Moore on Pricing: LTL Pricing—the devil is in the detail

Shippers are increasingly telling me that the number of options in the less-than-500-pound shipment market confuses them. The one thing that many can understand is that costs continue to climb despite the deregulation of rates. However, enormous savings can be achieved by knowing your shipment weight and distance, direction, and cube as well as the capabilities of your carrier.

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Shippers are increasingly telling me that the number of options in the less-than-500-pound shipment market confuses them. The one thing that many can understand is that costs continue to climb despite the deregulation of rates. However, enormous savings can be achieved by knowing your shipment weight and distance, direction, and cube as well as the capabilities of your carrier.

The less-than-500-pound shipment market makes up over 60 percent of LTL shipments according to Dynarates, a freight transportation consultancy. In the meantime, the market has many providers and options, from LTL carriers, various third party 3 PL “hundredweight” and “multi-weight” consolidation programs, truckload stop off, and pool distribution with and without pallets.

For simplicity, many shippers include these smaller shipments in their regular LTL mix tendered to their carrier each day. But, shippers be aware: These packages are a major focus for increased revenues by LTL carriers. 

The less-than-500-pound shipment rates are a favored place to bump up charges, accessorials, and minimums. The effect of a general rate increase will vary for individual customers and shipments based on characteristics such as geography, lane, product classification, weight and dimensions. But for small shipments, the LTL carriers have made a significant change in the minimum charge. Most LTL carriers now have three minimum charges that are based upon weight breaks.

Every class rated LTL shipment you make may be subject to:

  1. A standard minimum charge, or they may also be subject to the additional charges and weights.
  2. Single shipment minimum charge, or “SSMC.” This charge, higher than the normal per shipment minimum charge, applies when the carrier picks up a single shipment unaccompanied by any other shipment. I suggest you read your rules or pricing tariff, or ask carrier representative.
  3. An absolute minimum charge (AMC). This third minimum charge is the charge below which a carrier simply will not go. Even after your contract discounts are applied shippers may find they are subject to an AMC buried in the rules tariff of the carrier.

Let’s look at an actual carrier tariff with a recent rate increase of a 5.9 percent “average” and see what it looked like in the lower weight breaks. While heavy loads are increased in the 3 percent to 5 percent range, minimums increased 10 percent, less than 500 pounds by 9 percent, and 500 pounds to 1,000 pounds increased 8 percent. Now we see the devil is in the details. 

These example minimum charges in a current 2012 rules and pricing tariff will exceed well over $100.00. With the weight breaks resulting in large percentage differences in scales, every pound you can take off a shipment is important. Leading hundredweight and multi-weight services don’t have pallet weight or pallet cost, reducing shipment weight by a substantial 40 pounds—the weight of the pallet. 

How do we manage all those details? A good TMS and accurate attention to your shipment weight and distance, pallet, and non-pallet selection of carriers can help you avoid missing opportunities.

As your product’s freight classification increases and the distance your shipment moves increases, the charges will increase. Pay close attention to the dimensions, distance (zone), and weight breaks. 

When was the last time you read the rules tariff and discussed the important weight category of less than 500 pounds that could represent 40 to 50 percent of your volumes?


About the Author

Peter Moore
Peter Moore is Adjunct Professor of Supply Chain at Georgia College EMBA Program, Program Faculty at the Center for Executive Education at the University of Tennessee, and Adjunct Professor at the University of South Carolina Beaufort. Peter writes from his home in Hilton Head Island, S.C., and can be reached at [email protected]

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From the January 2017 Issue
Following LM tradition, we start off the New Year with our annual “Rate Outlook” cover story and subsequent Webcast
Moore on Pricing: The other TMS functional options
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