The Fundamentals of LTL Freight Pricing

When you understand how LTL shipments are priced, it’s a lot easier to manage your transportation spend. This SMC³ LTL Online Education session worked to identify some of the drivers of LTL freight pricing, and how rates are determined. Kevin Housley, senior director of LTL pricing at Scan Global Logistics, and Christopher Adkins, vice president of yield strategy and analysis at ArcBest, recently shared their insights on how transparency, attention to detail and trust, all revolving around LTL freight pricing, can strengthen carrier-shipper relationships.

Due to involving many different commodities to make up a full trailer of goods — it could be ladders, TVs, tires, pallets, etc. — the nature of the LTL freight business is complicated. Along with the different sizes and shapes, understanding base rates, discounts, minimal charges, special services, and how the freight flows through the network are all part of a wide array of factors that impact a shipment’s pricing structure.

“On our team, we say it takes about two years for a new pricing analyst to be fully competent in the pricing world because there are so many elements,” said Adkins. “It’s not that hard once you understand the building blocks and fundamentals, but without that experience, it can be overwhelming.”

With full Truckload shipping, the same driver picks up the freight and delivers it to its final destination. The reality is that LTL is a completely different set of circumstances. As a carrier, there are certain questions you must know and ask to get the pricing right. Where is it originating? Where is it going? How big is it? What does it weigh? What’s in the box?  While there are other factors involved as well, there is an opportunity to break all the things down and make them digestible.

“If you can mail a letter to someone, you can ship LTL. But you need that hands-on experience,” Housley added. “Get out there and physically pick up a box, move a pallet, unload a truck ride with a driver – things you may have never thought about start connecting and help you become a subject matter expert.”

There are a few things to know from a carrier’s perspective and industry best practices that can help shippers become a shipper of choice.

Know Your Freight and Your Expectations

Start by having a detailed understanding of what you’re shipping: know what it is, how it’s packaged, what’s the weight, how much space it takes up, where it’s coming from, where it’s going, etc.

As part of determining their pricing, carriers need to figure out how your freight fits into their network and they’ll also want to understand what is most important to you. Is speed a priority? Are you simply looking for the lowest price? Are you concerned about claims and if the freight gets damaged? As a shipper, you will ultimately have a more productive conversation — and get the best price — if you have a solid grasp of the details involved.

For RFP events, carrier pricing is largely going to be a result of the information provided. In addition to having a grasp of basic details like origin, destination, weight, etc., a historical data file can help provide a more detailed understanding of the dates and the seasonality that will take place. The need for 10 shipments a day compared to 10 shipments a month provides opportunities for a different conversation that can create efficiencies for the customer and the carrier, leading to better pricing and a mutually successful partnership.

Packaging Materials: Choose Wisely or Pay Later

In a world where achieving efficiencies is often the number one priority, shippers may not grasp how their packaging choices can not only affect their LTL pricing but other areas of the business as well. While you can pay a cheaper rate for cardboard, you’ll likely end up paying for it later with damaged goods or unhappy customers.

“In addition to asking a lot of questions, I always ask to see pictures of what is being shipped,” said Housley. “You have to go more in-depth than what you may see on their websites and get a better understanding of how the product is packaged, if it can be stacked, and their ultimate priorities.”

Things Move at the Speed of Trust

Since it’s far from a one-size-fits-all offering, a lot of success in LTL shipping is relationship-driven. Each shipment is unique and often requires a different solution. If shippers are in a conundrum about their freight, they should be able to work through the details with carriers. Whether you choose to go direct to a specific carrier, parse through a list of top carriers to find the best partner, or work with multiple carriers, you want partners that share a bond based on mutual trust.

Carriers must trust that the customer is providing the right information and shippers must trust that the carriers are providing the right pricing and service to meet their needs. Information can change, so in addition to providing all the data, it’s equally important to maintain an open dialog about any additional details like limited access and services that may be needed like a lift gate or inside delivery requirements.

“I’ve always been a proponent of 90-day reviews,” said Housley. “It helps manage expectations and ensure that everyone fulfilled their commitment because everyone has to be held accountable for what you’re doing.”

The LTL community itself is another differentiator compared to Truckload operations. Instead of thousands of options, there are only 25 LTL carriers controlling the business with the top five controlling roughly 75 percent of the business. Demand for LTL is going up and maintaining transparency strengthens the relationship and helps to negotiate a better program.

“If a shipper is trying to trick a carrier, that only works one time,” Adkins added. “After that, corrective action will be taken and that carrier likely won’t be interested in that business any longer. The more both parties can be transparent about their goals and values creates opportunities to find mutually beneficial solutions and leads to long-term partnerships.”