Truckload rates change regularly. To help shippers, understand why these freight rates are different as per mode, difference and product, let us have a brief look into the specific cost variables of shipping goods by trucks.
We will be starting with complete truckload rates (also known as full truckload rates (FTL)). Why? Because this is the most common mode of shipping by trucks. It is often used when an individual shipper produces enough cargo to full up the whole truck.
Truckload rates are the simplest calculation model as they use a cost per mile traveled or a flat door-to-door rate. For the most part, the type and number of products shipped does not have an impact on the truckload rate as long as the normal freight insurance is satisfactory, and the total weight is under 22.5 tons.
Yet, the flat rate is calculated using various factors and variables. The key to be a smart transport professional is understanding the inputs going in calculations of truckload rates. Then they are used to drive future decisions and strategy.
Here is what needs to be considered when truckload rates are being determined
- Mileage.
- Origin and destination of shipment (lane).
- Market capacity.
- Seasonality of Truckload pricing.
- Are orders attractive or not?
- Fuel costs.
- Lead times.
- Spot or contracted rate.
- Accessorial charges.
- Service/Freight charges.
Mileage
Mileage plays a role in dictating total cost, but calculations are not straightforward. Longer distances will always incur higher charges due to the increase in fuel spent and driver time required. Lanes cost differently even if they are of the same mileage.
Trucking Lanes
A lane is an origin to a destination. It can fluctuate in cost based on freight volumes in and out of these two areas. Cities having a high ratio of trucks to available freight may be cheaper to ship from other locations with higher volumes in comparison to drivers.
Transportation Market Capacity
Overall truck availability in comparison to the demand for services will always be impacted by truckload freight rates. Capacity tends to switch seasonally but can also change due to external factors like sales of equipment, cost of living, employment, natural disasters and the like.
Seasonality of Truckload pricing
Logistics firms and partners can often mention holiday surcharges or produce season as reasons behind increased/decreased costs. This is another example of supply vs demand.
During certain times of the year typically from April to July, it costs a lot to move products out of regions producing heavy produce because trucks are less in number, are already booked with moving out seasonal fruits and vegetables.
When crops are prepared for shipment, demand for transportation (refrigerated in particular) and available capacity shrinks, hence raising the rates.
Similar goes for retailers because there is a rise in rates during the 3rd and 4th quarter of a Calendar year as they get ready for big events. They order, import and ship large volumes of goods. To adjust for added demand, many carriers will implement peak season surcharges, and this can result in a decrease in capacity.
Are orders attractive or not?
Some carriers can charge more for orders that go in or out of facilities that are not desirable. What makes an order attractive depends on the availability of backhauls, appointments, ease of scheduling appointments and access, and the like.
Other thing that matters is the kind of email domain the trucking business uses. Does it use a comcast email for business, GoDaddy or G-Suite? Because the business must check emails on time. This is something tech news agree upon as well.
Timing and Flexibility
What days and time windows are available to drivers for picking up and delivering shipments? Weekend orders or those scheduled in odd hours of morning and evening are not feasible for carriers. Orders can certainly be booked in these instances, but drivers change them.
A two-day flexible window helps carriers improve the routes to shipment along with other orders they are responsible for. Helping them to raise their capacity could result in reduced rates. Restrictive schedules may lead to higher rates to make up for lost revenue.
Spot or Contracted rates
Having a standing relationship with a carrier in moving shipments on a reoccurring and regular basis helps provide carriers with consistency and the ability to plan, hence facilitating a lower cost. Day-of-orders and one-off orders posted to the spot market can cost more.
Lead times
Like spot and contracted rates, the more time a logistics partner gets in booking and planning for an order, the lower is the potential cost.
Fuel Costs
These are dependent on the market price of diesel. Though this wasn’t the case more than a decade ago, it is common for carriers and other logistics service providers to raise and reduce fuel costs weekly as the price of fuel changes.
Accessorial charges
Accessorial charges are costs that can be incurred during a shipment for additional work needed, like detention or special handling. They are generally billed in an ad hoc manner and are not part of the base rate of a shipment.
But if they are communicated upfront, these costs can be either planned or avoided.
Service/Freight charges
A lot of trucking work has a long-standing debate on this topic: service or price? Does the order require extra attention, communication, attention to breakage, specified expertise or strict deadlines? Shipping items needing higher service levels or more reliability can cost slightly more than those that do not.
