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How to Calculate LTL Freight Rates

by John Rediehs on December 23, 2016 No comments

If you want the best LTL freight rates for your business, there are numerous factors that you need to consider. The more you understand about what is included in the rate, the more you’ll be able to manage expectations and freight shipping processes to save money in the long term on resources and transportation costs.

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The many factors that make up freight rates will give you many options while making LTL shipping an appealing method of transportation for shippers. Ultimately, LTL shipping can provide more flexibility, visibility, and control over logistics.

Factors That Influence LTL Freight Rates

Normally, LTL shipments weigh anywhere between 151 and 20,000 lbs, and LTL carriers can provide discounts as the weight increases, equating to different levels of discounts depending on the weight class.

Unlike truckload rates, which are typically easy to determine based on per-mile or price per-hundred weight and fuel charge, LTL freights include many different factors that can impact the final cost in a number of ways.

LTL carriers collect freight from multiple shippers and consolidate that freight onto LTL trailers for line-haul to hub or delivering terminals, where the freight will undergo more sorting and consolidation.

The many factors that impact LTL freight rates are as follows:

1. Weight

One of the biggest factors in LTL freight rates is the weight of the shipment. Carriers will normally charge less per-hundred pounds as the weight increases.

2. Freight Classification

Each piece of freight has a specific classification, which plays a large role in freight rates. You can view the various classes in the National Motor Traffic Association’s National Motor Freight Classification (NMFC) book. The NMFTA has listed 18 different classes that range from 50 to 500. Factors that determine class include value, stow-ability, liability, product density, and handling. Lower class freight is dense to the point where it is easy to handle and difficult to damage. Higher classes mean higher rates.

3. Density

Another important factor is density, which not only determines freight classification, but also the freight rate itself. Shippers should understand how to calculate density so they can accurately describe the freight on bills of lading. You can determine freight density by dividing the total weight by the total cubic feet. Palletized freight will include the weight and cubic feet of the pallet, along with the combined height of the pallet and carton.

4. Base Rates

All LTL shippers determine their own base rates, which are quoted per-hundred pounds (CWT). CWT is based on freight classification, and carriers will alter base rates based on their volume needs.

5. Distance

Normally, the longer the transportation distance, the higher the cost. Many LTL shippers only provide services in a specific region, so you should understand the zones that your carrier usually targets. If deliveries fall outside of the carrier’s normal service area, the trucking company will have to practice interlining, which involves transferring shipments to other LTL carriers. Interlining can incur higher costs.

6. Minimums

The aspect of LTL freight rates that is increasing in price the most is the absolute minimum charge (AMC), which is the charge that a carrier will not go below. Carriers constantly request 2-3% increases of contract rates, with $5 increases in minimum charges. This can be a much larger increase than 3% depending on the original minimum charge, and carriers are doing this because the costs on their side for minimum charge shipments are far greater than the costs of heavier shipments.

7. Negotiated Rate Tariffs

Companies can negotiate rate tariffs with LTL carriers rather than simply settling for a base rate. With the right amount of understanding of your freight data and lane activity, you can work with carriers to negotiate various lanes and tariffs, which can help ensure that you get the best deal possible on LTL freight rates.

8. Freight All Kinds

Freight all kinds (FAK) is an agreement between LTL carriers and their clients that allows for multiple products of various classes to be shipped and billed at the same class. This can help companies further save on shipping costs.

9. Accessorial Charges and Surcharges

Accessorial charges come from extra services that the carrier performs that extend past the traditional pickup and deliveries. Examples of these charges include lift gate service, limited access locations such as storage units or schools, inside deliver, and residential pickup or delivery.

10. Negotiated Discounts

If a company wants a way to further lower their shipping costs, working with other freight carriers and routinely making shipments over several locations can save up to 18-25%. They can also negotiate discounts depending on a 3PL company or shipper’s reputation, volume, and relationship.

All of these factors will drastically affect your final LTL freight rates, and missing any of these specifics can result in a 25-40% increase in expenses. However, acknowledging and understanding each of these aspects can help ensure you save as much as possible.

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If you would like to get started on shipping today and get the best freight rates, get an instant rate quote at Red Dog Logistics today.

John RediehsHow to Calculate LTL Freight Rates

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