Understanding how less-than-truckload (LTL) freight shipping rates are calculated is critical to surviving and thriving in logistics. Throughout the industry, reports William B. Cassidy of JOC.com, overall freight shipping rates are decreasing. Yet, the cost of LTL is increasing, if not remaining the same. Some shippers may still this rise in rates is unjustified, and history would suggest the same. However, LTL shippers are experiencing an unprecedented demand for their services, and more businesses are starting to realize the cost Savings of using LTL shipments. Rather than blindly paying these fees, you need to know what affects LTL shipping rates and how you can leverage this information to secure the best possible rate for your LTL shipment.
Although dozens of factors play into the equation for determining LTL rates, most of these influences can be categorized into one of the following groups.
Dimensional pricing is replacing the old and ticketed Freight classification system. As explained by William B. Cassidy of JOC.com, more LTL carriers have taken the initiative to install equipment that can scan a palletized shipment and determine immediate dimensional pricing for their respective shipment. Since a pallet compresses space by nature, dimensional pricing may be much cheaper when used in a LTL scenario. Ask the push toward the full utilization of dimensional pricing increases, the cost of LTL shipping will increase concurrently. Ultimately, shippers will be more inclined to compress packages as much as possible to get the best shipping rate, and for some, LTL total cost will be lower than they would have been without the original motivation to embrace dimensional pricing.
The rise of the Internet has provided the space to create whole businesses with relatively little investment. These businesses do not routinely have the capital to invest in full truckload shipments, yet the small organization has enough capital to make a small package shipping irrelevant. Shipping companies have very little to no capacity on LTL shipments. As a result, bidding wars to secure contractual rate have erupted it across the country. In general, most LTL providers have been able to achieve and increase in contractual rate of at least 3.7 percent
The time of waiting for weeks for a package has passed, and consumers want their products as soon as possible. Less-than-truckload shipping offers a much faster delivery schedule then full truckload and small package shipment. In small package shipment, each item results in an additional stop and delay. Yes, full truckload requires the sorting and processing of individual orders after the shipment has been sent from location a to location B. According to Loretta Chao of the Wall Street Journal, customers are willing to pay an average of 15 percent more for faster shipping. Combining this with the Average increase in contractual shipping rates, shippers still stand to make a profit after paying extra costs to LTL shipping providers. Basically, distance determines speed, and speed is available through LTL.
We have discussed the driver shortage in detail, but have you thought about how the driver shortage impacts specific modes of transportation? Drivers do not want to spend all day on the road, but they do expect to earn a living wage that is competitive with what other Industries pay period in addition to a strain on the LTL shipping availability, the number of drivers is less than suitable. Therefore, a shipper must be willing to pay more to access LTL rates in a strained environment.
The rise of Amazon Prime and two-day shipping are fundamental reasons for the surge in less than truckload shipping rates. As more companies try to meet or beat Amazon’s record, LTL shipping rates are likely to increase further. Unfortunately, this creates a state of panic across the industry, end two shippers, it can be a catalyst for working to find out if LTL shipping is actually worth the cost. However, risk plays a role as well.
Risk is the most often forgotten aspect of LTL shipping, and it is playing a major role in the rise of shipping rates. Less-than-truckload shipments have an inherently lower risk of damage and errors than any other form of shipping. The shipments are not too large to risk complete ruin if a problem occurs, but the shipments are not so small that the time constraints on delivery would make it impractical to compete with Amazonesque time frames.
Additionally, the cost of risk is a tangible aspect in shipping. If a shipment has less risk, insurance rates and deductibles are lower. As a result, small to medium businesses can leverage how risk impacts all of the aforementioned factors to create a dynamic, cost-effective means of getting products from point A to point B and to the end user as quickly as possible.
Less-than-truckload shipping rates might seem like they are becoming overly expensive. In reality, the rise and raise is being caused by several factors, and these factors are creating the perfect storm for shippers. They are driving rates up, encouraging customers to pay more for shipping, and improving customer satisfaction rate concurrently. Rather than focusing on the negative parts of an increase in LTL shipping, you need to understand how these factors relate to pricing.
This consideration will only lead to one conclusion. LTL shipping is the most cost-effective form of shipping for rapid delivery when the shipment is too small or too large for other forms of shipping. LTL is just right for the cost.
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