In last week’s blogs, I gave an overview of the primary front end components of LTL rating & pricing. Here’s a quick recap on the primary components. See last week’s blog for more details.
This week I’m going into more detail on the secondary back end components. These are especially important for small to medium shippers because they are often misled by carrier sales reps about what discounts mean. In fact, discounts mean very little, what’s more important to know is the base rate on which the discount is based.
1) Base Rate: Every carrier has a base rate as a starting point before a discount is applied. SMC3 (formerly Southern Motor Carriers) houses all the licensing for just about all LTL base rates for the largest LTL carriers. Every carrier has a current base rate that they update every year, usually with a 5.9% general rate increase (GRI). In addition, SMC3 also has base rates available for licensed use that go back as far as the 1980’s. This basically means the gross rate (before the discount is applied) is a much lower starting point from which to apply the discount.
2) Discount: This is a pretty simple concept to grasp. A gross rate of $1,000 with an 80% discount would yield a $200 rate. In LTL pricing we call this the line haul charge.
3) Minimum Charges: This is sometimes called a floor charge, and although many shippers think the minimums are for their benefit, which in a sense they are if they have low minimums, they are especially beneficial for the carriers because it stops the discounted rate from going below a certain amount. For instance if you have a $70 minimum, and you have a shipment with a $300 gross rate and a 80% discount, that would yield a $60 line haul charge, except the minimum charge is at $70 so in that case the discounted pricing does not apply.
4) Fuel Surcharge: Every LTL carrier will have a percentage fuel surcharge that is added on top of the discounted line haul charge. For instance, PLP’s fuel surcharge per our schedule is 19% and this percentage is derived from our schedule and will fluctuate with the fuel prices determined by the U.S. Energy Information Administration (EIA). A line haul rate of $100 + our current fuel would be $119 (100 x 1.19). Most LTL carriers have their current fuel schedules between 28% and 32%.
5) Freight All Kinds (FAK): This is often used for shippers that have multiple products shipping at a variety of classes. For instance, one of our customers has an FAK 70 for CL 70 to CL 150. That means all LTL shipments in that range will be rated at CL 70. This can be a good negotiating tactic to help shippers and 3PLs procure more competitive rates.
6) Accessorials: These charges are always added on after the line haul and fuel, and they will typically be a separate line item charge on a freight invoice. The most common accessorials are appointment, lift gate, residential delivery, inside delivery and limited access/construction site delivery. If any of these services are used at a frequency as little as 5% or more, you’re going to want to negotiate a flat fee for these services, otherwise they can get very costly and this leads to losing business deals due exclusively to freight costs.
If you’re interested in finding out more about PLP’s service model and how we differentiate from the rest, please call me, Josh Harshman, at 678-921-8181 ext 202. Also, ask us any further questions you may have on twitter, facebook or linkedin!