What Goes into Your LTL Price?
Excerpt from: FreightorGator | By: Jay Dillman
Truckload rates, unlike LTL rates, are normally based on the price of every one-hundred-pound weight, rate for every mile and fuel charge. This affects shipment costs. LTL, meaning Less-than-truckload, is a shipping technique that allows shippers to ship smaller cargo that is larger than parcels, but not enough to fill up a truckload.
Various freight from different shippers are consolidated onto trailers by LTL carriers for line-haul to a hub or delivering terminal where the freight is sorted and consolidated further for extra line-hauls. A typical day in the life of a driver entails making deliveries in the morning and pick-ups in the afternoon for next-day delivery.
Top 8 Factors Affecting Your LTL Price
Shipment rates are designed in such a way that shippers pay less for every one hundred pounds with increasing weight of a shipment. The increase in LTL shipment weight towards the next lowest weight in the preceding group of heavier weights results in a rating at the lowest weight and rate of the particular group of weight.
2. Shipability (Class)
Freight is classified in the LTL industry by the National Motor Freight Classification (NMFC). There are 18 classes that run from 50 to 500. The value, density, handling, stow-ability and liability of a commodity determine its class. Freight under a lower class is dense, easy to handle and very hard to damage hence have lower rates.
Freight categorized in a higher class, on the other hand, is less dense and occupies so much space hence higher rates. This simply means that LTL price increases with class.
3. Base Rates
Base rates vary from one LTL carrier to another, and also from one lane to another. The rates are quoted for every 100 pounds (CWT) of shipments. CWT calculations are made based on the freight category.
When carriers need to attain a good balance between freight and available trucks, they normally change their base rate based on their need for increased gross lane costs and extra volume.
Therefore, base rates can either increase or decrease LTL prices.
Freight All Kinds (FAKs) is an agreement between LTL carrier and a customer to allow several products of distinct classes to be billed and shipped at a similar freight class. For instance, a customer that ships various goods in the range of 100 to 200 could negotiate and agree with the carrier on a FAK to rate all the commodities at class 150. This lowers the amount that customers pay for shipments of a higher class, leading to general cost savings.
The price of shipping for every one hundred pounds of weight increases with the distance. It is important to consider the number of zip codes directly serviced by an LTL carrier because they usually cover particular geographic regions.
Usually, when a carrier receives a cargo to be delivered outside its geographic scope, it transfers it to another LTL carrier for delivery to the final destination. This is what is known as interlining; it can result in more shipping costs due to higher minimal charges and lower discounts.
6. Management Costs (Middleman)
Middlemen are known to increase costs in various industries. Using the services of a middleman to reach a shipper increases LTL costs dramatically. However, with FreightorGator, carriers skip the middleman and work directly with the shippers.
7. Absolute Minimum Charge
LTL price increases very fast with AMC charges. This is the least amount a carrier can charge. Although $5 is the minimal amount a carrier can increase in AMC, they usually ask for 2% to 3% increase in the rate of contracts.
For instance, a $5 increase on a $70 AMC translates to an increase of 7.1%. Carriers do this because the costs they pay for heavier shipments are way less than what they experience for minimum charge shipments.
Therefore, AMC can easily increase LTL prices.
8. Additional Services
Certain additional services also affect LTL prices. Extra services like residential delivery or pick-up, lift gate services, inside deliveries and limited access locations like schools, prisons, jails, storage facilities, etc. also increase LTL prices.
LTL carriers need specific details about their freight to avoid an additional freight charge of 24% to 40%.
If you’re looking to ship LTL, be sure you know what makes up the price you pay. It’s the best way to maximize your shipping budget.
You can read more by Jay at freightorgator.com/blog