For shippers in the U.S., competing for reasonable LTL pricing can feel like “The Hunger Games” — a fight against overwhelming odds. To come out on top, you must be able to separate fact from fiction and successfully navigate the system.
Before I dig any further into this pop-culture metaphor, here’s a quick synopsis for those that haven’t seen the movies or read the books. “The Hunger Games” is set in the dystopian future nation of Panem. Comprising districts which are divvied up by the commodities they produce, Panem is an oppressed and frightened society dominated by The Capitol. In retribution for a past rebellion, each district is required to provide child “tributes” each year. Tributes are forced to fight to the death in a nationally-televised contest for the title of “victor” and a lifetime of special status and wealth.
In our world, LTL pricing is based on a commodity classification system created long before the rebellion (that is, deregulation in 1980), and those freight classes still control how pricing is structured today. While it demands no tributes and is not a matter of life and death, the LTL pricing system can seem oppressively complicated and impenetrable.
Things are not always what they seem
Much like the Hunger Games’ holographic arena, LTL pricing is typically presented as a shell of the actual price. Usually quoted as a discount off of a base tariff and a minimum charge, you have no way of knowing what you’ll actually be required to pay until you classify and rate your shipment details.
While one carrier’s minimum charge might be low, the discount percentage may be low too, so the minimum charge rarely applies. You could compare one minimum charge to another carrier’s minimum charge and think that the lower charge is better when, in reality, their pricing is higher. The reverse can also be true where a higher discount looks attractive, but a higher minimum charge often applies and minimizes the higher discount’s benefit. To avoid this trap, you cannot just look at the “discount and minimum charge” pricing shell. You have to rate your shipments to determine the accurate net cost.
Success is a process, not a silver bullet
The best Hunger Games’ contestants took the contest one step at a time. And they were more than just good fighters; they won over allies, charmed sponsors, and put on an entertaining show. Albeit a little less dramatic, the process for procuring LTL freight is just as involved. You can’t just be a good negotiator. There are many steps you can take to begin taking control of your LTL freight procurement process, including:
- Determine your actual freight class: This seems simple, but many companies have no idea which freight classes they ship. You can source this information from your current LTL carriers.
- Decide on a FAK (Freight All Kinds) class structure: FAK classes can be used to simplify pricing. An FAK class combines several actual classes into one billable class. For example, if you’re shipping freight in classes 60, 77.5, and 85, you can request that carriers provide pricing using FAK class 60. Any shipment with those classes will be charged as class 60 when billed.
- Pick a standard base tariff: LTL pricing is set by applying a minimum charge and discount off of a base tariff at the appropriate freight class. Having all pricing be based on a standard tariff allows for easier shipment rating and auditing.
- Standardize your accessorial costs: Analyze what accessorial costs you are currently paying and the consistent services you require and standardize these charges across all your carriers. This will make it easier to audit and pay freight invoices as well as compare the costs of different carriers.
- Define a standard pricing structure (5Zip to State, State to 5Zip, 3Zip to 3Zip, etc.): LTL carriers will price shipments differently based on the pickup or delivery density. It is always best to try and get outbound and inbound pricing to/from a specified location. For outbound business, you will want to group your business where you have the most delivery density to get the best pricing. The reverse is true for pickup locations on inbound business.
Self-sufficiency helps you stay alive
Katniss, the heroine of “The Hunger Games,” went outside the borders of her district to hunt and provide for her family. If you are responsible for procuring or managing LTL freight, it is essential to have the tools and knowledge in the following areas:
- LTL Rating: Make sure you can rate your LTL shipments using the base tariff you have chosen. Your TMS system(s) will have the ability to rate individual shipments, but you should also have the ability to rate shipments in batch to do analysis, conduct RFPs, and audit invoices.
- Freight Classification: To ensure you are applying the correct freight class to your products, you will need access to the National Motor Freight Classification (NMFC) standard. It will allow you to look up the right freight class for all your products and resolve classification disputes with your carriers.
- Pallet Scales: Because LTL pricing is based on weight, you must be able to record accurate weights when shipping. Not to mention, many of the freight classes for a product will be different based on their density. Having a precise weight will allow you to reflect the correct density (in pounds per cubic foot). You could be subject to the carriers re-weighing your freight and applying additional charges if your figures are not accurate.
- Bills of Lading: To avoid carrier pricing disputes, your bills of lading must reflect the accurate freight class and weight. If you have the NMFC code identified for each product, it is a good idea to show that on the bill of lading along with the weight for each NMFC code and freight class.
Being more self-sufficient in these areas will enable you to more accurately rate your LTL shipments and minimize carrier pricing disputes — both of which will save you time and money.
Of course, even Katniss came to realize that there’s nothing wrong with getting help from time to time. LTL freight is complex and challenging to manage and, if you do not have the expertise in-house, it is wise to make an alliance. Chainalytics’ transportation experts have the knowledge and resources you need to sharpen your LTL game. As you take up your banner to compete, remember that you may need to sacrifice the battle of perfection to win the war of progress. “May the odds be ever in your favor!”
Coming to terms with LTL pricing to manage it effectively can be daunting, but it doesn’t have to be. Chainalytics’ combination of top supply chain talent, proven methodologies, and exclusive market intelligence consistently puts our clients ahead of the curve. Reach out and learn how we can help you get a handle on your LTL procurement process
Rob Achtzehn is a Sr. Manager in the Transportation consulting practice at Chainalytics. He has more than 20 years of experience across all areas of transportation and logistics, including sourcing, private fleets, TMS, warehousing operations, and business intelligence.
