You probably don’t mean to make your LTL carriers’ life more difficult. But did you know that certain characteristics of your LTL freight definitely impact the carrier’s pricing to you–for better or worse? Make your freight more desirable to the carrier, and you can gain leverage for controlling your own costs.
LTL carriers have algorithms for operating ratios, allocating their costs and subsequently pricing their service to you. The factors included in this operating ratio might look something like this:
- Operating Costs (wages and benefits, operational supplies, purchased transportation, depreciation, taxes, insurance, claims, etc.)
- Divided by customer revenue
- Times 100
An operating ratio of 100 is breakeven for the carrier. Anything under 100 represents a profitable customer; anything over 100 means a loss.
Each customer impacts the carrier’s operations differently, based on what they require. When a customer’s processes result in inefficiencies for the carrier, their profitability evaporates. Conversely, the more you do to reduce inefficiencies and help the carrier stay profitable with your business, the more potential exists to achieve greater rate stability and experience cost reductions. When a customer’s freight becomes more predictable and consistent, carriers may be more apt to provide them the service and capacity needed over other customers.
Just the concept of ease of doing business can make certain shippers more attractive than others. Does the shipper do their best to load quickly? Does the shipper have stringent pickup or delivery requirements? The more stipulations attached to the freight, the less desirable your freight becomes.
So what can make your freight more efficient for LTL carriers?
- Multiple bills (or shipments) per pickup and delivery. The carrier has fixed costs when stopping for your shipments, whether there is one shipment ready for pickup or fifteen shipments at the same time. With multiple bills, the carrier can spread their fixed costs over more shipments, increasing their efficiency. As an example, instead of shipping one shipment five days a week, can you ship five shipments once a week?
- Ease of handling. Loading and unloading is faster for palletized freight than for loose pieces, helping to drive costs out of the carrier’s operations. Easy to handle top freight can also be used to maximize trailer space and increase carrier efficiency. Collaborate with your carriers to understand the unique characteristics of your freight for ease of handling and be the type of customer they want to continue to work with.
- Secured freight. When shippers don’t secure freight properly before the truck leaves, it can become loose while the vehicle is moving. Subsequently, it can damage the carrier’s equipment, resulting in costly repairs or damage other customers’ freight, resulting in increased claims. Also, stack pallets at a reasonable height; the higher pallets are stacked, the more likely they’ll fall, damaging the product and other products around it.
- Drop trailers. LTL carriers typically have enough equipment to make drop trailers available. You load on your timeframe and call for a pickup. For the LTL carrier, there’s no waiting to pick up and go. If you’re a high volume shipper or can fill a full trailer on an average day, drop trailers may be a good option.
- Warehouse or distribution center delivery. If you’re delivering anything outside of a normal Monday through Friday 9-5 schedule, it’s going to add additional costs for the carrier. Similarly, if the carrier has a non-dock delivery—such as residential— they must deal with limited access issues, which can slow deliveries and transit times.
- EDI connectivity. Transmitting data electronically can save time and increase efficiencies by taking away manual processes for the carrier. EDI provides a consistent data interchange between carrier and shipper and reduces the amount of administration or overhead needed to serve their customers.
- Pre-PRO labeling. Customers that pre-label their multiple lot shipments with PRO labels before carrier pickup can help speed up the loading process.
Anything you do to reduce your carrier’s costs provides leverage for the next round of rate negotiations. While you may not always experience reduced costs as a result of the efficiencies gained, you may see increased rate stability and less drastic swings in prices. And when capacity tightens, you’re higher on the list of the people they want to serve.
For more ideas on how you can make your freight more attractive to all kinds of carriers, read our new white paper, Strategies for Transportation Spend: Understanding the Dynamics of Carrier Pricing, Service, and Commitment.
How can you answer the question, will I be able to get capacity when I need it?