Category: Logistics, Resources

Topic: Freight

How is Freight Priced: A Comprehensive Breakdown

How is freight priced

Freight costs represent the expense of moving goods from the shipper to the consignee. How freight is priced depends on several factors, including distance, weight, space, and operational costs associated with handling the freight. In this comprehensive guide, we will explore freight rates and their pricing structure.

How General Freight Pricing Works

One of the most common methods for pricing freight involves dividing it into three distinct line items: linehaul, fuel costs, and accessorial costs. These three general categories are in freight rates for all modes of transportation.

Linehaul Cost

The primary component of a freight rate is the linehaul rate, which covers the expense of transporting the shipment from pickup to delivery. Typically, a carrier calculates the linehaul by a per-mile rate multiplied by the total mileage. The calculation method for linehaul may vary depending on the mode of transportation and by carrier.

Fuel Surcharges (FCS)

To offset fuel expenses linked with the shipment, carriers apply a fuel surcharge. Freight rate agreements incorporate this surcharge to accommodate fluctuations in fuel prices. Typically, carriers calculate the surcharge on a per-mile basis, considering the total distance traveled during the trip.

Accessorial Cost

An accessorial is an additional service provided in addition to the standard freight service. For example, using a truck with a liftgate, delivering to a residential area, or incurring detention costs while a driver waits to for a loading or unloading of a shipment. Descriptions and costs of an accessorial vary depending on the service, carrier, and pricing agreement.

How Less-than-Truckload (LTL) Freight is Priced

Less-than-Truckload Pricing varies by the carrier and the contract. In the past, carriers negotiated discounts on Tariff pricing for historic LTL contract pricing, but recently, carriers have been developing new pricing strategies. The overall goal of LTL pricing is the shipper only paying for space used while the carrier being profitable in operations.

Freight Classification

A key component in LTL freight rating is the freight class. Freight class is governed by the National Motor Freight Traffic Association (NMFTA) and assigns a specific NMFC number to commodities. The NMFC number dictates the freight class by factors such as handling, volume, liability, and storage. The easier the freight is to ship for the carrier, then the lower the freight class and the lower the cost.

Calculated Per Hundredweight (CWT) Pricing

Historically, carriers establish their tariff rates based on a price per CWT. To calculate the freight charges, divide the weight of the shipment by 100 to determine the number of hundredweight units. Then, multiply this number by the rate per CWT. The rate per CWT varies depending on the freight class of the commodity shipping.

Pallet Pricing

Higher volume shippers with consistent shipment details may be able to receive pallet pricing. While this method is not common in today’s world, pallet pricing is a fixed rate for each pallet shipped. To receive this type of pricing, the pallet must be consistent in details, such as weight and dimensions.

Dimensional Pricing

Pricing based on the exact dimensions of the freight and space taken. This newer type of pricing helps shippers who have irregular freight to receive accurate pricing. Dimensional pricing is based on adding all dimensions together along with the weight and dividing by a dimensional factor for pricing.

Other LTL Pricing Methods

LTL Pricing varies by the carrier so there may be more customized or other pricing methods for freight rates. To learn more, reach out to TLI and we can have an expert discuss the best pricing for your freight.

How Volume LTL Freight is Priced

Consider Volume Less-than-Truckload (LTL) pricing as a spot volume quote. Based on the dimensions, weight, and available capacity, LTL carriers can offer a more competitive rate for a larger shipment. To receive a volume LTL quote, some carriers require a direct request for today’s rate.

How Full Truckload (FTL) Freight is Priced

Two separate methods, spot rates and contract rates, determine Full Truckload Pricing. Both methods are priced by supply and demand in the specific freight markets for shipping lanes. The difference lies in the contractual obligation of the rate and fluctuation of the rate.

What is a Freight Market?

Freight markets are specific geographical areas hosting various zip codes. Each freight market hosts a separate load to truck ratio that depicts how many loads there are for every truck in that area. Technology has helped aid the supply and demand by showcasing how many load posts and truck posts are in each freight market.

Spot Rates

These type of truckload rates fluctuate based on the available capacity in the area for the specified equipment. Typically, shippers find these rates through load boards or utilize technology to calculate the competitive and historical rate for a specific lane. Shippers negotiate these rates on a one-time basis at the time of booking.

Contract Rates

While the freight market affects contract rates, these contracts do not fluctuate as much as spot rates. Contract rates stipulate a specific amount of capacity that a carrier must supply at a predetermined rate. The advantage to these rates is having more reliable capacity at a negotiated rate. Before the start of service, carriers negotiate these rates and publish the rates for a specific period.

Receiving Freight Rates through a 3PL Broker

Partnering with a 3PL Freight Broker can help take the headache out of freight pricing. Typically, the broker will handle the negotiating and pricing of freight shipments to provide an all-in-rate for the shipper. With tips and expert advice, a shipper may also be able to reduce their freight costs. The broker may also be able to provide a freight rating system for easy rate retrieval and comparison.