8 Factors that Determine LTL Freight Rates
Less Than Truckload shipping (LTL) is the shipment of cargo that doesn’t require a full 48- or 53- foot trailer and satisfies the client’s needs of transporting smaller parcels.
The combination of the rise in GDP, scarcity in drivers, and increased demand has led to an elevated need for drivers which has translated to increased rates from carriers. FreightorGator has even said that “the LTL industry is expected to see an annual growth of 2% in 2017 due to these trends.”
The following chart shows the change in LTL Freight Rates since 2015:
(Image Credit: Cerasis.com)
As diesel fuel prices also continue to rise, trucking companies are forced to find a different way to increase revenue which leads to increased LTL Pricing rates.
The following chart shows the rate of Gasoline since January 2016
Familiarizing yourself with what goes into determining LTL freight rates will be beneficial as you’ll be able to set logical expectations and you’ll be able to predict what your shipping costs will approximately be.
Here are 8 factors that combine to determine LTL freight rates:
- Weight – The more the merrier as the weight of LTL shipment increases, the less you pay per hundred pounds. When the weight of the LTL freight rises and nears the lowest level in the next-highest category, it will be rated at the lowest weight category and rate in that weight group.
- Density – Density (weight/volume) is a factor that influences the freight classification as a shipment with higher density normally has a lower freight classification due to the fact it weighs more and takes less space.
- Distance– An obvious factor in determining LTL shipping rate, distance effects costs as the longer the trip the higher the bill. Most trucking companies only serve certain geographical locations in the country and there are only very few trucking companies who ships nationwide. More popular roads are usually cheaper than remote areas as more trucks on the road creates more competition which translates to a drop in price.
- Classification of Rates– The most prominent factor in LTL shipping charges is the breakdown of classifying the freight. Classes are published by National Motor Freight Classification (NMFC). There are 18 classes that NMFC has established ranginging from 50 to 500. Several factors attribute to the classification such as product density, value, stowability, and handling. Lower classes are comprised of very dense freight that is easy to handle and difficult to damage. The lower the class, the lower the rate.
- Freight All Kinds (FAK) – Freight All Kinds is a pricing agreement between the shipping company and the client. It pretty much takes multiple parcels that fall into different classes and classifies them in one to save the client money.
- Base Rates – LTL shipping companies usually establish a base rate that is quoted by 100 pounds (CWT) and vary from carrier to carrier. Factors can lead to carriers modifying their rates such as demand, volume, and gross costs.
- Discounts – Discounts, the cornerstone of any intelligent shopper, are common among shippers. Companies that need assistance with high shipping costs can drastically save money by utilizing a third party logistics (3PL) company, like DGD Transport. Cerasis proclaims that companies “can save an extra 18 to 25% off already heavily discounted LTL freight rates if they routinely make multiple shipments to multiple locations and work with numerous freight carriers. For every $100,000 in freight costs, that’s an extra $18,000 to $25,000 in savings.” Respected reputations and recurring business strengthen your chances in successfully acquiring a discount.
- Accessorials – If you request extra services other than the typical dock-to-dock pickup and delivery you’ll be charged with an additional fee or surcharge. Examples of these services include lift gate services, shrink wrapping, limited access location (ie: jails, churches, schools) and inside delivery.