How freight pricing works

Express letter and parcel carriers typically have fairly simple pricing based on package size and service level requested; however, freight pricing is considerably more complicated. LTL carriers typically charge by freight “class.” The National Motor Freight Traffic Association [25] (NMFTA) issues a publication called the National Motor Freight Classification (NMFC). The NMFC is basically a list of every kind of item that ships via truck. Each item has a class assigned to it based on the item’s density, loadability or mixability, value, and other factors. Freight classes range from 50 to 500, and generally indicate the percentage of the base rate that should apply. So class 85 freight should be charged 85% of the full rate between points A and B, theoretically. Denser items such as steel and machinery have low classifications such as Class 50 thru 85. Fragile or bulky items fall into freight classes 125 to 500, and pay higher shipment costs.
LTL rates are quoted “per 100 pounds” or “cwt” or “per hundred weight.” Besides the discount off of base rate created by the freight class, there is typically a second discount applied to the calculated transportation rate. So a given LTL lane may have a rate of $50 cwt. If your shipment is class 70, then your adjusted base rate is $35 cwt (70% of 50 cwt); then the carrier applies a negotiated discount of 50% for example, to give you a rate of $17.50 cwt. So a 1,000 class 70 shipment would have a base rate of $175.
Besides class, rates, and discounts, an LTL carrier will apply a wide range of surcharges and accessorial charges that will affect the final price of the shipment. Most shipments will receive a fuel surcharge, which is always a significant proportion of the overall cost, possibly as much as 30% or more. Some common accessorial charges are:
Liftgate: this is a service that assists the driver in loading or unloading his truck when a loading dock or forklift is not available. The trailer is equipped with a hydraulic ramp that lowers to the ground. Liftgate service is almost always billed on residential pickups or deliveries and in commercial pickup and deliveries where loading docks or forklifts are not available. Only a small percentage of most trucking companies’ trailers are equipped with liftgates, so be sure to notify them of your need for one in advance.
Residential pickup or delivery: anytime a carrier must pickup or delivers into a residential area an extra fee is charged, because in most cases the local laws restrict the size of delivery trucks, causing the carrier to utilize a smaller truck to service a residential area. These requirements equal less shipments per day picked up and delivered, so these fees are assessed to offset the carrier’s costs.
Appointments or notification before pickup or delivery: by default, carriers make pickups and deliveries in order arranged by geographic location (a route). If your shipment requires the carrier to call ahead, or schedule and appointment, the carrier will charge an additional fee for this service.
Inside pickup or delivery: by requiring the truck driver to pickup or deliver inside a building his route takes longer to complete. The carrier will charge an additional fee for this service.
Also, charges for additional insurance or literally hundreds of other possibilities may be added to the final freight bill. It is extremely important that the LTL shipper works with the carrier or intermediary to completely understand all of the requirements of their shipment in order for an accurate price to be quoted.
Often, an LTL shipper may realize savings by utilizing a freight “broker,” online marketplace, or other intermediary instead of contracting directly with a trucking company. Brokers can shop the marketplace and obtain lower rates than most smaller shippers can directly. In the Less-than-Truckload (LTL) marketplace, intermediaries typically receive 50% to 80% discounts from published rates, where a small shipper may only be offered a 5% to 30% discount by the carrier.
Truckload (TL) carriers usually charge a rate per mile. The rate varies depending on the distance, items being shipped, equipment type required, and service times required. TL shipments usually receive a variety of surcharges very similar to those described for LTL shipments above. In the TL market, there are thousands more small carriers than in the LTL market; so the use of transportation intermediaries or “brokers” is extremely common.
One other cost-saving method is facilitating pickups or deliveries at the carrier’s terminals. By doing this, shippers avoid any accessorial fees that might normally be charged for liftgate, residential pickup/delivery, inside pickup/delivery or notifications/appointments. Carriers or intermediaries can provide shippers with the address and phone number for the closest shipping terminal to the origin and/or destination.
Shipping experts optimize their service and costs by sampling rates from several carriers, brokers, and online marketplaces. When obtaining rates from different providers, shippers may find quite a contrast in the pricing offered. If a shipper uses a broker, freight forwarder, or other transportation intermediary, it is common for the shipper to receive a copy of the carrier's Federal Operating Authority. Freight intermediaries are also required by Federal Law to be licensed by the Federal Highway Administration. Shippers are cautioned to avoid unlicensed brokers and forwarders; if brokers are working outside the law by not having a Federal Operating License, the shipper will have no protection in the event of a problem. Also shippers normally ask for a copy of the broker's insurance certificate and any specific insurance that applies to the shipper's shipment. The internet is full of websites operated by unlicensed and inexperienced brokers, forwarders, and other intermediaries who come and go and come again overnight. Shippers typically favor major brokers and established online marketplaces that have been in business many years and manage hundreds of thousands of shipments annually, in order to get the best service and price.