According to the Bureau of Transportation Statistics and the Federal Highway Administration (FHWA), freight moving across the US transportation network will increase by as much as 40% over the next 30 years. The cargo value that’s being transported will also increase by as much as 92%, while the entire value moved by 2045 will exceed $37 trillion.
As such, plenty of businesses that have to deal with shipping cargo on a regular basis need to know how to manage their freight spend. Freight shipping is a complex process with many bits and pieces that make a whole. One of these cogs that make up the greater transportation industry is the less than truckload (LTL) freight rates and the many factors that influence them. By understanding how these rates are being calculated and what variables go into them, shippers and other stakeholders in the industry are in a far better position to develop better strategies for lowering their logistics freight cost and increase their overall profitability.
Understanding Freight Classes Before Freight Rates
With an increasing number of companies turning to LTL freight shipping as a means of saving on their transportation costs without sacrificing the service quality, the need to understand LTL freight rates has never been higher. And one of the most important factors that go into freight rates is the freight class of the cargo.
Freight classification is based on a numeric value attributed to cargo and which freight carriers use to determine the standard prices across LTL freight. The National Motor Freight Traffic Association (NMFTA) defines the 18 freight classes, ranging from 50 to 500. The lowest class of 50 has the highest weight per cubic foot (over 50 lbs.) and will be less expensive to transport since it takes up less space.
How Freight Classification Works?
Four main factors go into determining the freight class of any LTL shipment. These include:
- Density – While a handful of goods have their predefined freight class, the majority will be strictly based on their density, as presented above. Basically, the higher the density, the lower the class, and the lower the LTL shipping rate will eventually be.
- Stowability – Another factor in determining the freight class is the ease with which the cargo is loaded and unloaded. Generally speaking, most freight will be easily stowed into trucks, trains, planes, or ships, granted that their packaging is done right. That said, certain goods are regulated by law and can’t be loaded alongside other materials. In any case, freight that’s typically too cumbersome, long, and/or irregularly shaped will be difficult to load and unload, especially when shipped alongside other goods. This type of cargo should have clear load-bearing surfaces to make them easier to stack with other goods in the truck trailer.
- Handling – With LTL shipping, freight will typically go through several checkpoints before reaching its destination. This means that the cargo will be unloaded, warehoused, and loaded onto different trucks at least a couple of times. Usually, securely packaged goods won’t encounter any issues, yet some goods will be harder to stow. These can be classified as especially heavy, fragile, oddly-shaped, hazardous, or may require some form of special handling. Some carriers may classify freight that’s more difficult to handle at a higher freight class.
- Liability – The last factor that influences freight classification is the probability that a piece of cargo becomes damaged, or stolen, or will damage other goods while in transit. This may also include perishable goods or goods at a higher risk of combustion. They incur a higher liability and are typically valued per pound.
In most cases, typically, freight won’t have to deal with any of the bottom three factors that determine their class. As such, the most significant factor will be density. According to the Commodity Classification Standards Board, there is a chart that determines the class of freight based on density alone. Going just by density will eliminate any potential disagreements between shippers and carriers.
Calculating Freight Density
There are a few steps that need to be taken for shippers to determine their freight density. These will include:
- Measuring the dimensions of the pallets by length, width, and height. These measurements will need to include the goods as well as the pallets and the packaging of the entire shipment. In addition, this measure should also be rounded up to the next inch. When it comes to loads that have multiple pallets, this measuring process needs to be repeated.
- The next step of the process is to multiply these dimension measurements, which will provide you with the cubic size. By dividing that number by 1,728, you will be able to convert the shipment’s cubic inches into cubic feet. If there are multiple pieces, measurements will again need to be performed individually for each one. Finally, by adding all of these together, you will get the total.
- In this calculation, you will also need to include the weight of the shipment, which needs to be determined in pounds. That’s done by dividing it by the total cubic feet, which will provide you with pounds per cubic foot. This represents the density of the shipment. With the shipment’s density, you will be able to determine its freight class.
Other Factors That Determine How LTL Freight Is Calculated
Aside from the LTL freight class and all the factors that go into it, several other variables will determine the freight rates of LTL shipments. These will include the following:
While the shipment’s weight determines the density and class, it also has a say on the final rate. While heavier payloads will cost more in total, LTL rates are typically calculated that heavier shipments will actually cost less per hundred pounds. As an LTL shipment will come closer to the lowest weight in the next heaviest group on the CWT scale, it will be rated in that lowest weight.
The next most crucial factor affecting LTL rates after freight class is the distance of the transport. Usually, the longer the haul, the higher the price per hundred pounds will be. It should also be noted that many LTL carriers will only service certain geographic regions and not the entire country.
As such, shippers will also need to take into consideration how many Zip Codes the LTL carrier will service directly because anything that will be sent outside their area of operation will probably be transferred to a different LTL freight carrier. And depending on the exact distance, this process of transferring the freight shipment – known as interlining – can happen multiple times. Interlining can often lead to higher costs as a result of fewer discounts and higher minimum charges.
Another factor that often needs to be considered is the LTL capacity. To fill this capacity and use the entire space of each trailer, carriers will often need to charge differently based on certain lanes. Freight capacity is based mainly on supply and demand, as freight carriers need to consider backhaul, headhaul, and deadhead issues.
LTL carriers will typically establish their own base rates. There are quoted per hundredweight – CWT – 100 pounds. Unsurprisingly, this base LTL freight rate will vary based on carriers and the lanes they operate on. The CWT is determined based on the freight class. Generally, carriers tend to charge their base rates based on their need for extra volume, increase in gross costs for certain lanes that have enough available trucks.
Negotiated Rate Tariffs
Negotiation with LTL carriers depending on the lane can be possible. This allows shippers to get better tariffs for different lanes if they balance unattractive lanes with more attractive ones. This will work toward getting a better overall LTL freight rate.
Freight All Kinds (FAK)
This is an arrangement between the shipper and carrier where they come to an understanding regarding different freight classes that are being shipped. To simplify matters, these could be classified under the same LTL freight class. For instance, if a shipper regularly delivers goods that range between in freight class 50 and 150, they can agree on a FAK to rate all items under a class of 70. This understanding can streamline the process and lower the costs of transporting higher-class shipments.
Accessorials and Surcharges
These represent any extra services provided by the carrier or 3PL, which go beyond the typical dock-to-dock pickup and delivery. Among these accessorial services, we can include things such as liftgate, limited access location, residential pickups and deliveries, inside deliveries, and more. These surcharges can be negotiated to a flat rate or even waived under certain circumstances. Among the most common accessorials that are factored into shipments is the fuel surcharge.
Since LTL carriers will try to fill their truck capacity and trailer space on every lane, their rates will become more competitive when dealing with scarce supply. However, truck space becomes more valuable when there’s a peak in demand, and the freight rates will also go up. This will happen most often during the so-called Four Seasons of Freight Shipping. For example, fresh produce will drive up freight demand during spring and summer, whereas the winter holidays will drive up demand in November and December. The first three months of the year, from January until March, freight demand is typically at its lowest.
Shippers can also take advantage of additional discounts on their LTL rates by working together with 3PLs. These professionals will have negotiated discounts with other carriers due to their frequent shipments to multiple locations and work with numerous freight carriers.
If you are interested in a third-party logistics company that is consistently delivering value and great freight rates, look no further than RedBird Logistics Services, and you will be only one click away from streamlining your business’s logistics process.