Less than truckload (LTL) freight means transporting products or goods that do not require a full truckload. These freight loads are smaller and result in multiple shipments on one truck. LTL shipments are usually ideal for many carriers due to their flexibility, cost-effectiveness, and environmentally friendly. However, it can also be complex. So first, let us find out the calculations of LTL freight rates.
How To Calculate LTL Freight Rates
Minimums
Minimums, known as the absolute minimum charge (AMC), are the minimum charges that a carrier will not simply go below. This is because the costs a carrier experiences for a minimum charge shipment far exceed the expenditures they share for heavier loads. But, again, these can change from carrier to carrier and from lane to lane.
Distance
Typically, the longer the haul, the higher the price per-hundred weights. In addition, many carriers have a specific region in which they do business. As a result, if the shipment goes to a location outside the carrier’s normal service area, the trucking company will transfer the load to another LTL carrier for final delivery, known as interlining. Unfortunately, interlining can result in higher costs.
Weight
The more a shipment weighs, the less you pay per hundred pounds. Therefore, as the weight of the LTL shipment increases and approaches the lowest weight in the next heaviest weight group, it will be rated at the lowest weight category and rate in that weight group.
FAK
“Freight All Kinds,” known as FAK. This arrangement between the client and the carrier enables multiple products with different classes to be shipped and billed at the same freight class. For example, a client that sends various commodities ranging from 50 to 100 could negotiate a FAK with the carrier to rate all items at class 70. Doing this can significantly save clients by reducing the amount paid on higher-class shipments.
Classification
Every piece of freight has a classification for LTL. For example, the National Motor Freight Classification (NMFC) has established 18 different classes ranging from 50 to 500. Each class is made up depending on product density, value, stow-ability, handling, and liability. Lower classes represent very dense freight that is difficult to damage and easy to handle. Therefore, lower classes have lower rates. Conversely, higher classes represent lighter / less dense freight that takes up more space. Thus, the higher the class, the higher the rate will be.
Five Ways To Save on LTL Freight Rates
How can one save with all the different factors that go into calculating an LTL Freight Rate? Below are five ways to save on your next LTL freight:
1. Understand your supplier network
Determine where your key suppliers are and how often they are shipping the product to your facilities. Could shipment order quantities be increased to reduce the frequency of LTL shipments? Reducing the frequency of shipments will lessen the occurrence of minimum charges and yield more considerable freight savings and lower cost per pound over the year.
2. Create visibility into your freight costs
By developing reporting that captures where you are spending your LTL transportation dollars at the vendor level, a company can better understand where there may be opportunities to reduce costs. For example, which shipments do you pay the freight for and have control of today, and are there opportunities to convert pay terms to maximize savings? A reputable third-party logistics (3PL) provider can capture this critical information using a transportation management system (TMS).
3. Consolidate your supplier base
Companies need to have redundant sources of supply as contingency and for leverage in negotiations but having a key regional carrier can help you. Reducing the length of haul can enable you to use more regional LTL carriers and, in turn, potentially reduce your transportation expenses while simultaneously improving your average transit times. In addition, regional LTL carriers’ networks provide a more reliable and faster transit than their national LTL carrier counterparts.
4. Monitor and enforce vendor compliance
Your vendors need to understand and be held accountable for their carrier selection. If vendors are not selecting the least expensive cost carrier, have they been authorized to do so? If a vendor violates the rules for carrier selection, hold them accountable by enforcing chargeback penalties. Having a single point of contact for your vendors will help to reduce the chances of incurring unnecessary expenses.
Consider outsourcing the vendor compliance and carrier selection process to a third-party LTL provider with a robust LTL TMS. This will remove the expense and burden from the shoulders of in-house staffing as these third parties can provide flexible resource levels to handle surges in incoming requests.
5. Communicate with your vendor base
Distribute a vendor instruction letter to ensure an efficient transaction. This letter should detail whom to contact to request an LTL shipment along with purchase order numbers, origin/destination contact information, freight class, and weight. When a load needs to be shipped quickly, or a carrier other than the least cost option needs to be selected for service reasons, ensure the vendors know the proper procedure for authorizing these additional expenses in advance. Remember to provide feedback to your vendor based on their carrier selection performance- both positive and negative. Solid reporting at the vendor level that quantifies the cost of these lost LTL freight savings will help change behaviors and provide negotiating power at supplier negotiation time.
Partner With PLS Logistics
Partnering with PLS Logistics gives you access to not only our carrier network of over 55,000 regional and national carriers but also our TMS, PLS PRO. PLS PRO enables companies to optimize their loads by highlighting the carrier terminal’s availability, origin, and destination. In addition, it provides accurate rates, along with the carrier’s contact information. It allows businesses to select a suitable carrier for their budget! So contact us today and let PLS Logistics be your next 3PL provider.
