If you’re like most businesses feeling the burden of COVID-19, it’s more important than ever to make smart decisions for your bottom line. Logistics and supply chain management choices today have a direct impact on the future of your company, so knowing how to make the most cost-effective shipping decisions today can help create a more successful future.
Contract Rates vs. Spot Rates
Trucking services are typically based on one of the following types of agreements: contract rates or spot rates. Understanding how each agreement works is crucial to effectively managing your shipping spend.
What is a Contract Rate?
A contract rate is a fixed, long-term rate a carrier, freight broker, or logistics service provider agrees to use for the same freight over a set period of time. Contract rates are often locked in for durations such as three months, six months, or even a year, offering security in their set pricing and availability, however locking in a rate for a full year can be risky, especially in an unpredictable market.
What is a Spot Rate?
A spot rate is the price a freight service provider offers a shipper at any given time to move their freight from its origin to its destination. Spot rates are based on the current market conditions, so they are incredibly dynamic, often changing from hour-to-hour. Spot rates are driven by the fundamental concept of supply and demand. As demand goes up, shipping prices will rise; when demand goes down, shipping costs will fall. Essentially, spot rates depend on whether there is an excess or shortage of equipment in the market at any given time.
Factors that Impact LTL Shipping Rates
There are a number of factors that affect LTL shipping rates in particular; understanding what you need to ship your goods from point A to point B versus what you may want can help keep costs as low as possible.
In LTL shipping, shipments are typically divided into weight and density groups. Trucking companies usually rate shipments per pound or per hundred pounds, but 100 pounds of feathers takes up a lot more space than 100 pounds of paper. The more dense the shipment, the less the shipper typically has to pay per hundred pounds to transport it.
Density is equal to the total weight of a shipment divided by its total cubic feet, and it’s important to know this measurement to get the best shipping rate. Many carriers charge based on the weight and dimensional weight only, and many use the NMFC system.
The National Motor Freight Classification (NMFC) system is an established set of freight classes which are used to classify commodities for shipping purposes. Classifications are based on density, handling, stowability, and liability, providing both carriers and shippers with a standard to simplify “the comparative evaluation of the many thousands of products moving in today’s competitive marketplace.”
Freight classes range from 50 to 500. Usually, if a freight class is lower, its commodity is more dense, whereas if the freight class is higher, it refers to a less dense commodity that takes up more space. Essentially, the higher the freight class, the higher the shipping rate. It’s always best to know the actual class of the product being shipped. Doing so provides another way to obtain an effective cost, and it also allows for an experienced logistics company to provide quotes from a broader number of LTL carriers.
Origin and Destination
Shipments traveling further typically have higher rates, so choosing a carrier with your shipment’s ultimate destination (as opposed to incurring additional fees for a transfer to another LTL carrier mid-shipment) can always help you save some coin.
In addition to common fuel surcharges, if additional services are needed to handle your shipment, such as weekend delivery, liftgate use, or inside delivery, you will see your shipping costs increase. This is especially true if these services were not quoted for before pick up as some carriers have significantly higher fees for these services than others, or may not be able to perform them at all. Knowing the needs of your shipment and communicating those needs to a logistics provider upfront is important to keep costs at bay.
Cost-Effective Shipping is Just a Few Clicks Away
Worried about over-spending on shipping in a trying economy? Our team of logistics experts helps companies save on shipping every day. Compare no-obligation shipping quotes instantly with our online quoting tool. Just register or login, enter your shipment information, and get dry van/flatbed/reefer, rail, drayage, and LTL shipping rates in a minute or less.