When is the last time you received an LTL freight quote and wondered, "Where did that number come from?" Less-than-truckload (LTL) shipping can save companies a fortune in freight spend, but first you need to understand what components determine the cost. If you're used to full truckload shipments you're likely thinking in prices based on a per-mile or per-hundred-pound basis, plus a fuel surcharge (FSC). LTL rates are a bit more involved than that and require us to fill in a few more blanks. Since shippers often have a diverse and wide range of needs that directly influence all of these factors it's important to review them all in order to arrive at the most cost-effective solution for each move.
Here are 7 of the Key Components that Make Up the Cost of an LTL Shipment:
1. Classification of Freight: What are you moving? Just as U.S. customs has a classification for all goods entering the country, every piece of LTL freight has its own as well. The National Motor Freight Classification tariff breaks it down into 18 different classes ranging from 50-500. A higher class means a higher rate for every hundred pounds moved. The four characteristics you need to know in order to classify your freight are:
- Density and value (i.e. $ + cubic feet Length x Width x Height/1728)
- Stow-ability
- Handling
- Liability
The buck stops here. If a product is moved under the wrong classification, it can cost you money in one of two ways:
- Overpaying on a higher classification and/or
- Violation of transportation law which can result in hefty fines.
2. Weight: How heavy is it? Typically, the more it weighs the less you pay, as LTL rates are often structured around weight breaks. Weight breaks are cost tiers set by the price per hundred pounds. As you meet the minimum for each tier, and your weight goes up, the cost per pound goes down.
3. Distance: Where is the shipment headed? This is important for a variety of reasons. First being that the longer the haul, the higher the price per-hundred weight will be. The second is that many carriers are regionally based. This means that they only service specific zip codes or geographical regions. So, if you're sending a shipment to a zone outside of your carrier's service point, than it will be transferred to another trucking company. This is known as interlining. Interlining often increases both risk and cost as you're adding additional hands to the move, as well as having to pay rates based on the secondary carrier.
4. Minimums: The cost to turn the key in the ignition. Almost all carriers are going to set a floor to make a move worth their while. This is the absolute minimum charge (AMC) that you'll pay. The charge is as it sounds. Anything at or below a certain threshold will cost x amount. During annual contract negotiations, this is often a number that carriers will try to add to as minimum weight shipments drive up their cost.
5. Base Rates: Your basic "off the rack" rates. When spot quoting or trying to get a ballpark figure, carriers will offer up their own base rates. These rates are quoted per 100 pounds (CWT). Base rates may go up and down depending on the space each carrier has available and can vary widely between lanes.
6. Freight All Kinds (FAK): One size fits all. FAK freight can be negotiated between the client and the carrier to allow multiple classifications of freight to move under the same tariff/rate. Let's say you ship goods that range from class 50 to 150, you may want to negotiate a FAK classification of 100 for all shipments within the range. This could lead to significant savings (or over payment) if arranged properly.
7. Accessorials: Everything else. Accessorials cover a wide array of charges from the typical to the esoteric. What you'll almost always see is a fuel surcharge (FSC). Beyond that, some common charges are residential pickup or delivery, lift gate, special equipment, etc. Accessorials should not be ignored when negotiating rates as they can be reduced, flat-rated, or even removed. In addition, if a carrier isn't informed that they'll need any special equipment this can lead to delays, delivery failure, lost time, and added fees.
Companies looking to protect themselves from market volatility and reduce freight spend can benefit greatly from reviewing their current LTL offerings. Think it's time to get the best value possible for your LTL freight? Reach out to us today for more information: Contact us today!
