In today's increasingly competitive transportation marketplace, business shippers are always looking for creative ways to save on freight costs. However, with so many factors that go into calculating rates, it can be a challenge to determine the best freight shipping and transportation options for your bottom line.
With so many contributing factors, less-than-truckload shipping rates can be especially unpredictable. Luckily, the numerous variables that affect LTL freight pricing also give you more ways to adjust and optimize your shipping strategy to determine the most cost-effective solution. But before you can control your freight costs, you'll need to understand how each factor impacts your final rate.
What is LTL shipping?
Less-than-truckload shipping is the perfect solution for shipments that are too large to be sent as parcel but too small to fill an entire truckload. With LTL freight shipping, carriers collect pallets from multiple shippers before consolidating the freight onto trailers for line-haul. By consolidating multiple freight shipments onto one truck, you can minimize your shipping costs by only paying for the space you occupy on the truck.
Factors That Determine LTL Freight Rates
Freight pricing can be very confusing, due to the whole host of factors that go into determining your final costs. And since missing or incorrect freight information can lead to rate increases down the road, it's important for you to control shipping costs by understanding exactly what goes into your LTL pricing from the start:
1. Base freight rates
To begin calculating LTL shipping prices, you must look at the carrier's base rate. Base rates determine the carrier's starting rate per 100 pounds, which is then adjusted based on the shipment's volume, freight classification, origin and destination. You will often hear this calculation referred to as centum weight (CWT) or hundredweight.
Since every carrier establishes their own starting rates, base rates vary between carriers and may be modified regularly based on each carrier's current capacity. It's important to note that base rates can also differ lane to lane, according to the carrier's availability.
2. Negotiated freight rates
Luckily, shippers are not relegated simply to a carrier's base rates. LTL carriers often offer discounts on certain tariffs depending on their service area. For example, national carriers may offer better rates for long-haul, cross-country shipping lanes, while a regional carrier may offer better rates on a local short-haul lane.
If you have a good understanding of your freight shipping activity by lane, you can negotiate with your carriers to get different rates for different lanes. By balancing your most efficient lanes with lanes that may be less attractive to the carrier, you can receive the best less-than-truckload rates possible and ensure you're not leaving any money on the table.
3. Less-than-truckload weight limits
LTL shipments typically weigh between 150 and 20,000 pounds. Generally speaking, the more your shipment weighs, the more it will cost to ship. However, carriers will often apply "weight break" discounts as your freight moves up in weight group. This is essentially a bulk discount, meaning the more you ship, the less you pay (per hundred pounds). Be aware of your carrier's rates per weight group, especially if your shipment is bordering on the weight range for the next highest group.
4. Freight classification
A shipment's freight classification (or "class") is used to help streamline LTL shipping rates across the industry. Designated by the National Motor Freight Traffic Association (NMFTA), goods are categorized into one of 18 freight classes based on the commodity's density, stowability, handling and liability. These classes run from 50 (the least expensive) to 500 (the most expensive). LTL shipping rates can vary significantly depending on your cargo's freight classification, which is why it's important to understand how to determine the correct freight class for your shipments. A simple mistake could lead to a frustrating reclassification fee down the road.
5. Freight All Kinds
If your shipment is made up of goods from multiple freight classes, you can negotiate an arrangement with the carrier called Freight All Kinds (FAK). This allows your products to be shipped and billed at the same freight class — saving you time on paperwork as well as money on freight costs. For example, if you need to ship multiple commodities ranging from 50 to 100, you could negotiate a FAK with the carrier to rate all items at class 70 (reducing the amount you pay for higher class shipments).
6. Calculate density
Your LTL rate is also impacted by the density of your shipment (or how heavy the freight is relative to its size). Typically, lower freight density equates to higher freight class (and cost). That's because the lower your shipment's density, the more space it will take up on the carrier's truck.
In order to get an accurate quote, it's important to know the right way to calculate a shipment's density. You can find a freight density calculator online, or simply divide the total weight of your shipment (in pounds) by its total volume (in cubic feet). If your shipment is palletized, weight and length measurements should include the pallet and any additional packaging.
7. Shipping distance
Generally speaking, the further your freight needs to travel, the higher your less-than-truckload rates will be. This helps cover carrier costs — such as fuel, equipment maintenance and driver pay — that increase with longer hauls. Your freight shipping costs can also be impacted by the origin and destination of your freight, since it typically costs more to ship to rural, less-populated areas.
It's important to be aware of which zip codes your carrier operates within, since many LTL carriers operate within specific regions. If your shipment's destination is outside of the carrier's service area, they may transfer it to another carrier for final delivery — a practice known as "interlining" — which will likely result in higher costs.
8. Minimum charges
Every carrier has an absolute minimum charge (AMC), which is the lowest price they will offer a customer. No matter how far or how much you need to ship, your cost will never be lower than the carrier's AMC. LTL carrier minimums tend to increase over time especially when capacity is limited.
9. Accessorial fees
If your LTL freight shipping requires additional services beyond the carrier's standard pick-up and delivery offerings, you will likely incur additional fees (or "accessorials"). Common examples of these service upcharges include liftgate service, residential pick-up or delivery, inside delivery and limited access locations (i.e., schools, storage units, etc.). If you do not clearly communicate your service requirements with the carrier upfront, these charges won't be included on your original quote and will be an unhappy surprise on your final invoice.
10. Negotiated freight shipping rate discounts
Many LTL carriers are willing to shave an additional percentage off of their base rates if it will increase their business. While shippers can negotiate account-specific discounts with carriers, you are more likely to benefit from the negotiating power of a respected third-party logistics (3PL) provider. These companies use the combined volume and buying power of their customers' shipments — not to mention their deep industry relationships — to negotiate higher discounts than you may be able to access on your own.
Get Help Managing Your LTL Freight Shipping Costs
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