How Freight Rates Are Determined

If you are the owner of a store or e-commerce business that regularly ships goods or products, odds are you are more than aware of how key a component your shipping services are to the success of your business. A good shipper can increase delivery or transit times, and help cut costs from your bottom line. Lousy freight shipping companies, on the other hand, can hurt your company in the long run.

As the retail world continues to shift into eCommerce, the reliability and efficiency of your LTL freight shipping cannot be overstated. Quite frankly, it is one of the most critical business decisions you can make.

Because of this, it is essential you understand how carriers determine freight shipping rates. By understanding the ins-and-outs of LTL (less-than truckload) shipping rates, you can find ways to cut costs and save your company money on freight costs. See which factors contribute to your LTL freight quote and how you can save even more on freight services.

LTL Shipping

Less than truckload shipping was created for multiple shippers to rent area within the truck’s cargo bay. It is ideal for those who regularly ship less than 4,000 pounds or one to six pallets at a time. It is a more cost-effective method than FTL (full truckload) shipping since you do not end up paying for space in the truck that you will not be utilizing, thus making your cost per lb of shipment cheaper. It is fast, efficient, and has been vital for the boom seen with small to medium sized e-commerce companies.

LTL Shipping Rates

Shipping rates are determined by a variety of factors. They include:

• Weight: The more a good weighs, the less money it will end up costing for every hundred pounds shipped. The vast majority of LTL freight class rates have six weight cliffs or tiers that will be added to the minimum charge of a freight shipment. Those tiers look like:
• Minimum charge per LTL shipment
• Less than 500 pounds
• More than 500 pounds but less than 1,000 pounds
• More than 1,000 pounds but less than 2,000 pounds
• More than 2,000 pounds but less than 5,000 pounds
• More than 5,000 pounds but less than 10,000 pounds
• More than 10,000 pounds but less than 20,000 pounds
• Freight Classification: The NMFTA (National Motor Freight Traffic Association) determines how freight is classified. These classifications create a uniform way of describing or charging for specific items and help decide which items are easier or more difficult to transport. This standard for comparing commodities is regularly updated by the Commodity Classification Standard Board (CCSB). They, in turn, organize and group commodities into one of the 18 cargo classes, which range from 50 to 500. Four key factors go into determining class:
• Density: Without a doubt, density is the most crucial factor in defining class, so unless it has serious stowing, liability, or handling issues, this will likely play the most significant role in determining your goods' class. Density is often referred to in lbs/ft3 and is figured by dividing the weight of cargo by volume. The higher the class, the less dense it is, with the 500 class being the least dense. In most cases, the higher the class, the more expensive it costs to ship.
• Handling: If you wish to ship an item that is fragile, oddly shaped, unwieldy or may be hazardous to those shipping or other goods, it could be granted a different classification that acknowledges the handling complications. Such items may require more people, specialized tools, or care and therefore have a price that reflects the extra labor costs. As you would imagine, the easier it is for a carrier to ship your goods, the less it will cost to ship them.
• Liability: If goods are more likely to be damaged or stolen, a carrier will have to pay more if held liable for them. As a result, if a good is more valuable by the pound, perishable, or potentially hazardous, you will have to pay the carrier more money to ship that good
• Stowability: If a good is either one or some combination of too big, too heavy, can’t stack, has no load-bearing surfaces or has bulges, and if these factors restrict loading, the class may shift accordingly.
• Accessorials: Are additional fees charged by carriers for services that go beyond their regular dock-to-dock pick-up and delivery duties. They are not required to do such things, and so they generally charge you extra for them. Examples of accessorials include, inside delivery, residential pick-up and delivery, Saturday delivery, fuel surcharge, palletizing, gate service, and others. These can be negotiated away ahead of time, so consider what your needs are before you enter a contract negotiation.
• Base Rates: Despite the fact that most LTL carriers have similar rates, base rates, however, are unique and vary from lane to lane and from carrier to carrier. These shipping quotes are calculated per 100 lbs and CWT is the abbreviation for this standardized measurement of hundredweight. If a carrier needs more volume or to increase costs for lanes by balancing trucks and freight, they will often alter their base rate.
• Distance: As you might imagine, the farther the distance a package requires to reach its destination, the more expensive the cost of shipping. Furthermore, unused lanes or unserviced areas will also cost more since it is less profitable for the carrier, especially if they have to transfer that shipment to a companion carrier to get your goods to an area that is out of their distribution network.
• Minimum Charge: LTL freight carriers have minimum shipping rates that they will not drop beneath in order to compensate for shipments that contain less cargo or go by less populated lanes. There are a variety of minimums that can be charged, so make sure to read the fine print in order to avoid getting hit with such fees.

Know Potential Carrier Fees

On top of general LTL freight rates, there are often additional fees that may be tacked on to your final bill. By being aware of such potential fees, you can take the necessary steps to prevent being caught unaware.

• Value Added Service: VAR, also a way of referring to accessorial charges, these can quickly end up doubling the cost of your shipment. Do everything in your power to avoid having to pay more, unless those added services are more valuable to you in the long run.
• General Rate Increase: a GRI, or a GRR (general rate restoration) is a surcharge in addition to the base rate. Such rates can be applied across the board, or specifically to certain shipping lanes. While most carriers announce updated shipping costs at the beginning of the month, some are not as transparent about GRI’s, so be sure to request any pricing updates or surcharges.
• Cargo Ready Date: CRD is the date you and the carrier agree upon to pick up and transport your goods. If your cargo isn’t prepared by that date, you will be charged more since it backs up their logistical line. Be sure to have all your goods palletized and ready to go by the CRD or else you will be charged more.
• Pallet Fee: If you do not utilize your own pallets, you will be charged by the carrier to rent one of their pallets for shipment. It is much cheaper to do this yourself.

Conclusion

Freight shipping rates are determined by a host of factors such as weight, freight classification, distance traveled and a variety of additional fees. Get the cheapest freight possible for your shipping options without the hassle. By knowing these numbers, you prepare yourself and can figure out ways to save money in either your shipping needs or in your contract negotiations.