How are Less-than-Truckload (LTL) costs calculated? When you understand how LTL shipments are priced, you can take steps to lower your LTL shipping costs.
Calculating Base LTL Shipping Rates
LTL shipping rates are calculated using several factors:
- Total weight: Carriers generally price shipments as a "rate per hundred." There typically will be breaks at different weight categories for each freight class, with the rate per hundred going down for larger shipments. For example, the rate per hundred pounds for a shipment between 0 – 499 pounds may be $50/hundred pounds, while the rate per hundred for shipments between 500 – 999 pounds drops to $40/hundred, with further breaks for even heavier loads.
- Density: Density is the primary factor determining freight classification, the second big driver for overall LTL shipping costs. Density is calculated by dividing the total weight of your shipment by the volume (length x width x height). The National Motor Freight Traffic Association (NMFTA) has established 18 freight classes, which range from 50 to 500. The freight classification is based on density as well as value, stowability, handling and liability. Lower density shipments take up more space for their total weight and are therefore more expensive to ship—you'll pay more to ship 500 pounds of feather pillows than 500 pounds of bricks. The cheapest products to ship are very dense, fit on a standard 4x4 pallet, are highly durable (e.g., can be stacked), and do not require special handling.
- Distance: The further your shipment has to go, the more you'll pay. Your starting and ending zip codes will be used to determine the total distance your shipment needs to travel. Rates for each carrier may also take into account how many times your shipment may have to be transferred from one truck to another along the way.
Together, the weight, freight class and distance are used to calculate a base rate for your shipment. These base rates may vary widely from one carrier to another.
Other Factors in Calculating LTL Shipping Costs
Along with the base rate, you are likely to see a few other charges on your LTL shipment as well. These may include:
- Accessorial charges: These charges apply when the shipment requires services beyond standard dock-to-dock pickup and delivery. Accessorial charges may includes special fees for lift gate service, pickup or delivery inside a building, pickup or delivery from locations with limited access, residential pickup or delivery, weekend delivery, and waiting or loading times.
- Special handling charges: If your shipment includes items that are classified as hazardous materials (hazmat), must be refrigerated, or require other special handling, there are likely to be extra fees for those services.
- Rush service: LTL shipping, in general, is best for shipments that are not highly time sensitive. Carriers gain efficiency when they have some leeway to group shipments together heading the same direction rather than trying to hit a specific deadline for each shipment. However, there are carriers who offer rush delivery or guaranteed delivery for time-sensitive shipments. Expect to pay extra for this service.
- Fuel surcharges: These typically apply to every shipment and reflect your share of the estimated cost of fuel for the shipment. Fuel surcharges depend on current fuel rates and factors such as extra taxes that some states may apply.
All of these charges may be lumped together under the general heading of Accessorial Charges and Surcharges.
Negotiating Better LTL Rates
Understanding how LTL shipment costs are calculated can help you negotiate better rates for your shipments. Both base rates and accessorial charges can be negotiated. Establishing a good relationship with your LTL carrier will put you in a better position to bargain.
To learn more about reducing you’re your LTL shipping costs, read Five Easy Ways to Reduce Less-than-Truckload (LTL) Shipping Costs.