With every pitch and pitcher, a batter must adjust—oftentimes in a split second. Success in hitting comes from constant assessment and action. Choosing the right shipping strategy is no different.
Success depends on quickly and easily reacting to changes in your business and the environment. At stake is a game in which, according to Bain & Company, 6-8% of revenue is typically at play, and consistently choosing the wrong form of freight will ruin your average—or worse.
Making the right decisions all starts with understanding your options, the two biggest being Less than Truckload (LTL) and Full Truckload (FTL).
How do you know when it’s time to turn to LTL or FTL for solutions? We see two common scenarios:
- For startups and entrepreneurs who are sending out small parcels fast and furious to keep up with demand, it’s often time to look into saving money by consolidating your shipments with LTL.
- If you’re a small to mid-sized company that’s already stepped up its game to bulk, but you’re feeling the pain of missed appointments, chargebacks and disgruntled customers, it may be time to reach into your bullpen for an FTL solution.
If you’re ready to step up to a more efficient and cost-effective freight strategy, success starts with knowing what defines LTL and FTL, when to use them and how they’re priced.
Use Full Truckload for efficiency and predictability
With FTL, you’re essentially buying the entire trailer. The only cargo on board will be yours and the only stops will be for you. We find that if you have more than six pallets or your shipment weighs more than 12,000 lbs., the choice is easy because of the economies of scale. FTL, which is ordinarily more expensive, will provide the best value. Other contingencies than price may make FTL your best option though.
If you are pressed for time, FTL gives you a point-to-point ride with no stops made for other customers’ shipments. That gives you speed and more control of your delivery time.
If your shipment requires special handling or your customer just wants a minimum of handling, FTL will be your best call because your shipment is loaded and unloaded once. It stays in one trailer the entire time. So if you can’t stomach the thought of damage, FTL reduces your risk of mishandling.
For economy and flexibility choose Less Than Truckload
If you go with LTL, your goods will share space with other shipments and make multiple stops along the way. Consequently, your shipment will be handled and move slower. The fantastic trade-off is the low cost associated with LTL. This method allows multiple shippers to share the cost of the trailer. As a result, LTL is much less expensive than FTL. If you’re moving small quantities frequently, consolidating your shipment with LTL provides major league efficiencies.
To give an idea of how the pricing matches up between the two, Tim Juchcinski, Inside Sales Manager at Approved threw out these two ballpark examples:
- Shipping a single pallet from California to Arizona might take an LTL provider two days and cost $200 versus going FTL which could be delivered overnight for $1,400.
- The same pallet going from Maine to California could be shipped via LTL in 10-12 days for $300-500 versus shipping it via FTL in six days for $6,000.
Successful shippers often switch hit between LTL and FTL
It makes sense to step up to LTL if:
- You’re moving from 1–6 pallets
- Your shipment weighs between 150 and 12,000 lbs.
- You can tolerate potentially slower delivery times
- You’re purchasing and it a) makes financial sense to purchase a pallet of items and b) you can absorb the cost of carrying more inventory
Going FTL is a good call when:
- You can compile enough product in a timely fashion to fill a trailer
- Your shipment falls between 5,000 and 44,000 lbs.
- Six or more pallets need to be moved
- You have a delivery appointment and face penalties for delays
- Your product is fragile or high value
- You do not want your cargo handled during transit
FTL pricing is an easy walk
In the end, the biggest determinant of which method is best will always be price—and LTL and FTL are priced very differently. One advantage of FTL is the simple pricing structure that is based on the going market rates. That is usually expressed in a rate per mile, and typically presented as a flat rate or a flat rate plus fuel.
Additional factors that can influence carriers’ pricing of FTL shipments include weight, shipping lanes used, the season, your origin and your destination. You can expect to pay more for remote pick-ups or drop-offs, too. Every carrier has its own specialties, geographic strongholds, and operational costs, and therefore its own pricing strategy. So it’s good to get several carriers’ quotes before you pick your pitch.
LTL pricing is less easy
LTL may be the more common means of transporting shipments, but the pricing is more complicated. Carriers establish their own rates; however, their rates are largely based on the shipment’s NMFC, which stands for National Motor Freight Classification. This is the standard grading system in the industry that groups commodities into 18 classes—from a low class of 50 to a high class of 500—based on four characteristics that determine a cargo’s “transportability” and resulting tariff. Cargos at the higher end tend to be more valuable and therefore more expensive to ship. The four criteria that determine NMFC are density, handling, liability, and stowability.
The beauty of NMFC is that it gives shippers and carriers a standard by which they can negotiate pricing. The NMFC code is only one factor that determines the cost, though.
The other main factors that contribute to LTL pricing include special services or handling, fuel surcharges, origin and destination, time of the year, weight, the absolute minimum charge (AMC) and limited stops.
What’s your long game for lowering transportation costs?
Navigating the intricacies of pricing for LTL and FTL in order to lower your costs can be a pickle. Balancing flexibility with dependability leads to challenging choices. But data collected from your inventory and transportation costs will help you find the way. Understanding and analyzing these numbers is key to making decisions that lower your costs, save you time and create greater opportunities. That’s why having a system in place that provides visibility into your transportation spend is worth the investment; it can enable you to control a major cost center. With data in hand, you’re armed to compare carrier offers and negotiate better rates.
Developing strong connections with carriers will help, too, by enabling you to pair the right resources with your shipments and tap their expertise to fine-tune your shipping strategy. The more carriers you talk to, the more knowledge you can gather to inform your decisions and either beat or affirm your decisions. To efficiently secure the best rates and most opportune terms, shippers will often work with a third-party logistics provider (3PL) with connections to many carriers, their rates, and services in order to find the ideal solution.
Most 3PLs leverage online pricing and booking systems to give shippers the best options from innumerable offerings. 3PLs and many large carriers also use transportation management systems (TMS) to find the most efficient way to consolidate shipments and schedule LTL and FTL freight. Gaining access to these costly technologies is one of the best reasons to partner with a 3PL or carrier that offers them as services to clients.
One of the best benefits of using these systems is their ability to compile your data over time. Every movement that goes through the system is recorded so that you can then pull data spreadsheets of your volume, frequencies, etc. Once you have a big datasheet, you can negotiate pricing that drives transportation costs down in the long term.
Lead-off with data
With the data and an understanding of how to best use LTL and FTL, a company can perfect their lineup through regular freight audits. It can be a game-changer. According to Tim, “A lot of time it’s life or death for their supply chains. If they’re spending too much on transportation, that can drastically affect their lifeline and the business. And If they’re doing everything right and using the right tools, then they can increase profitability.”
Need help collecting the data that can help determine your success? Want an outsider’s insight into your freight strategy? Approved Freight Forwarders is here to help. Set up a discovery call with us.