If you are a shipper who regularly ships via the over-the-road mode of Less Than Truckload, also known as LTL, you understand there are a lot of moving parts to have efficient LTL Shipping. Efficient means executing a program that allows you to achieve maximum outcomes all while not using too many resources, too much time, or spending too much money. With transportation costs often comprising 4 to 7.5% of sales for a shipper, and with the myriad of factors involved in LTL shipping, shippers often forget about the core factors and fundamentals of LTL shipping.
We invite you to register and attend our educational webinar titled, “Major Factors to Consider for Efficient LTL Shipping” presented on October 5th, at 10:00 am CST.
You can register by visiting https://attendee.gotowebinar.com/register/6497201502683225090.
This webinar is perfect for:
There is a lot to keep up with if you are shipping in the LTL mode, and education and expertise are the keys to success in maintaining control and visibility of your LTL freight.
The 45 to 60-minute webinar on “Major Factors to Consider for Efficient LTL Shipping”, will teach you how to better manage the process and the costs associated with shipping via LTL by covering the following material:
Remember to register for the webinar and receive automatic attendance notifications by visiting https://attendee.gotowebinar.com/register/6497201502683225090.
Operating your business is only half the battle in getting customers to purchase your products. After a customer purchases a product, you still need to get the item or items to him. Unfortunately, carriers have made figuring out best practices and freight pricing difficult, but you can simplify the process if you know how to distinguish different modes of shipping, when to use less-than-truckload (LTL) shipping, and how combining LTL shipping with other modes of shipping will provide the greatest benefit.
There are three standard modes of shipping, and each mode of shipping is based on the size and packaging of your shipment. Although LTL shipping maybe your ultimate goal, you need to know how each type of shipping varies.
The decision to use LTL revolves around your budget and determining how quickly a shipment needs to arrive at the destination. The key to differentiating when to use LTL and when to use full truckload focuses on how many individual shipments are needed. If a shipper is sending two pallets from point A to two or more destinations, LTL may be the best option. However, advancements in freight consolidation are being used to transform at LTL into a form of TL for nonrecurring, long-haul shipments.
Occasionally, a combination of the modes of transportation may be needed in order to take advantage of less than truckload shipping. Shippers may obtain a one spot position to ship larger quantities in excess of 10,000 pounds by truckload. However, the distribution network will diverge at some point, and the shipper needs to know when the appropriate time to transition from one mode to another will be best.
Imagine a distribution network that covers the western half of the U.S. The manufacturing center is located in Phoenix, Arizona, but smaller distribution centers are set up in the capitals of each state. Since the manufacturer is only launching a test product, it would be impractical to agree to long-term use of TL. However, the cost of using LTL to ship from Phoenix to approximately 20 state capitals is much higher than using freight consolidation in TL for one-stop shipments. As a result, a shipper may use freight consolidation through TL to get products along the same route to various distribution centers in each respective capital.
At this point, the shipper may transition from consolidated TL to LTL shipping. The process can continue Ward small package shipping for final delivery. Since many shippers may operate in local markets, the need to carefully compile all potential rates is critical to truly taking advantage of LTL shipping.
Another example of the benefits of using a third-party logistics provider to determine and manage all LTL shipping would be shipping to Amazon for resale. According to Amazon, all incoming shipments must be on pallets and shrink-wrapped, and all orders must have an accessible bill of lading at the time of delivery. Each of these processes can be completely managed through an appropriate transportation management system, such as the Cerasis Rater.
LTL best practices are simple. Shipments that would typically go through LTL and require a long haul will benefit most from freight consolidation through TL. LTL is best for short-haul of high-volume shipments that do not meet criteria for FT. Last-mile delivery should only take place through small package, but you may need to use LTL to get packages of similar destinations to the small package distributor. Ultimately, you need to think about distance and size of shipment thinking about the best way to use LTL shipping.
95% of Cerasis business is done through Less-Than-Truckload (LTL) shipments. In fact, our transportation management system, the Cerasis Rater, handled 300,000 LTL freight shipments in 2012, so it is of special interest for us to help educate shippers on all modes of possible ways to ship their freight in order for shippers to make the best decisions for their business. This first post is one in a series where we will explore what is LTL shipping and how Less-Than-Truckload shipping came about and then proliferated after the deregulation of the trucking industry in the 1980s. We will then cover the benefits of less than truckload shipping to have more control, decrease costs, and offer flexibility as well as giving you tips on how to save on LTL by explaining what factors create an LTL rate and what you can do to in order to manage those factors better. Then we will conclude the series highlighting the rise of employing a transportation management system to both manage and report on LTL shipping rates as well as touch on how third-party logistics companies who focus on LTL can help drive value for a company to allow the shipper to focus more on their core business. Our goal is to empower our readers, such as we did with this how to calculate freight class flyer, customers, and shippers of freight with knowledge in order to better manage and decrease resources needed to run transportation departments.
What is LTL Shipping or What Does LTL Freight Mean?
LTL is initialization, using the first letter in the three words phrase Less Than Truckload. This means a shipment that does not require a full 48- or 53-foot trailer. There are many carriers that specialize or offer this service and, like full truckload carriers, the LTL carriers themselves specialize in different services such as lift gate and residential pickups and deliveries, guaranteed services, freeze protection, transit, and bottom line costs to name a few.
Products are moved from point to point by a number of different modes of transport; air, rail, water, and truck. In the US, the movement of goods by truck offers shippers infinite flexibility due at a relatively low cost. Truck transportation can move large items faster than rail as the shipment is not dependent on the railroads’ timetable. The general freight carriers in the US offer two types of service, Full Truckload (FTL) service or Less-Than-Truckload (LTL). While the FTL carrier moves full containers or trucks of one product from one customer, the LTL carrier moves goods from many different customers on one truck. The LTL carrier offers customers a more cost-effective method of shipping goods than the FTL operator.
The 10 less-than-truckload carriers with more than $1 billion in annual revenue increased combined sales 4.3 percent in 2012 to $23.2 billion, accounting for 72.3 percent of total LTL industry revenue of nearly $32 billion, a study finds. For the first time since the recession, the billion-dollar carriers grew more slowly than the 25 largest LTL carriers. The 25 largest LTL carriers as a group increased revenue 4.5 percent last year, according to SJ Consulting Group. In 2011, trucking’s “billionaires” outpaced their largest competitors by 5 percentage points when it came to sales growth. The group outpaced the 25 largest carriers by 6.6 percentage points in 2010 as the recovery began. That indicates that after two years of steady revenue growth, the biggest LTL carriers found it harder to match prior-year growth rates and price hikes as the general economy weakened, especially in midyear and into the fall.
LTL carriers generally utilize van trailers which are covered or enclosed trailers. There are a few refrigerated LTL carriers who utilize temperature controlled trailers. Roll up doors on the rear for access to the inside of the trailer has become a trend for carriers these days as well. What that means is that the entrance to the trailer is a bit smaller than trailers with swing doors. Most carriers will use pup trailers that they can haul two trailers in tandem and LTL carriers will not accept shipments that cannot fit onto one pup trailer. The drivers around town making pickups and deliveries are generally driving 53-foot trailers and you will notice the majority of LTL carriers on the interstate running their line haul freight are traveling with two tandem trailers. They do this as the freight has already been sorted for destination and can be easily dropped at the coordination terminals as the freight travels across the country. City drivers are using local day cab trucks that are not equipped with sleeper births that allow the local drivers overall lower weight around town along with increased maneuverability as the trucks are shorter in length. The city drivers will generally have a pallet jack in their trailers so they can adjust the freight on their trailers throughout their days. The carriers will have strategically placed terminals where they are able to consolidate all their freight to be picked up and delivered. As a shipment moves from pick up to the destination it will be placed with other freight that is bound for the same area to be delivered.
Rates for LTL freight are determined by freight class, weight, pick up and destination zip codes (in the transportation industry this is commonly referred to as the “lane”), and any additional services required to meet the shipper’s and consignee’s (this is another term for the delivery location) needs. Carriers will offer shippers and brokers discounts for freight that they are wanting to secure for business. The amount of discount is negotiated with the carrier and FAK’s (freight of all kinds) may be offered to lessen the perceived cost of shipments in addition to the discounted rates. What FAK really means is say a shipper wants to move his products, which are class 85 (microwaves) and is negotiating his rates with a carrier, the LTL carrier may offer to move this freight at a lower class of 50 thus lowering the perceived cost. However, it’s vital shippers or their third party logistics outsourced provider intimately works with a carrier in order to analyze historical freight shipping data and conduct a freight analysis in order to best approach the LTL carrier to get the best-contracted rates by specific shipper need. This process will yield a more productive negotiation and create more of a win/win environment, and ultimately allow the shipper to save the most amount of money on their LTL costs.
Another factor in the costs of LTL shipping is trucking fuel surcharges. Fuel surcharges are the fuel costs associated with the lane of a shipment and added on top of line haul costs. Fuel is updated on a weekly basis and is based on the national average of diesel. With rising fuel costs LTL has seen an increase because when consumers are buying less the need to ship is lower. So where a company used to fill up a whole trailer with their product now they may only need half as much trailer space and can ship their product cheaper by going LTL instead of using a full truck load carrier.
The main factors that play into LTL shipping rates are:
The US government started regulating the trucking industry in 1935 under the guidance of the Interstate Commerce Commission (ICC). The Motor Carrier Act of 1935 required new truckers to seek a “certificate of public convenience and necessity” from the ICC. The act required motor carriers to file their tariffs with the ICC 30 days before they became effective. The tariffs were then available to be viewed by any interested party. The tariff could then be subject to a challenge by another carrier or railroad which could lead to a suspension of the tariff until an investigation could be carried out.
In 1948, despite a veto from President Truman, the Congress allowed carriers to fix prices and allow them to be exempt from any antitrust legislation. For the next 30 years competition was virtually extinguished as the ICC denied applications from new carriers. The industry began to change in the early 1970s when first the Nixon, then the Ford and Carter administrations implemented a number of acts to reduce price fixing and collective vendor pricing. The final part of the deregulation was the Motor Carrier Act of 1980. The effect of the new law resulted in intense price competition and lower profit margins, with thousands of new low-cost, non-union carriers entering the market. Between 1977 and 1982, the average LTL rate fell by up to 20%. The trucking industry changed after deregulation. The number of carriers doubled between 1980 and 1990, with over 40,000 carriers in the US. Union membership fell sharply between 1980 and 1985, dropping from 60% to 28%.
The $26.5 billion less-than-truckload (LTL) is a tiny share of the nation’s $700 billion total freight transportation pie, but it increasingly is seen as a vital component in shippers’ supply chains.
That’s because LTL carriers, with their networks of thousands of terminals and hub-and-spoke system of pickups and deliveries, enjoy significant barriers to entry in the otherwise deregulated trucking industry. In fact, there has not been a significant, sizeable new entrant into the LTL sector since UPS and FedEx made forays into the niche through acquisitions in the early 1990s.
Because of that, capacity in the LTL sector is rather finite, especially with the current driver shortage that is only expected to worsen with tighter regulations on drivers, such as the new hours of service rules and Map-21 regulations. Although the LTL sector did ratchet down capacity by as much as 20 percent during the economic downturn of 2007-09, freight demand has returned to LTL and is “fairly steady at the moment”.
Join us next time as we talk about the main benefits of LTL shipping, and then move onto tips on how to combat costs, use technology, and outsourced logistics providers to help manage and reduce costs in LTL freight spend.
To subscribe to our blog, enter your email address below and stay on top of things. We'll email you with a confirmation of your subscription.
Send this to friend