The benefits of less-than-truckload (LTL) shipping—reduced shipping costs for shippers and optimized carrier routes—sound simple enough. But LTL contracts can become complicated.
To simplify the financial risk management process, let’s break down five factors that determine how much a shipper ultimately pays with an LTL contract. Our take? Good data and industry expertise can mean the difference between LTL cost hikes and significant savings.
1. Rating Tariffs (Rate Bases):
Before putting an LTL out to bid, shippers should evaluate their strategy for rating tariffs, a governing set of base rates that determine the gross freight charge on which discounts can be applied. Each carrier has its version of a rating tariff, with a new version released annually. Most carriers will offer shippers more targeted, aggressive pricing if they can use their own tariff.
LTL CONTRACT TIP: Shippers can request that carriers use an older tariff version when submitting pricing. For example, shippers can request that UPS Freight (UPGF), now part of TForce Freight, utilize the UPGF 2013 instead of the UPGF 2023 as their rating tariff. On average, base rates increase by 5.5% each year, which means base rates for the 2023 UPGF tariff will be 68% higher than those for the 2013 tariff. Carriers will adjust their discounts accordingly, in this case submitting a 62% discount and securing shippers a better deal.
2. The National Motor Freight Classification (NMFC):
The NMFC produces a set of product classifications that impact freight costs. Every product is assigned an NMFC classification number ranging from 50 – 500. The higher the number, the higher the cost.
Factors that determine NMFC class include:
- Density
- Durability
- Likelihood of damage
- Risk of theft
LTL CONTRACT TIP: Shipment density plays a significant role in LTL pricing. Lightweight pillows, for example, are low-density items that may take up a lot of room on a truck while weighing very little. On the other hand, bricks are high-density items that weigh a lot while taking up little space. As low-density goods, pillows could carry a much higher NMFC class than bricks.
3. Freight All Kinds (FAK):
Shippers can also negotiate FAKs, which allow them to group multiple NMFC classifications into a single class for billing purposes. For example, shippers can negotiate an LTL to rate shipments with NMFC classes between 50 and 85 at class 50. The cost of a class 85 shipment can be up to 20% higher than that of a class 50 shipment.
LTL CONTRACT TIP: Negotiating FAKs can significantly impact freight spend. Remember that carriers are trying to maximize their profits, so it’s crucial to be strategic when presenting requests.
4. Carrier-Provided Discounts:
Once a shipper has established negotiation points around rating tariffs, NMFCs, and FAKs, they can focus on carrier-provided discounts and minimum charges. For this strategy, understanding freight in relation to how many shipments will hit the minimum charge is essential. A carrier offering less discount may be the cheapest option if they come with a lower minimum charge.
LTL CONTRACT TIP: Shippers must be able to compare rates from multiple carriers to guarantee the best deal, which is why CTSI-Global’s Honeybee™ TMS includes pre-existing relationships with over 20,000 carriers. Ongoing expert carrier rate analysis ensures the best data available for shippers looking to optimize their LTL contract strategy.
CTA: Shippers without the proper LTL contract tools may miss out on deals they could negotiate with the right partner. Strategize with a CTSI-Global expert.
