Trucks transport more than 11 billion tons of freight each year in the U.S. That is more than 3 million tons shipping every day of the year.
LTL freight shipping works well for shippers, carriers, and brokers. Filling up space in a trailer can maximize profits for a carrier. Shippers do not have to pay for an entire truck. For brokers, it means playing a crucial role between shippers and carriers to piece LTL freight loads together, so everybody wins.
How to calculate LTL freight rates
These days, brokers see more hot loads as carriers manage their yield. This means faster decisions need to be made to grab loads, often leaving brokers little time to calculate LTL freight rates strategically.
The more unstable the pricing market, the more complex it is to match shippers and carriers. But other factors impact less than load (LTL) shipping rates. Here, we break down how to calculate LTL freight rates.
The 9 factors that affect LTL shipping rates
Since LTL freight ships alongside other orders, pricing is based (in part) on the amount of space the freight requires. Weight, density, and dimensions all play a role in negotiating price. Here are some of the other major factors that affect LTL freight costs.
1. Freight classifications
Freight class is determined by the National Motor Freight Classification (NMFC) system. Higher classes will be lighter and less dense but take up more space. Lower classes are dense freight that’s easier to handle and/or difficult to damage. The higher the freight classification, the higher the LTL rate will be.
Freight classifications gauge density, handling, stowability, and liability based on value. These factors play a role in how freight classification works and, ultimately, what shippers pay and what carriers and brokers yield.
- Freight density: The ratio of weight to volume expressed in per cubic foot (PCF) measurements.
- Handling: How difficult goods are to handle and whether they need any special handling.
- Stowability: How easily other freight can be stored on top of (or next to) other cargo.
- Liability/value: The liability is a gauge of risk compared to value. For example, how susceptibile a product is to damage, or if goods are perishable, hazardous, or need temperature-controlled or refrigerated trailers.
By assessing commodities based on these characteristics, freight classifications make it easier for shippers, carriers, and brokers to calculate rates.
2. Freight all kinds (FAK)
When shippers mix freight from multiple freight classes, they often want an agreement from carriers to handle it all under one freight class to cut down on costs and paperwork. Shippers ask for the freight to be designated freight of all kinds (FAK). FAK rates are typically negotiated based on shipping volume over time. Regular shippers who move high volumes have a much better chance at getting a break on freight rates for different classifications using FAK rates.
3. Supply and demand
Pricing also varies based on supply and demand. When carriers are trying to maximize loads, LTL rates can change quickly as loads are snapped up. Seasonal impacts also affect supply and demand. For example, during harvest seasons, when most produce ships, rates can be higher for more in-demand refrigerated trailers.
Environmental or other global market events can also influence supply and demand. The world saw it shift dramatically during the pandemic.
Another factor that impacts supply and demand is driver availability. Currently, there’s a nationwide shortage of drivers. Fewer drivers can mean less flexibility in freight rates for carriers. The American Trucking Association says the industry needs more than a million new drivers over the next decade to maintain the current level of freight shipping.
Obviously, the longer the distance, the more expensive the load will be for shippers. Longer hauls command a higher price per hundredweight.
In addition to distance, routes outside of established trucking lanes or in hazardous conditions, such as icy roads, will also impact pre-mile costs.
The freight classification will be determined first and an LTL rate assigned to determine the freight rate. Then, the freight rate is multiplied by the number of miles.
Destinations outside traditional lanes or service routes might require additional fees, especially if the freight has to be offloaded and transferred to another vehicle or carrier. Any time a load is transferred, there’s additional time and costs. There’s also the added risk of potential damage to goods.
6. Fuel costs
Fuel costs vary daily and by geography, which can impact the LTL rate. Carriers set rates for a base fuel cost and then add a surcharge for price spikes. The additional fuel cost is calculated as a percentage of the base rate and will appear as a separate line item on invoices.
7. Carrier minimums
Carriers have minimum rates they require to manage their profitability. Each carrier sets its absolute minimum charge (AMC) differently. Carriers might also assess a general rate increase (GRI) to base rates to help handle overhead. We’re seeing AMCs go up for LTL shipments as carriers carefully manage costs for loads.
8. Freight broker discounts
Common LTL carriers offer shippers a percentage reduction. Using base rate tables, they then adjust for the volume of business. Brokers can typically get higher discounts due to this volume, which means shippers almost always get a better deal with brokers. Freight broker discounts can often knock up to 25% off LTL freight rates.
9. Accessorial charges
Accessorial charges are extra fees carriers charge beyond standard dock-to-dock pickup and delivery. Fuel surcharges are one of the most common due to rising rates. But carriers also charge for residential pickup or delivery, limited access locations, wait time, or lift-gate services.
Special services, such as white glove delivery, indoor delivery or pickup, or expedited shipping also add to the cost.
Set the best LTL carrier rates.
Each of these factors plays a critical role in the rates brokers see. Individual carriers typically have their own method and formula for how to calculate LTL rates and might change their pricing for other unrelated reasons. Brokers must balance all of these things and more when evaluating LTL rates.
At Truckstop.com, our Load Board for Brokers and rate analysis tools help brokers move fast, close deals, and make money. At any one time, we have more than a billion dollars worth of opportunities for FTL and LTL loads using specialized, heavy haul, reefer, van, and flatbed vehicles. We make it easy to find capacity, compare rates, and make things happen quickly.
With our Rate Analysis tool, brokers can rate against hundreds of thousands of daily loads and more than a million power units. By benchmarking rates in real-time, you can get better rates on every deal.
Get a free demo of Truckstop.com today to see what a difference the right load board can make for your brokering business.