Part of watching the company’s bottom line is understanding the most economical ways to ship freight. Less than truckload (LTL) shipping can help your company do that, and you can optimize the costs by knowing how the various shipping factors influence LTL shipping rates and service levels.
Determining whether to send goods as parcels, LTL, or full truckload (FTL) is, of course, another decision tree. But breaking down the LTL freight shipping factors can actually help your supply chain managers determine if LTL freight makes sense from a cost and convenience level.
What is the LTL shipping method?
LTL vs FTL, Do you know the difference? Well, an FTL means full truck load and is used for large shipments that take up the entire space or weight limits of a truck. On the other hand, an LTL shipment or less than truckload is typically one with freight weighing between 150 and 15,000 pounds, though that upper number varies based on the source.
The idea is that multiple shippers use the same LTL carrier and truck to haul their cargo together. By putting several shippers’ freight on one truck, the shipping cost for each company is less than they’d pay by themselves for an FTL shipment.
LTL cargo uses a hub and spokes model, where freight doesn’t necessarily go directly to the final destination. It may go from one central hub to distribution centers. The cargo may change to a different freight carrier and truck along the way, as it gets closer to its final destination. Because of the hub and spokes model, the LTL shipping method can take more time than the direct FTL shipping method, but the tradeoff is lower overall LTL shipping costs.
With an LTL shipment, shippers also typically have more service options, like access to liftgates and the ability to use inside pickup and delivery. These may come with accessorial charges, but they can offer a convenience not always found with FTL shipments. Tracking is usually available from the LTL freight carriers as well.
How are LTL freight rates calculated?
The LTL freight rate is calculated based on a several factors. Not all these factors will apply in every situation, but here are the most common ones.
Carriers rely on the National Motor Freight Classification system, with its 18 commodity classes. Shippers need to determine factors like the product value, cargo density, stowability, and ability to move the cargo without damaging it to designate the proper freight class.
Density is one of the biggest factors in determining freight class. With density, carriers look at how much space the shipment will take up, relative to its weight. To calculate density, the total weight of the freight would be divided by the volume. Freight shipping that is less dense takes up more space for its total weight, and can cost more to ship than denser cargo.
The pricing structure may be per hundred pounds, aka hundredweight pricing. LTL freight carriers sometimes use a chart with the price per hundredweight. As the freight weight goes up, the freight shipment can move into a lower pricing category per hundredweight. Freight all kinds (FAK) is another kind of classification, which accounts for multiple products in different freight classes. With FAK, it’s all billed using the same freight class.
Some truckload carriers use a pallet rate instead of more complex freight shipment pricing. The carrier may give discounts based on the number of pallets shipped, so shipping one pallet would be the most expensive option on a per pallet basis. By shipping multiple pallets, the price per pallet drops accordingly.
The carrier can base the price on the pallet size and the amount of space it occupies. They may also base it on whether the pallets can be stacked.
The freight rate for cargo needing expedited service will be higher than freight, allowing for a slower shipping time frame.
Type of cargo
Cargo with special needs, whether refrigerated, frozen, or containing hazardous items, will cost more to ship than cargo needing no special handling.
Not surprisingly, the shipping rate for cargo that needs to cross the country will be higher than the same cargo moving one state over. Truckload carriers serving the needed region can handle the entire shipment themselves. If you use a trucking company that has to transfer the cargo part way, this could raise the LTL pricing, if they don’t handle the entire route.
Truckload shipping companies use minimum or base charges to set a floor level price for all cargo. If your freight costs fall below that, they will charge you the minimum fee. Some call it an absolute minimum charge.
Linear floor spacing
An LTL shipper will need to stay within the linear floor space negotiated and noted in the freight quote. Otherwise, the LTL shipper may get assessed a penalty or over-length charge, raising LTL shipping costs considerably. The freight carrier needs to know what size the cargo is to know it will all fit.
If additional services are needed, they will be included in the LTL quote. Accessorial charges can include inside pickup and delivery, limited access delivery, liftgate usage, residential pickup or delivery, and any special handling charges for refrigeration or hazmat materials.
Fuel surcharges are considered an accessorial charge as well, even though it’s not something your company would request as an extra service. It is typically based on a percentage of a shipment’s base cost, using a national standard rate for diesel fuel. As a result, this fee fluctuates based on pricing.
How do I get the best LTL rate?
There are many ways to save on LTL freight costs. A shipper can sometimes tweak their cargo based on the previously discussed factors. That may involve packing your cargo more efficiently and using pallets instead of just cartons. Instead of shipping a lot of smaller shipments, your company can bundle and wrap them on one pallet. By minimizing your load volume, you can negotiate better rates.
Use pallet size and dimensions your carrier allows
If possible, use the pallet size and dimensions your carrier allows, so you don’t accrue additional charges. If the pallets are stackable, this can also lower the cost, as the carrier can then fit more on the truck. Ensure the dimensions are proper before the goods are dropped off at the distribution center or before the carrier picks them up. Complete all documentation properly, and label them properly too.
Negotiate LTL freight rates
You can also negotiate LTL freight rates, both the base rates and the accessorial rates. This can be done by developing good relationships with the freight company, and using them regularly. If you have relationships with a parcel carrier, you can also likely use them as a freight company. For example, UPS Freight is a division of UPS.
Use a freight broker
Some shippers use a freight broker to find the best truckload rates. Freight brokers may have access to lower rates since they have relationships with many carriers and can book based on volume. Load consolidation is another option. You can combine your load with other companies, even for full truckload freight, to save on costs.
When comparing rates, look at the bottom line in addition to the various accessorial charges and base charges. Also, understand the service levels. If one shipping quote is lower, but it will take a lot longer for that LTL load delivery, it may not be worth the lower fee.
Other ways to get the best LTL shipping rates
Carriers are incentivized by volume, so if you plan to continue sending LTL or FTL freight, it’s worth seeing how you can lower your freight costs.
If you are contracting with a carrier for longer terms shipping, you can optimize your contracts by using professional negotiation help from experts. Contracts can be negotiated with one or more carriers. These negotiations involve not only the base rates, but the accessorial charges too.
It can be difficult to know what factors are open to negotiation and by how much. That’s where experts like Shipware comes in, with contract optimization solutions. Our experts are former carrier-side professionals, and they can help you through the negotiation process.
The contract optimization process starts with Shipware analyzing your shipping usage and shipping characteristics to understand your specific situation. We compare your individual data to benchmark data to understand where you can benefit and by how much. This can be done for freight and also for parcel service. This type of guidance saves Shipware customers up to 30% on their shipping invoices.
Invoice Audit Recovery
Another way to save money on freight shipping is through invoice audit recovery. The Shipware tool identifies service failures and billing errors, and then applies the credit on behalf of the shipper. The credits go straight into the shipper’s account, and clients can save 1% to 9% of total invoicing fees with this tool.
With Shipware’s service, the software runs in the background, and clients do not need to do anything except watch credits roll in. Clients pay no up-front costs, and all fees are based on a percentage of savings gained from using the tool.
Shipware’s tool automatically uploads invoices into its system with an easy and fast connection. Shipware also follows up on any eligible refund amounts, so the client doesn’t have to make any effort. With both contract optimization and invoice audit recovery, a shipper can save a lot on logistics, including on LTL truckload pricing. Small errors in pricing and invoicing can add up, as can small changes in LTL freight contracts.
Please contact us to learn more about how to save money on your LTL shipping. You can reach us at (858) 879-2020. Contact us!