the first things to consider is how the product is defined by the trucking industry. In the world of shipping, different types of products are defined according to their makeup. Each product definition is called a classification. The class of freight plays a prominent role in calculating how much the carrier will charge you for transporting it. How many classes are there?
There are 18 different classes LTL freight can ship under: 50, 55, 60, 65, 70, 77.5, 85, 92.5, 100, 110, 125, 150, 175, 200, 250, 300, 400 and 500. The higher the class, the higher the rate for every hundred pounds you ship. How do you find the class? The many definitions or classes of freight are listed in the National Motor Freight Classification tariff, commonly referred to as the NMFC. The NMFC is a publication for motor carriers containing rules, descriptions, and ratings of all commodities. The publication is used to classify freight for freight bill rating purposes. Besides defining the classes of shipping commodities, the NMFC also assigns item numbers to each type of commodity. The item number is related not only to the commodity itself, but to its packaging, the material from which the commodity is made, and other considerations. Item numbers are associated with rates as well as commodity classifications. PLS Logistics Services’ LTL department is very familiar with the NMFC classification and can help you determine the proper class of your item. How are freight classes determined? Before a class can be determined, there are some characteristics about the freight that need to be identified. You need to know how dense the freight is, the stow- ability, how it’s handled, and what type of liability it assumes. The definitions for each are as follows:
- Density and Value: Density guidelines assign classification 50 to freight that weighs 50 pounds per cubic foot. The Commodity Classification Standards Board (CCSB) assigns classifications 70, 92.5, 175 and 400 to freight with densities of 15, 10.5, 5, and 1 pound per cubic foot, respectively. Freight less dense than 1 pound per cubic foot is classified as 500. The density is the space the item occupies in relation to its weight. The density is calculated by dividing the weight of the item in pounds by its volume in cubic feet. Your item’s volume in cubic feet is Length x Width x Height/1,728, where all dimensions are measured in inches. The density of your item = Weight/Volume, where Weight is measured in pounds and Volume is measured in cubic feet.
- Stow-ability: Most freight stows well in trucks, trains and boats, but some articles are regulated by the government or carrier policies. Some items cannot be loaded together. Hazardous materials are transported in specific manners. Excessive weight, length or protrusions can make freight impossible to load with other freight. The absence of load-bearing surfaces makes freight impossible to stack. A quantifiable stow-ability classification represents the difficulty in loading and carrying these items.
- Handling: Most freight is loaded with mechanical equipment and poses no handling difficulties, but some freight, due to weight, shape, fragility or hazardous properties, requires special attention. A classification that represents ease or difficulty of loading and carrying the freight is assigned to the items.
- Liability: Liability is probability of freight theft or damage, or damage to adjacent freight. Perishable cargo or cargo prone to spontaneous combustion or explosion is classified based on liability and assigned a value per pound, which is a fraction of the carrier’s liability. When classification is based on liability, density must also be considered.
In conclusion, the class of your freight plays a prominent role in calculating how much the carrier will charge you for transporting it. Knowing the characteristics of the freight is very important. If a product is misclassed, then the payer of the shipping charges runs the risk of: (1) Paying too much or (2) Could violate transportation law which could lead to hefty fines if caught trying to pay a cheaper rate.
Over the years since federal deregulation in the late 1970’s, LTL transportation has morphed from a heavily unionized group of carriers operating in a largely non- competitive environment into today’s high tech, cost-effective and service-oriented transportation industry. Today’s national, regional, and inter-modal providers must vie for their share of a 30 billion dollar market.
Leaders of this pack rely heavily on anticipating the needs of customers who are savvier than ever before.LTL carriers have made tremendous strides in technology and service through state-of-the-art website functionality, instant electronic dispatch, paperless tender and billing, and real-time verification of status through to delivery. Many carriers are now also offering smart phone apps so customers can stay in touch anytime, anywhere.
In addition to pushing the boundaries of service with abilities to cover more distance per day than ever, LTL carriers now offer imaginative and flexible value-added options that appeal to a new generation of shippers. Here are a few examples:
- Guaranteed Service- for a nominal fee, shippers can have the money-back assurance that the carrier will meet published service expectations.
- Time-Definite Service- many carriers are now offering service options that work around your schedule with customized transportation services that adhere specifically to customer’s requirements.
- Sealed Trailer Space- shippers can now reserve exclusive trailer space where goods can be packed in various configurations and walled off from remaining trailer space, protecting the shipment from other freight, excessive handling, loss or damage through to final delivery.
- Carrier Shipping Units- many carriers now offer pre-fabricated shipping containers for easy shipping of mixed commodities, personal effects, even entire households. Containers range from small folding crates to full size storage containers that are loaded and unloaded at customer-specified locations. These, as well as many other industry-specific service offerings have allowed LTL carriers to maximize market share, giving shippers numerous options for service and cost that are not available with full truckload, air, or other surface modes of transportation.
We are in a market where LTL carriers continue to aggressively seek methods to improve their yield, reduce their operating ratios, and filter out poor performing business in their portfolios. As a result, shippers need to consistently differentiate themselves from the pack and improve their attractiveness to carriers.
The days of simply blasting LTL bids out to multiple carriers annually with wide ranging FAK requirements, a laundry list of accessorial waivers, and capped fuel programs and expecting that the carriers will beat a path to your door have ended. Today carriers want more from shippers in exchange for that competitive pricing.
- Know your annualized freight spend and be able to support it with complete shipment data. Shipment level data should include ship dates, origin & destination zip codes, actual freight class, weight, and ideally also detail the accessorials encountered, number of pallets, pallet dimensions, NMFC’s, and shipment density. With more complete information at the carriers’ disposal, there will be less guesswork and perceived risk on their part and as a result they will be more inclined to offer a more competitive pricing proposal.
- Have pictures available. Pictures can be worth several additional thousands of dollars in savings. Provide multiple photos of common outgoing/incoming LTL shipments on your dock as well as the corresponding weight and dimensions of the shipments depicted in those photos. Also, if you plan to improve packaging in future, make carriers aware of that also as the photos make not convey that message on their own.
- If you don’t need it, don’t ask for it! Outlining aggressive pricing requirements in your carrier bid packages would seem to always make good business sense. However, making unrealistic FAK demands and asking for waivers and concessions on infrequent accessorials can come back to haunt some shippers. For example a carrier may grant a waiver on a lift gate charge or extend a FAK 50 (55-250), but may also reduce the discount and/or increase the minimum charge thus negatively impacting all of your business. Negotiations should target the most frequently encountered accessorials and shippers should be prepared to stay flexible with carriers on secondary accessorials by accepting lower flat fee charges or accepting at the rules tariff value.
- Highlight your best assets, but be transparent. Disclose your historical frequency of guaranteed service, volume shipments, shipments to/from Canada, and don’t forget to tout a low frequency of claims if that applies. Don’t hide from your shortfalls either. Electing to hide information from a carrier in fear of less competitive pricing may ultimately lead a shipper to experience an out of cycle GRI or worse yet, have a carrier pull their pricing from the shipper completely causing major service disruptions.
- Be in tune with the latest trends. Ask your carriers to bid using a current CzarLite tariff rate basis and using a standardized market competitive fuel surcharge programs. Current CzarLite tariffs take into account industry wide changes in carrier networks, equipment, capacity, and demand side economics. Carriers are more apt to provide a more competitively balanced bid response if they know that the base rates are more reflective of the today’s market. Employing standardized fuel schedules and tariffs will also make it easier to analyze the results of the bid.
- Enlist the assistance of a 3rd party logistics provider with extensive LTL experience. Shippers can benefit from leveraging the 3PL’s expertise, buying power, technology, analytical tools, carrier relationships, and back office support without the fixed expense of managing in-house.