Here's a quick LTL pricing quiz for you. You're shopping for a motor carrier to take cartons of blister-packed Micro Widgets from Chicago to Atlanta. You've narrowed the selection down to two carriers. To get your business, both are offering discounts. One is waving 58 percent at you; the other promises 60 percent. Which do you choose?

If you said 60 percent, you may have just cost your company money. In the world of LTL pricing, there's a lot more to figuring the final cost than just the size of the discount. What you end up with as a rate can be a function not just of where your freight is going but what it is, how it's packed, and the amount of effort you're willing to put in up front.

These are all things an LTL carrier takes into consideration when calculating rates. By understanding the factors that influence their costs, you'll get a better idea of how to get the best rates and discounts—and how to improve your own efficiency as well.

At the bottom of the pricing pyramid lies the base rate. Base rates as they stand right now differ from carrier to carrier, but they all have evolved from a common origin. Prior to deregulation in 1980, LTL rates were set, pretty much in stone, by regional rate bureaus. Freight moving from Point A to Point B was charged one rate; from Point B to Point C, another. But all freight moving from a given point to another was booked at the same rate regardless of the carrier.

With deregulation, carriers gained the ability to set their own rates, which were based on those laid down by the regional bureaus. Over time, the bureaus began to disappear as carriers developed their own tariff schedules. Some shut down altogether, others merged into larger regional organizations, and at least one, Atlanta, Ga.-based SMC³, has reincarnated itself as a developer and vendor of rate-management software and associated products.

Although base rates vary widely between carriers, they do have some common denominators. Base rates are figured on three main factors: distance from origin to destination, weight of shipment, and commodity classification. The first two are fairly straightforward—you pay for mileage and for the carrier's cost to backhaul an empty trailer, and you pay for the percentage of the trailer's capacity you use. Where it can get more confusing is in the somewhat malleable area of classification.

The National Motor Freight Classification (NMFC) system used by most carriers to calculate base rates breaks all commodities into 18 categories. It assigns each of them a number from 50 to 500 based primarily on the commodity's density (pounds per cubic foot). Freight in Class 50 is heavy and/or dense, such as motors; freight on the 500 end of the scale is light, such as ping-pong balls.

"The denser the freight is, the better it is because you can fill a vehicle to its weight capacity before you fill its volume capacity," says Dan Acker, vice president of operations with SMC³. "A truckload of plastic packing 'peanuts' weighs about 700 pounds. So if you fill the truck with them, the full charges for moving that trailer would have to be [based on] that weight." That is, the rate for those packing peanuts would be high enough to ensure that the carrier is adequately compensated for the use of an entire trailer by a mere 700 pounds of freight.

Density may be the main factor in determining freight classification, but there are three other considerations involved: ease or difficulty of handling, stowability, and liability.

As a rule, the heavier, less fragile, and more square-shaped your product is, the lower your rate will be because it's easier for the carrier to handle. If it can be unitized so it's faster and easier for the carrier to load or unload, so much the better.

But if your product is so fragile that the carrier can't load anything on top of it—its stowability is limited, in other words—then that, too, will raise your rate. "Let's say you're shipping schoolbooks," Acker says. "They come in uniform cartons, they can be stacked on a pallet and shrink-wrapped and handled as a unit. Then you have a load of coffee makers. You can't put anything on top of them because the cartons won't accept the weight."

The cartons of coffee makers have four characteristics that work against them when it comes to rates: they're lightweight, they're bulky, they're loose, and the carrier can't place anything on top of them so they eat up valuable space. Thus, although the books are heavier, the rate for the coffee makers will be higher.

Liability refers to the likelihood of theft or damage and is based on characteristics such as value and fragility. Packaging also influences freight classification because of the liability factor, says Ned Moritz, vice president of marketing for Con-Way Transportation Services in Ann Arbor, Mich. "When we move freight, there's an opportunity to damage," he notes. "Therefore it becomes a cost to us because ultimately there could be a claim filed. That has to be figured into the rate."

If you're shipping more than one type of commodity, then your shipments may be assigned a Freight All Kinds (FAK) designation. Typically, FAK is used for shipments containing various goods of similar weights and densities. In that case, Moritz says, "it makes more sense, instead of negotiating a discount and then identifying a class on each individual item, to negotiate FAK. If there's consistency to the product lines, it makes sense to both the carrier and the shipper."

In an FAK situation, the classifications for each commodity are averaged out and a middle-of-the-road class is assigned to either the entire shipment or a portion of it. "If you have a range of stuff that's [classified as] 50 to 250, there's a method of determining where the class break should be," says Jeff Ryan of Tigris Consulting in New York City. "It may be that classes 50–100 move at 55 as an FAK, then everything else goes at actual class. Or there may be a second tier—125 to 150 goes at 150, and then the rest at actual class," he explains.

The downside to shipping FAK, Ryan says, is that you forego detailed data. "If you're trying to capture data for future analysis, now your bills are showing an average class as opposed to actual class," he explains. "You do lose some visibility."

Besides the classification conundrum, shippers also have to contend with a host of accessorial charges. Moving from A to B is one thing; moving from A to a small dock in a metropolitan area where a driver must unload a shipment, break it down, and move it to two other trucks is another thing entirely. That's where additional charges come in—and you should find out exactly what your carrier will add on and how much it will cost.

"The rate we provide generally is for pickup at a shipper's location and moving it through our system to a consignee's location," explains Paul Dugent, vice president of pricing for regional LTL carrier Estes Express, based in Richmond, Va. "If we have to deliver to someone's home, it reduces our efficiency. If we have to take a product inside [a building] for delivery, that reduces our efficiency. It's an opportunity for claims."

Understanding the factors that affect pricing is just the first step in managing your costs. If you want to get the best possible rate, then you need to take it a step further and use that knowledge to get your carrier to reduce its price. For the most part, that requires pre-emptive effort on your end.

What's important to remember with LTL pricing is that the base rate acts as a starting point for negotiation. But negotiation doesn't necessarily mean haggling back and forth trying to get the carrier's rep to cut you a bigger discount. Rather, it can mean providing all of the information a carrier needs in order to calculate the most accurate rate for your freight. You might even benefit from doing a little of the up-front work yourself.

"There's a gap between what shippers think we need to know and what we'd like to know," says Dugent. "When we get a bid request, most shippers will give us the volume of freight they're able to tender. Sometimes it will be broken down geographically. Almost never do we get any kind of density information."

Insufficient information always works against the shipper, Dugent notes. "The less information we have, the more conservative we have to be about pricing. ... With greater certainty we can be more accurate and more aggressive," he says. In other words, the carrier has to make sure its costs are covered, so any guesses about your products' characteristics are going to be on the high side.

These days, providing that information can be as easy as a mouse-click. Many carriers now have the ability to electronically accept and absorb all kinds of data. "We can accept data tendered at the shipment level," Dugent says. [Customers] can download that and give us a six-month sample or a year's sample, and we can absorb that information and model it as if we'd already handled it. That lets us come out with a better estimate of what it might cost us to handle these shipments."

With that data in hand, Moritz agrees, the carrier can draw up a better pricing offer. In fact, he adds, any carrier sales rep should be asking for that data. "If someone comes in and says, 'I'll take it for X dollars per hundredweight' sight unseen, that should be a concern," he says. "A good carrier is going to want to know what that business is."

Rather than wait until a carrier's rep comes in to do such a profile, though, it's worthwhile having it on hand ahead of time. That will save time and effort for the carrier, and it could even translate into a better rate or deeper discount. When it comes time to figure the rate, in fact, a carrier is likely to look favorably on any additional work you're willing to do, whether it's paperwork or load planning.

A case in point: aggregating shipments. The fewer trips a carrier has to make to your facility for pickups, the lower your rate will be. "The base rate for a 200-pound shipment might be $20 per hundredweight," Moritz explains. "If you could hold five of those and get to 1,000 lbs., you might be down to $8 per hundredweight. Aggregating those shipments raises the size of the shipment and makes it more efficient for the carrier, and that's what lowers the cost."

Tendering shipments in such a way that it saves the carrier time and reduces handling can also have a big impact on your rate. "Rather than just giving it to the carriers in a haphazard way and having them move it to their first origin terminal and reshuffle it so it can go to the next origin terminal in a more organized way, if I've got enough stuff to go all the way to the second terminal, why not just give it to them that way?" Ryan says. "If I can bypass some handling in the carrier's infrastructure and save them money, I'm due a piece of that back."

Determining LTL rates can be an imprecise science, one that can be influenced as much by shipper/carrier relations as it is on number crunching. But the fact remains that the better that relationship is and the more information that flows between both parties, the smoother the rate-making process will be. And that will make it easier to get the competitive rate you're looking for.