A Guide to Estimating Freight Costs

Shipping is a massive expense for any business that needs to transport products or goods from one place to another. Depending on the cargo in need of shipping, the sheer cost alone can be the termites eating through profit margins. In which case, any company that relies upon freight shipping is constantly seeking ways to cut costs and maximize profits. Yet, navigating the freighting industry without experience or professional help can feel like walking through a maze blindfolded. Even worse, the lack of standardization in the industry can affect pricing (although there are freight classifications but we’ll touch more on this later), where one company will generate a quote that is drastically different than another, leaving the shipper confused as to what the ‘true pricing’ is.

A Multilayered industry

Part of the reason the aforementioned phenomenon occurs is because there is no single monopoly in the freight industry. While intermediaries, carriers, and the likes have strived to drive out competition and become the one-stop shop for freighting, no such thing has occurred. Many believe that this is due to the regional nature of shipping, as certain companies service small areas and are capable of managing them meticulously. Others think it’s because as the infrastructure evolved within the industry, there was no one single ‘railway’ per se that made more sense than all the rest. Thus we’re left with a multilayered industry that can’t really answer ‘how to estimate trucking rates’ with a ubiquitous explanation. Of course, there are certain factors that are going to transfer across different companies but at its core, what you estimate for your shipping costs may be drastically different than what a given broker recommends you, the carrier offers you, 3pl quotes you, and so forth. Which leads many shippers to ask: is there a pricing standard?

Freight classes

So, what does freight class mean? The NMFTA (National Motor Freight Traffic Association) created a list of 18 different freight classes which serve as umbrellas for different types of shipments. Today, this is one of the few facets of the industry that we can confidently say has been standardized. Not only are these classifications regarded as law but they’re used as reference points for every cog in the machine. No matter what region of the industry you’re working in, these are going to be the ‘general’ pricing estimates for each type of shipment. Along with these 18 different freight classes, there also exists categories for different types of hazardous material and further taxonomy for cargos that are shipped LTL (less than truckload). With that being said, these classes are somewhat rare and not often integrated. It’s important to note that in every freight shipping contract, a freight classification will be declared.

How does this help me estimate my shipping costs?

Beyond anything else, the freight classifications set forth by the NMFTA work to neutralize entropy and create consistent pricing across the industry. Being that they clump ‘types’ of cargo together, it provides a shipper, carrier, and anyone between them with an idea of how much it’s going to cost to ship the materials and the degree of difficulty required to execute the shipment. It should not be a surprise to you that certain cargos are going to be pricier to ship—often because the process is more complex. Shipping a cargo of bricks from the west to east coast of America might be a bit easier than say, a flammable, toxic, or combustible chemical. In which case when speaking of a certain freight class (also called a freight code) you are effectively speaking on a type of material.For instance, from freight class 50 to freight class 500, an experienced professional will recognize that if someone has claimed to have a shipment in the 50 class, they’re going to be shipping a cargo like sand that fits perfectly onto a pallet and is inexpensive. Likewise, if someone claims they are class 500 then the professional will know it’s a material similar to ping pong balls and that it will be extremely expensive to transport. You can deduce then, that by knowing your freight shipping class and everything that entails the specific category you are one step closer to understanding the ‘general expense’ of your specific cargo. But how do you find out your freight classification?

Calculating a freight classification

Calculating freight class comes down to how it’s broken down in the first place: physicality, storability, handling, and liability. Given the four factors above, a shipper can then calculate their freight class, which will help them estimate their freight shipping cost—or at least provide a general idea of how it places within the industry. With that being said, it is often advised that a professional assist in the calculation process, as an error, can mean overpaying or having to pay more later. Once a company identifies their NMFTA freight classification, they begin to understand how they’re priced within the freighting industry.

Create a regional grid estimate

Once the freight classification has been identified, a company can then move forward by creating a regional grid estimate. This is by no means easy and quite time-consuming, but the result can produce an above-average estimate. How it works is a company will research local or state-to-state shipping solutions in order to understand their prices and schedules. This data will be specific to the company, meaning the regions selected will be ones they need to access and the types of pricing evaluated will be for the type of shipping required. This will then provide a more specific estimate.The drawback is that with these ‘overt estimates’ it’s impossible to calculate all the fees, accessorial charges, and changing regulations. Using them for a budget may not be the best choice as the estimates could change.

Location

Another aspect to consider that is going to unanimously affect the price across the entire industry is location. It is simply common sense that the further a cargo must move, the more expensive it’s going to be. With that being said, plenty of carriers will factor in how close a destination is to major cities or metros, being that these shipping hubs make the transport easier and more accessible.

Use a freight broker

While all of the above are fantastic ways to calculate freight shipping costs as a shipper—it doesn’t need to be a DIY situation. In the vast, complex, and interwoven landscape of the freighting industry, sometimes a guide makes everything easier. Considering what an incorrect estimate can do to a bank account, hiring a professional is easily justified. While we say ‘freight broker’ here, we really mean any sort of liaison. From broker, forward, to third-party logistics company, a qualified professional should be able to evaluate your freight, assign the correct freight class, and ultimately generate estimates that are not going to somehow multiply once a contract is signed. These liaisons exist for this very reason; to provide accurate information to both parties and create healthy relationships between shipper and carrier. There are plenty of ways to estimate your freight shipping costs but at the end of the day, usually, your best bet is going to be by hiring someone who is an experienced professional within the industry.

Conclusion

Estimating freight shipping costs using freight rates and common shipping rates can be an arduous process. The lack of standardization, industry jargon, and multiple moving pieces make it difficult to generate accurate and trustable estimates. Despite this, there are plenty of methods that will allow a ballpark understanding of pricing and professionals can accurately generate estimates that can help you save on shipping costs.We understand. Knowing your shipping costs before signing a contract is important for your budget, livelihood, and success as a company. We hope this guide pointed you in the right direction!