What Goes into LTL Freight Rates

What Goes in to LTL Freight Rates?

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Knowing how to properly calculate and forecast LTL freight rates is incredibly important when attempting to create stable and consistent shipping practices. But it seems as though rates in the shipping industry are everything but stable. Many businesses’ freight rates fluctuate a great deal due to a mixture of uncontrollable factors and improper planning.

What Goes into LTL Freight Rates?

Most LTL shippers are experiencing an increase in demand for their services and are resorting to LTL shipping due to the low rates associated with the shipping mode. It’s important to understand what determines LTL freight rates and how these factors could change (for better or for worse) in the future. Here are 4 primary factors that go into determining LTL freight rates:

1)  Changing Pricing Models

For years on end, the freight classification system has been the primary determiner of LTL freight rates. As of recently, this is being replaced by dimensional pricing structures. Due to improvements in technology in the transportation industry, many shipping companies are using devices that can scan palletized shipments, determine the dimensions of the cargo, and produce a price based on its size and where the pallet is being shipped to.

Since pallets compress space, dimensional pricing offers the potential benefit of decreased LTL freight rates when compared to the old freight classification system. The industry is slowly pushing for the replacement of freight classification systems to implement dimensional pricing structures. For shippers, this means that effectively compressing your cargo can save you a lot of money on LTL shipments.

2)  LTL Capacity is Low

Since e-commerce came around, small startups have been largely responsible for massive increases in LTL shipments and subsequently, decreasing capacity for LTL space. Businesses are able to start up companies with low capital investments. The inability to rent out full truckloads means that companies like this are filling up much of the available LTL capacity. This has caused for rate wars in the industry – businesses are competing over bids for contracts with shipping companies to secure enough space to move their products as LTL shipments. This gives power to shipping companies to increase their rates.

3)  Increasing Demand for Speedy Delivery

Remember the good ol’ days when you used to wait 1-2 weeks for an online package to deliver? Yeah. They are long gone. Customers want their products fast and this increasing demand is putting huge pressure on the logistics industry. One of the primary benefits of LTL shipping is quicker transit time. The ability for LTL shippers to charge more for the fast delivery gives them further leverage over pricing.

4)  Decreased Driver Workforce

As everyone knows, drivers are scarce these days. The decreasing supply in the workforce means that drivers are simultaneously demanding more for their services. Drivers need to make enough money to live on, and this is difficult with LTL shipping modes. The new ELD mandates are giving truckers less time in a typical work day to deal with LTL shipments and the low availability means that truckers are charging much higher rates for LTL shipping. LTL freight rates are significantly influenced by driver price determination and rightly so.

Conclusion

There’s no doubt that LTL freight rates remain competitive with other modes. However, the industry is subject to much volatility and shippers need to be ready to face this. Many are prospecting that automation in the shipping industry may drive rates down as driver costs decrease while transit time and capacity increase.

If you want to learn more about LTL shipping, LTL freight rates, and your other options, reach out to one of our team members and we would be happy to help you out!

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