LTL Rates help shippers reduce their transportation spend. Less-than-Truckload carriers offer shippers the chance to ship smaller shipments at a much lower freight rate. This can help shippers who only ship a pallet or two to a customer.
To understand how LTL Rates work, it’s important to understand how LTL works. Less-than-Truckload (LTL) carriers work through various terminals regionally or nationally. The local terminal will start the day delivering freight in the area and end the day picking up freight. Then the local terminal will load trailers with similar destination freight into a linehaul trailer to go to the next terminal. The trailers are unloaded and reloaded again based on similar destination. This is repeated until the freight is at the local destination terminal and is sent out for delivery.
Components of an LTL Rate
There are three main components of an LTL rate: linehaul, fuel surcharge, and accessorial charges. Each of these components are explained below:
The linehaul charge is the main component of a freight shipment. There are various methods (seen below) to calculate the linehaul, but the purpose of the linehaul is the same. Linehaul pricing is the price to pickup specific freight from one zip code and deliver it to another zip code. This includes the pickup, the linehaul/handling at each terminal, and delivery of the shipment.
To help aid in fluctuation of fuel, fuel surcharges were added as a component of freight rates. Depending on contracts, the rate can be a percentage of the freight bill or a specific charge based on mileage and current diesel rates.
On top of Linehaul and Fuel Surcharges, LTL rates also include accessorial charges. These charges include additional services needed for shipments. These can include delivery appointments, limited access or residential locations, liftgate services, and much more. An accessorial is priced differently depending on the service and carrier. The service can be a flat charge per occurrence or a percentage of the cost.
How does a LTL Carrier Calculate Linehaul?
Over the years, LTL Carriers have updated or modified linehaul rating methods to provide more accurate pricing. Depending on the company, they may also describe a pricing method differently. Here are some common methods:
Freight Class Pricing
A general practice is to utilize freight classes. A shipment will calculate the linehaul rate based off tariffs utilizing a freight class system to determine the price of the product shipping. The reasoning behind freight classes are to help accurately price articles since not all products have the same handling or volume. A classic example is a 1,000 pounds of feathers takes up substantially more space then 1,000 pounds of nuts and bolts.
Freight classes start at class 50 and go all the way up to class 500. The higher the freight class, the more expensive the rate for the shipment. Products are categorized into freight classes according to the National Motor Freight Classification (NMFC) number. These numbers help standardize how shippers and carriers classify freight products. In recent years, these freight classes have started to move towards density-based classification.
In recent years, a shift towards dynamic, dimensional pricing has popped up. LTL rates are calculated based off the current capacity on the pickup date selected while keeping the dimensions / weight of the shipment in mind. ABF Freight is a good example of a carrier who has taken this pricing in a great direction.
The benefits of this type of pricing is that if accurate details are provided, then more accurate rates are provided on the front end. The method also helps carriers keep control of their capacity. If demand is higher and capacity is lower, the prices will be higher to help alleviate their networks.
Easily Retrieving LTL Rates
Generally, shippers retrieve rates from multiple LTL carriers at regional and national levels. The act of shopping out rates is due to transit times, pricing, and various other factors. Given that there is a complexity to rate LTL shipments, how can a shipper easily retrieve LTL Rates?
Transportation Management System
The easiest way to shop LTL rates and service is to utilize a Transportation Management System (TMS). A TMS can load multiple carriers and allow for a quick determination on the best option for the shipment.
For example, TLI’s ViewPoint TMS allows an easy user-interface while providing various LTL Provider options on a single shipment. The system also lets a user know if the shipment will pick up or be delivered by a partner carrier on behalf of the carrier.
Managing LTL Rates
LTL rates management can be a time-consuming and burdensome task for a logistics manager. Rate negotiation can be held quarterly or annually. Onboarding new LTL carriers may also pose a challenge to implement EDI and system integrations to easily populate rates.
Partnering with a Third Party Logistics Broker like TLI will help a logistics manager to efficiently manage LTL rates. TLI handles contract management directly for our shippers. A TLI shipper have the option to utilize our TLI blanket contract rates or client-specific negotiated rates (if freight volume meets a threshold).