With annual general rate increases and escalating fuel surcharges, logistics managers over the last two or three years have seen price inflation in the cost of shipping their products by less-than-truckload (LTL) service outpace increases in the cost of living.

Following the “sunsetting” of the Interstate Commerce Commission in 1996 and the substantial deregulation of the trucking industry since the passage of the Motor Carrier Act of 1980, pricing decisions have mostly been left in the hands of individual motor carriers. More and more, trucking companies are taking advantage of their right of “independent action.” Since the demise of Consolidated Freightways, moreover, the larger LTL carriers have been exercising a greater degree of pricing discipline than we’ve seen in some time. All of these factors combined are making the logistics manager’s job of controlling LTL costs very challenging.

Even so, there are still plenty of opportunities for cost cutting when it comes to LTL. Let’s take a look at some of the areas you should be investigating and acting upon.

When was the last time the classification descriptions and gross shipping weights you show on your bills of lading were checked for accuracy? Verify the classification descriptions you’re using on a regular basis so you’ll be aware of any changes (both favorable and unfavorable) that may have been made since the description was last checked.

If your LTL carriers are party to the National Motor Freight Classification (NMFC), make certain that your products are described in accordance with the descriptions that are contained in the NMFC. Avoid descriptions that may be commonly used in a particular trade or industry if those words are not found in the NMFC’s Index of Articles. Otherwise the carriers’ employees who apply the ratings will be forced to guess which of the descriptions properly apply.

Product designs and packaging often change, but many shippers neglect to update that information on their shipping documents. That’s why weights that are currently being shown on your bills of lading should be verified from time to time.

Using an in-house scale that has recently been checked for accuracy, weigh an example of each of your stock-keeping units (SKUs), and then compare the actual weights to the weights you are declaring on your bills of lading to see if there are any differences.

If you’ve been using obsolete weights that are even a pound or two higher than the current actual weights, you’ve undoubtedly paid a lot of unnecessary costs over time. You may therefore wish to conduct this test on a regular schedule, perhaps annually.

Just about every LTL carrier offers incentives that can substantially reduce transportation costs if you’re able to take advantage of them. Here is a sampling of some incentives:

Pay attention to LTL weight breaks. Motor carriers’ class-rate scales generally provide for six different levels of LTL rates, which get progressively lower per 100 pounds as the weight of the shipment increases. The typical rate breaks are:

• Less than 500 lbs.
• 500 but less than 1,000 lbs.
• 1,000 but less than 2,000 lbs.
• 2,000 but less than 5,000 lbs.
• 5,000 but less than 10,000 lbs.
• 10,000 but less than 20,000 lbs.

In my “Bohman On Pricing” column in the August 2006 issue of Logistics Management (Take advantage of LTL weight breaks), I explained that if you make a shipment that weighs from 500 to less than 1,000 pounds, your rate will drop by nearly 8.5 percent compared to the rate for shipments weighing less than 500 pounds. Moving to the next-heavier weight break, the rate will fall by nearly another 22 percent. And the next three weight breaks will cut rates by 18.58 percent, 20.85 percent, and 14.89 percent, respectively.

The upshot is, if your company can find a way to ship larger orders that qualify for lower rates, it may save a considerable amount of money.

Increase the actual density of your products. Quite a number of the commodities that are included in the National Motor Freight Classification are rated according to their density (their weight per cubic foot). Scores of products have two or more density breaks, and about 125 commodity groups are subject to either nine or 11 different density breaks.

By increasing the actual density of a product that is subject to density-based ratings so that it moves into the next-heavier density break, you will qualify for a lower rating (class).

Density can be increased in several ways, including shipping an article in a more compact configuration, using a smaller package, and increasing the weight through additional packaging or palletization, to mention just a few of the possibilities.

Take advantage of the “bumping clause.” All of the 100 or so commodities that are subject to the standard multiple scale of ratings, which is based on density, and the 25 commodities that are subject to the expanded density scale are also subject to Item (Rule) 171 of the NMFC, known as the “Bumping Clause.” Under this rule, if your actual density is close to the next-heavier density group, you may “bump” your shipment up to the next group and qualify for that group’s rate.

For example, a shipment that weighs 5.9 pounds per cubic foot falls just outside of the next-heavier density group, which covers shipments weighing from 6 pounds to less than 8 pounds per cubic foot.

To bring your density up to 6 pounds per cubic foot, you could declare on your bill of lading a slightly heavier weight than the actual shipping weight. You would then be able to apply the lower Class 125 rate on the declared, or “bumped,” weight, instead of paying the higher Class 150 rate on the actual weight.

In every density group, however, there is what I call a “no-bump point.” This is the point at or below which it doesn’t pay you to bump your shipment to the next weight break. Continuing with the above example, if your shipment’s actual density were 4.2 pounds per cubic foot, it wouldn’t pay to bump to the next density group because you would actually pay more if you did.

Find out whether your carriers offer any special tariffs. Some motor carriers maintain special tariffs that provide for rates or charges that are below their normal class rates. One example is a “Pallet Tariff” that is available for customers that move a substantial number of palletized shipments. Another is an “Assembly Tariff” or “Distribution Tariff,” under which a carrier applies special pricing to shipments that are picked up from multiple sources within a specific geographic area and then are consolidated into a single load for one destination terminal.

Ask your carriers’ sales representatives about these and other types of special tariffs. If you meet the appropriate criteria, you can take advantage of them to lower your LTL costs.

All LTL carriers have the right to take “independent action.” They can establish discounts, exception ratings, FAK (Freight, All Kinds) rates, commodity rates, lower rate scales—even cap their fuel surcharges if they choose. What’s more, they don’t have to get authorization from any rate bureau, classification committee, or federal agency to do so. It’s strictly a matter for discussion between you and each of your motor carriers.

With that in mind, here are some ways you may be able to negotiate lower rates with your carriers:

Request higher discounts. How long have your discounts remained unchanged? Two years? Three years?

Percentage-based discounts have been slowly but steadily rising over the past few years. Make sure your company is keeping up with the pack. Sit down with your carriers’ sales representatives and see what they can do for you in this regard. They might be able to increase your discounts by only a percentage point or two, but every little bit counts when it comes to controlling transportation costs.

Negotiate Freight All Kinds (FAK) rates. If your company ships different types of products that take several different classification ratings in the National Motor Freight Classification, you might be in a position to negotiate a single FAK rating that will cover everything you ship.

Let’s say you have products that take ratings (classes) ranging from Class 70 all the way up to Class 125. Your motor carriers might be agreeable to giving you a single class, such as a Class 85 FAK, or perhaps a rating that’s even lower.

From a carrier’s standpoint, one benefit of this approach would be the ease of rating and billing your shipments compared to applying and calculating many different ratings.

Go after an exception rating. Exception ratings are classes that are lower than those presently published in the NMFC. Here’s how to find out whether you may qualify for an exception rating: First, compute the densities (weight per cubic foot) for all of the SKUs in your product line that take the same classification description on your bills of lading. Then strike a simple average of all of those densities.

The next step is to review the National Classification Committee’s (NCC) Density Guidelines. Suppose your average density is 14 pounds per cubic foot, which under the density guidelines calls for a Class 77.5 rating. Now compare that with the rating (class) you are currently paying. Let’s say it’s Class 100, which under the NCC Density Guidelines calls for an average density of 9 but less than 10.5 pounds per cubic foot. If all other factors are normal—including liability (value per pound), stowability, and handling—your LTL carriers might be willing to establish a Class 77.5 exception rating to be applied on that type of product for your account only.

Ask carriers to rate shipments using an older class-rate scale. I’ve seen a number of motor carriers agree to apply class rates they had maintained a year or two earlier, and in some instances they have gone along with applying a class-rate level from three or more years earlier. In some other cases, shippers have gotten their carriers to agree to apply different rate scales that are published by regional motor carrier rate bureaus, or scales that have been created by individual companies or third-party providers.

Ask carriers to cap their fuel surcharges. Probably the toughest sell of all would be to convince your LTL carriers to place a cap on their fuel surcharges. Over the past year or so, fuel prices have risen sky-high. That’s had a tremendous impact on carriers’ operating costs, and many are depending on fuel surcharges to keep their finances on an even keel. As this article was being written, carriers generally were applying fuel surcharges of 20 to 22 percent. Fuel prices are declining at the moment, but they can fluctuate widely over a very short period of time. Carriers therefore may be very reluctant to make such a commitment in this volatile market.

The suggestions included in this article represent just a few of the many ways that you can control or reduce your LTL transportation costs. To find more opportunities, do your research and work closely with your carriers—particularly their sales representatives.

And if one cost-cutting effort doesn’t pan out, try another. There are an awful lot of possibilities out there—you just need to use your imagination and discover them.