Smoke n’ Mirrors: 5 LTL Myths That Are Costing You Money

By: Lance Healy

Less-than-truckload (LTL) shipping makes up the majority of B2B shipments throughout the U.S. LTL shipping can be the most complex form of shipping, which makes it unfortunate that there is so much misinformation concerning LTL shipping’s best practices.

Below, you’ll find 5 common myths about LTL shipping that could be costing you money. We’ve busted these myths so you know what true, what’s a myth, and what you can leverage for increased savings on LTL shipping.

 

 

Myth: Discounts are the best indication of savings

One of the most common assumptions made about LTL shipping is that a discount = savings. Unfortunately, that is far from the case. Let’s compare it to something we experience as consumers. I might buy a TV that’s advertised as “30% Off!”. Not highlighted is the fact that it was marked up 150%. The discount makes us happy that we saved we money, even though a retailer down the street may have offered a lower price, without any discount, on the same TV. Ignorance is bliss, right?

The same practice is seen within the freight industry, but comes from forcing LTL carriers to adopt pricing based on industry averages. If your carrier gives you a hefty discount, it may look good in a vacuum. But it really doesn’t mean you are saving any money. So, while a 70%, 85%, or 90% discount may sound like a good deal, for truly great savings, you want to compare the actual dollar amounts by lane between multiple carriers. Keep the discounts – show me the money.

Myth: General Rate Increases (GRI) won’t really affect me

GRIs occur when a carrier raises rates for lanes based on any number of reasons (e.g. competition, fuel prices, load density, etc.). For shippers that move freight across a broad collection of lanes, they might think that a GRI isn’t going to affect the overall profitability of their company. However, since carriers don’t increase rates on every lane, you might not know the extent of savings lost.

Carriers usually enact GRIs twice a year, once in the spring and again in the fall. Carriers look at all of the lanes they service and select the ones they are losing the most money on for their GRIs. After a GRI, your carrier may tell you that the average increase is 1.5%, but on some lanes, the increase could be 15%. If the adjustments within the GRI falls on one of your core lanes, you will lose major dollars on your bottom line and you won’t know it until the invoice arrives. The best way to combat getting hit with GRIs on your top lanes is to ditch the routing guide and upgrade to live connections. If a carrier needs to raise rates on specific lanes, it will be reflected immediately and you can select a more competitive carrier at the time of the shipment.

Myth—Fuel costs can’t be negotiated

When going over prices and possible discounts from their carriers, the smartest shippers are constantly negotiating to get the best prices for their companies. Yet, during the annual or bi-annual roundtable discussions, fuel costs go largely un-negotiated, simply because most shippers are unaware that these can be adjusted.

LTL carriers, on the other hand, use the fuel surcharge as it’s one of their most profitable elements. Fuel is a big markup for LTL carriers because they can charge everyone included in the load. Based on your relationship, fuel surcharges can be negotiated down with your carriers. The higher the cost of diesel, the bigger the impact on a shipment’s cost.

Myth: Accessorials have to be accepted

When it comes to accessorials, clients will just take them with an “it is what it is” attitude. Shippers know this and will gladly pass the charges onto your clients. But accessorial charges can, and should, be negotiated.

Accessorial charges are different based on which carrier you use for a given lane. Because of this, it is especially important to negotiate these charges up front. For example, without negotiations, you might not know if a carrier calculates their rates based on flat rate or by the hundred-weight of the shipment. These are important distinctions that can lead to unwanted surprises or savings for your company every time you move freight. Whether or not to accept charges for lift-gates could be the difference in the total cost of a lane.

Myth: My classification will never change

For companies that ship the same product offerings year after year, they may assume that the classification of these shipments will also stay the same. This is false. A few times a year, the National Motor Freight Classification(NMFC) board meets to go over classifications for freight shipments. As a result of these meetings, the classification of your shipments might change if you are not paying attention.

If you’ve elected to negotiate your rates based on specific NMFC numbers, it is very important to know when anything changes after the classification board meets. Since the NMFC isn’t required to inform shippers of changes, it is essential that shippers are staying up to date on the latest rulings. The only way to know about the different classification changes—other than maniacally refreshing the NMFC’s website—is to work with your carriers, become a partner with them, and be mutually transparent. If you want better pricing, be a better customer.

Conclusion

Like magic shows, the truly amazing tricks use the most smoke and mirrors. Over time, LTL carriers have used the same tactics to convince uninformed shippers that they are getting the best savings at the lowest rates.

The best way to stay on top of the misinformation being disseminated throughout the shipping industry is to intertwine your TMS with the latest technology that increases visibility. Banyan Technology is committed to providing the top business solutions that grant full visibility for shippers so they can come to the negotiating table well-informed and prepared to have open and honest conversations to engage the carrier as your logistics partner and the tools to execute it seamlessly. Ship confidently with Banyan Technology.

To better understand how visibility and smart technology are affecting the freight industry, register for our webinar on August 23rd. In the webinar, Banyan’s Chief Innovation Officer Lance Healy will go over the results of the 2017 State of Transportation Management Report to explore how technology impacts the industry today, and where top logistics professionals see technology taking the industry tomorrow. Innovations in pricing, solutions for visibility, advanced expansion of core technology, and predictive analytics all have practical application in today’s logistics operations for shippers, 3PLs, and carriers.

Register now to make sure you know what you can expect to shape the industry in the next 5 years.