How LTL shipping rates work and how to track trends developing in long-term pricing agreements

Adam RobinsonFreight Market Blog

ltl shipping

Less-than-truckload shipping, also known as LTL shipping, is nothing new within the transportation and shipping industry, but it has become more of a game-changer in recent years with freight rate prediction. Many LTL industry trends, including capacity limitations, increasing accessorials, surcharge rates, changes in market trends and buying patterns, are almost certain to continue through 2021 and for some time to come. According to statistics, cited by GlobalTranz, for 2021, it is anticipated that the LTL freight market will remain volatile and will take some time still to return to some semblance of normalcy.

LTL shipping rates would historically depend on freight class and the cost per hundredweight 

Major shippers and transporters have only so much space available to work within LTL shipping capacity. Every inch of space available in delivery vans, trucks, semis and cargo crates is valuable. As the amount of cargo that needs to be transported increases, the room becomes more valuable. In the past, calculating freight class depended on the physical weight of an item, as well as what else could be shipped within the same truck to set a cost per hundredweight (CPW). Those were the roots of LTL shipping rates. However, they have taken a backseat in modernity as carriers realized shippers were wasting space in packaging. That gave rise to a new time pricing strategy, dimension (DIM) pricing. 

Density plays a role in the form of dimensional pricing

DIM pricing considers cubic volume in addition to physical height, width and depth of packages as a factor for price calculations. Each freight management team within carriers utilizes its own LTL shipping rates and DIM pricing factor to calculate the rates for LTL. Density and package weight are critical in defining DIM pricing rates within LTL shipping services. UPS, FedEx and USPS each set their own DIM factor that is implemented for dimension pricing within intermodal shipping and normal shipping. Generally, it follows the same basic process:

  • Take the dimensional weight, for example, with a package that’s estimated to be eight pounds after calculating its dimensional volume and dividing that value by the DIM factor.
  • The actual weight during weigh-in is recorded and ends up registering at six pounds.
  • The two weights are compared, and the heavier of the two is used for fee calculations.
  • In this example, the shipping rate would be based on the DIM pricing weight of eight pounds.
  • If the numbers were reversed, the shipping rate is based on the actual package weight.
  • Calculating LTL shipping is an essential part of rate negotiation and capacity procurement and is an important step in securing the best bids, marketing shipping rates and maximizing profit margins.

How to track trends developing in long-term pricing agreements

Maximizing LTL shipping rates and maintaining a competitive advantage depends on staying on top of trends and market demand. Development within the shipping industry is all about securing long-term agreements and contracts, which comes down to a few critical points of consideration:  

  • Measure current tender rejections and lane volatilityKnowing what lanes and routes have the best rates or drive times and which ones are more prone to delays or disruptions is vital.
  • Identify markets with a higher degree of volatility. When working within markets or dealing with freight that brings greater risk, a higher rate must be charged to make it worth the effort.
  • Capture pricing data for LTL freight. Collecting, analyzing and applying real-time freight data and information can help ensure accurate and profitable rates are secured for each load.
  • Analyze LTL pricing rates against contract rates
  • Occasional reviews and adjustments to rates and calculations will ensure current and up-to-date trends with market trends. 
  • Consider rebidding lanes with a more considerable variance. 
  • Adjust rates, revisit contracts when able, and renegotiate rates to compensate for conflict and hazards involved.

Stay tactical by knowing what goes into LTL shipping rates and how to tailor RFPs accordingly

Shipping rates and negotiation have to stay strategic because of the continuous disruptions still happening within the market and industry. The best way for shippers and logistic managers to ride out the ever-changing market is to embrace less-than-truckload shipping methods and utilize long-term pricing agreement negotiation. Remaining competitive and finding success in today’s strained and stretched shipping market are all about maintaining the best shipping rates and presenting the best RFPs each time. Accurate data and analytics, along with the inclusion of digital dashboard platforms, can make everything more accessible and more streamlined. Request a FreightWaves SONAR SCI demo to get started on your next RFP bidding and lane volatility strategy to keep LTL rates in check.