By: Brian Katcher on April 21st, 2020

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Shipping Less-Than-Truckload (LTL): How Are Rates Determined?

Business Advice | Logistics | Transportation

Less-Than-Truckload, or LTL, is the transportation of relatively small shipments, meaning it is under 10,000 pounds, usually six standard pallet positions or less, and does not require the entire space of a trailer. When shipping LTL, shippers pay for the area on the trailer their shipment occupies. The other occupants of the trailer’s space pay for the remainder of the cost.

LTL can be very confusing and costly if you’re not very experienced with it. Choosing the right third-party logistics partner (3PL) to help can make all the difference. At Armstrong, we move over two hundred thousand loads per year, giving us buying power with LTL carriers, access to an extensive LTL carrier network and competitive tariff rates.

For those new to dealing with LTL, different LTL carriers’ tariff rates can be very confusing. All LTL carriers set up their own specific tariffs, and they often vary greatly. Specific costs are nearly impossible to predict, as they fluctuate daily based on demand, fuel prices and the exact parameters of your shipment.

In this article, we will discuss how rates are determined, the benefits of shipping via LTL, the alternatives, and other things to consider.

Factors That Determine LTL Shipping Rates

Several factors go into determining LTL rates. Below is a list of the most important or commonly used ones.

Freight Classification

By far, this is the most important factor in determining the cost of LTL shipments. Incorrect classification leads to increased cost and additional fees, and you often won’t see these added costs for seven days. For example, if the items require special handling (i.e. lift-gate, inside delivery, tradeshow, etc.), and this is not disclosed in advance, invoiced rate will be higher than your initial quote.

There are 18 freight classifications ranging from 50 to 500, as established by the National Motor Freight Traffic Association. Class is based on the following: shipment density, value, stowability, handling, and liability.

In most cases, the lower the class, the lower the rate. Items that receive a lower classification are very dense shipments, which are harder to damage and easier to handle.

The higher the class, the higher the rate for LTL. This is because the shipment is less dense and takes up more space relative to the weight. These types of loads are more prone to damage and require more handling.

ClassIT is a helpful tool to determine classification. This is a paid service, so check with your organization or sign up online to access this information. Many of our Armstrong agencies can assist with freight classification as well.

Weight

Many LTL carriers use centum weight (CWT), or hundredweight, as a way to calculate rates. In this case, rates are quoted per 100 pounds. The carrier has a CWT calculation, based on freight classification rates, shipment weight, and route distance. In general, the heavier the weight of the shipment, the less that the shipper will pay per 100 pounds.

Dimension

The dimensions and the weight of the shipment will allow you to calculate density (lbs/ft3) to help determine the freight class, which directly impacts rates.

Unusually shaped objects such as hockey sticks or gym weight machines typically take up more space, thus increasing the shipping cost, even if they weigh less than a standard pallet of steel bolts.

Strategies for Reducing Dimensional Pricing Costs

Here are a few ways you can minimize shipping and dimensional pricing costs:

  • Minimize your packaging. Don’t use a larger-than-necessary box and fill it with packing peanuts or bubble wrap. Use an appropriately-sized box instead.
  • Organize your pallets to maximize space. Load pallets evenly on top and the sides, creating level rows on the truck.
  • Train your warehouse and packing/loading staff. Holding your employees to clear and consistent standards will help to reduce overall costs in the long run. 

Distance

In general, the longer the distance, the higher the rate per pallet or hundredweight. The origin zip code and the destination zip code are used to determine the distance the shipment has to travel.

Most LTL carriers have multiple terminals in a specific state. If a specific LTL carrier’s delivering terminal is located close to the shipment’s consignee, these shipments tend to have lower rates than their competitors.

On the other hand, some LTL carriers only service a specific geographical area and therefore have to transload their shipment to a partner carrier to reach the shipment’s final destination. This is called “interlining,” which tends to cost more and exposes shipments to a higher risk of loss and damage.

Accessorial Charges to Consider

Anything that is out of the norm or requires extra time or effort is going to incur an additional fee from an LTL carrier. The best way to prevent this is to be knowledgeable about what commodity is being shipped as well as any additional services required at both pick up and delivery.

The following are instances that commonly see extra fees AFTER the load has been delivered.

  • Extreme length, or any item over 8 feet.
  • Nontraditional locations, especially those without a dock or off the beaten path (i.e. church or temple, shopping mall, farm or rural location).
  • Liftgates, which are needed when the facility doesn’t have a dock (common for residential deliveries and small businesses). Essentially, a liftgate is a platform attached to the trailer that moves up and down pneumatically in order to lower the pallets from the trailer to the ground.
  • Delivery appointments.
  • Inside pick up/delivery.
  • High-security facilities (i.e. government locations, guard shack or check-in required).

What You Can Expect With LTL Shipping

When shipping with an LTL carrier, you can expect the following:

No Direct Contact With the Driver

In order to confirm pick-ups have been completed, you’ll need to reach out to the dispatcher, or your shipper directly. Tracking can often be done on the LTL carrier’s website, or the agent that you booked your shipment with. Delivery confirmation can usually be checked on an LTL carrier’s online tracking system. If no online tracking is available, you’ll need to reach out to the agent that you booked the shipment with, the dispatcher, or the consignee directly.

Packaging

LTL shipments should be strapped/shrink wrapped to a pallet. In some cases, the commodity may even require it to be crated, for example, an engine. LTL drivers will refuse to pick up freight that is not packaged correctly. Since LTL freight is unloaded/loaded many times during transit, shipping loose commodities puts cargo at risk for damage or loss.

Longer Delivery Dates

Transit times are always estimated and do not include day-of pickup, weekends, or holidays.

Inspection Fees

Inspection fees may apply for inaccurate information. Quotes are based on the information provided. If the information is incorrect, fees may be charged later.

Inspections have become easier to conduct and more commonly done due to advanced technology like laser scanning, cameras, and other technology used to quickly scan dimensions/weight. This means the information provided on the weight/dimension must be accurate.

Bill of Lading

The bill of lading must be from the entity paying for the freight. If the shipment is coming directly from the shipper, it can be their bill of lading.

If a third party logistics company is arranging the transportation, it must be their bill of lading. This is different from typical full truckload or even partial shipments.

Typically, to maintain discounted pricing and avoid additional billing fees, the bill of lading must be sent to the shipping location and given to the driver at pickup.

When Is LTL A Good Option?

If your shipment fits the following criteria, LTL could be a good option for you:

  • Six standard pallets or 10,000 pounds (or less).
  • Flexible with transit time (shipment is not time-critical).
  • It does not require refrigeration. If it does, you may be directed to a carrier who specializes in this.

Advantages of Using LTL

There are several advantages of using LTL, including:

  • Reduction in shipping costs. Less space = lower rates.
  • LTL carriers have robust back-office support: claims, legal, tracking, and billing. Their experienced teams, from drivers to dispatchers, often know the shipper/consignee locations very well; as well as the specific needs/requirements of certain shippers/consignees. It may be worth paying for the peace of mind that you have an excellent company moving your load.
  • Technology for tracking is very reliable. Each item is labeled with a sticker and tracked from pick up to linehaul to delivery.
  • More and more value is placed on being green and taking care of the planet. Shipping via LTL reduces the overall carbon footprint of each shipment by sharing trailer space.

When Is LTL NOT A Good Option?

LTL is not not always the best option. Below are a few example situations where an alternate shipping method should be considered.

Tight Deadlines

When the product needs to be delivered at a specific time or on a tight schedule, LTL is not a good option. The last thing a vendor or broker wants to be responsible for is shutting down an entire production line because one piece didn’t arrive on time.

For example, when the consignee location is not close to the LTL terminal, the carrier might only go to that location on specific days of the week.

Many LTL carriers won’t wait in lines, so if the shipment is located in a bustling distribution center, it might not get picked up same day.

Expensive Items

Expensive items that need to be shipped securely, like electronics, are more likely to be damaged or subject to theft.

Temperature-Controlled

Products that require precise temperature control, like steak or seafood. It is challenging to ensure that these items will remain at a stable temperature throughout transit.

Delicate or Irreplaceable Items

The Mona Lisa is probably not going to be shipped with an LTL carrier. Valuable items like original artwork should be shipped by a more secure method.

Choosing the Right 3PL Partner Can Help You Decide

If you are still wondering whether or not LTL is the right choice for your shipment, consider working with a reputable 3PL to assist you. You can eliminate the guesswork and might save money in the process.

If you think LTL could be the right fit for your business, connect with one of Armstrong’s LTL professionals today to find out more.