Controlling Transportation Costs

Transporting refrigerated products to your customers can be an expensive part of the supply chain mix. Whether you’re introducing a new product or trying to respond to rush orders, additions and changes, controlling costs can be a formidable challenge. How do you ship smart?

Over the years, we have helped many companies evaluate their specific situations and develop viable and cost effective alternatives. Not every shipment can, should or needs to go truckload. This article explores the traditional alternatives to truckload as well as a new one we’ve developed. It will also identify some critical factors involved in making the best economic choice.

Often, there are assumptions made about when a shipment should be shipped LTL (Less than Truckload), when it’s multiple stop or even should go as a truckload. Sometimes the assumptions can prove costly if these critical factors are not taken into consideration.

Evolution of Shipments

First, let’s look at three traditional, broad stages of transportation types and what traditionally drives their selection.

Stage one is multiple deliveries using multiple trucks. This is the primary use of LTL and used to affordably ship small shipments to widely scattered places.

Stage two is multiple deliveries on one truck. As volume grows in a single geographic area, LTL is often assembled into a multiple stop truckload wherever possible. As will be illustrated, this has its own set of complexities and requires the right situations to make it work.

Stage three is one delivery, one truck. The thought is to graduate to a full truckload to minimize costs. Depending on the situation this isn’t always the most cost-effective alternative.

Getting the Most from LTL Trucking

LTL TruckingWhen you have small, less than truckload shipments being shipped to many locations spread throughout a region or throughout the country, LTL provides some of the greatest flexibility. Generally, the trade off is timing. A little more time is needed to bring other freight together.

As a true freight forwarder carrier, Trademark assembles and consolidates multiple shipments from multiple customers to create loads. This requires sending out multiple trucks to pickup the shipments, bringing them to a central staging area, then assembling these shipments into specific loads going out to different parts of the country.

Specific service schedules are available. Generally regional service is same week and national service is over the weekend, with deliveries the first part of the week. Our primary service schedules are posted on our web site.

Charges for LTL shipments are generally calculated by density (the weight in a pallet position) or by pallet positions. It’s important to know which is being used and how they are applied as it will affect the total freight rate. It isn’t always as easy as comparing one freight rate table to another. There are minimum charges that many LTL trucking companies may apply that may negate what looks like a very favorable rate.

Another critical element is the configuration of your pallets. Are they occupying a full pallet position or do they tend to be short positions? If you’re being charged by pallet position, you may be charged for a full pallet position whether you use it or not.

Our rate tables are designed to adjust to your pallet configuration. Whenever possible, we use a density-based rate table. Your density is based on the weight you’re able to put into a pallet position. Density is the nature of your product (light and bulky or heavy and dense).  The higher you’re able to stack your product on itself will maximize its density in a pallet position. This weight should include the net weight of your product as well as any packaging or containers (tare weight). The weight of your product together with its packaging is considered gross weight. Since the pallets are not included in the gross weight there is no pallet exchange.

Rather than using pallet position as a unit of measure, gross weight is used at a “cents per hundred pounds” (cwt). This adjusts the actual freight rate to take into consideration the space actually used. So a 1050# density shipment of 1500# will charge you only for the weight being shipped. You won’t be paying for air.

The heavier the product the lower the cwt rate will be since its giving you the benefit of being able to put more of this type of freight on a load. The lighter the product the higher the rate since less weight of similar freight can be put in a trailer.

Taking Advantage of LTL Rating Breaks

One of the subtleties often overlooked in this type of rating is the use of weight breaks.

As the size or volume increases different rates are applied. In most cases a minimum charge applies and rates are provided at 1,000, 2,000, 5,000, 10,000 and sometimes 20,000 pounds. This is the typical pricing approach.

In our system, a lower quantity will never cost more than a higher quantity of the same type of shipment. Rate tables based on cents per hundred pounds adjust as the volume increases so there are discounts on larger quantities. This means if a shipment’s price is based on a 2,000 pound shipment and the next weight break is at 5,000 pounds, at some point it will be cheaper to rate the shipment as if it were 5,000 pounds.

For example, a given shipment may be rated at 1370 cents per hundred pounds (cwt) at the 2,000# weight break and 960 cwt at the 5,000# weight break. If the shipment weighs 3,700# it will be cheaper to ship it as if it were 5,000#. (3,700# x 1370 cwt= $506.90 while 5,000# x 960 cwt = $480.00). In this case, the lesser charge (as 5,000#) would be applied.

The points where the same shipment becomes cheaper to ship at the next rate level are called break points. When a break point occurs, the next weight break is used and the minimum weight for that break is applied, as in the previous example. To determine the break point, the following formula is applied:

Break Point = (cwt at higher rate level x weight of higher rate level)/cwt at lower rate level

The break point for the example used would be = (960 cwt x 5,000#)/1370 cwt = 3,503.6#. Any additional freight between 3,504# and 4,999# will “ride for free” since everything over 3,504# is being billed as 5,000#. This is something worth considering when making shipments.

Possible LTL Pricing Alternatives

Volume and consistency are important to any LTL trucking company. There are a number of factors in LTL shipments including: origin, destinations, type of freight, receivers, timing, service requirements, etc. Depending on these factors there may be some pricing alternatives we can offer. Two that we have utilized in specific situations are all quantity rates and partial rates.

All Quantity Rates (AQR) generally is applied when someone has a consistent, high volume of small shipments going into consistent commercial zones. These rates can enable LTL charges to approach truckload rates and generally consist of a single rate with a stop charge into a specific area. For Trademark these tend to make sense when the origination is near a terminal or moving into and through the North Central states. Use of this is limited and generally only available for large shippers.

Partial rates are an innovation we’ve used with several accounts that have a lot of shipments in the 12 to 18 pallet range. Oftentimes, when a shipment approaches a half a truckload it’s generally believed to be better to ship as a truckload. Unfortunately, this ties up their capacity and means that they’re “shipping air”.

When the situation is right, we’ve provided rate per mile discounts for different increments of shipments in that range. This provides the equivalence of discounted truckload rates for these shipments. This allows the shipper to reduce his costs while freeing up capacity.

Both these alternatives often require a closer look at the freight history and the specific nature of the shipments to determine if they can apply. We can quickly look at your situation and tell you if it’s worth further exploration.

Multiple Stop Truckloads and Truckload

Truckloads are often considered the optimum way to go … but only if the volume is there and this can be a big if. If the volume is not there, an alternative is often to put together multiple stop truckloads.

There are clear opportunities where multiple stop truckloads are appropriate but if the details of an individual situation aren’t considered you may get burned financially. In addition, putting together the right multiple stop truckloads can be challenging.

To make multiple stop truckloads work economically, certain factors have to come together. Orders, receivers, distances and miles must align properly. Recently, we compared our LTL rates to a multiple stop truckload that originated in the Upper Midwest. This load had stops in Nebraska, Nevada and California. Our LTL prices actually saved hundreds of dollars off of every shipment.

Besides the economics of the load itself, there are important human and coordination factors to take into consideration. The time, energy and people required to manage the details and evaluate the costs should be considered. If there are few patterns to the orders coming in, each week can be a new beginning. Problems in scheduling and delays can create major hurdles.

For all that is done, there may be other hidden costs. Shipments still can “waste” capacity due to low load factors. Last minute order additions or subtractions can throw the whole plan off. Additional orders can mean that LTL is never eliminated. Also, most truckload carriers don’t like doing the extra stops and can charge a premium. Many drivers are not well trained to handle these kinds of loads, preferring the simple, one pick/one drop runs.

Therefore, a good multiple stop truckload should have limited range, maximized capacity throughout the shipment (smaller shipments on the earlier deliveries, large shipments later), and little circuity. It should be repeatable and consistent. And, you should have a carrier base that is suited for this type of work. Having the right carriers with the right skill set is especially true with refrigerated freight and with multiple stops at the types of receivers typically involved.

Pool Distribution and Pool Consolidation

Pool ConsolidationThankfully, there are other alternatives to the rigors of multiple stop truckloads. Pool distribution and pool consolidation can be a better alternative when you consistently have multiple loads of many small shipments.

Pool distribution is picking up one or more truckloads of LTL shipments at an origination, taking it to a staging area or cross dock facility and reassembling the shipments on multiple trucks for distribution. Pool consolidation is the opposite. Pool consolidation picks up multiple LTL shipments from multiple locations, brings the shipments to a central staging area for customer pickup or loading it onto a truck for line haul. We do both for many customers.

By their nature pool programs have clear benefits.

  • They free you from solving the weekly shipment puzzle
  • They adapt to the volume of orders and last minute changes in orders and production
  • They don’t charge you for shipping air because they maximize your shipment with other shipper’s shipments
  • They save time and often money over multiple stop truckloads

Does pool distribution or pool consolidation fit in your situation? Once again it will depend on origin, destinations, type of freight, volume, timing, etc. For Trademark, shipments within, from, into or through the North Central states all may be candidates. We’d be glad to review your situation.

Truckloads

This leaves us with truckloads as the final alternative. This is a simple move from point A to point B with one truck. The advantage is that it maximizes miles and offers the optimum in timing. If you are taking advantage of the capacity on the trailer it will also minimize your costs.

However, as you can see it depends on a lot of different factors. If you are only using part of the capacity of the truckload and are willing to add a little time to the shipment, LTL or our partial rate on larger shipments may be an alternative. Depending on the timing, with the proper planning and shipment availability, we can often make the same requested delivery day as with a truckload.

Trademark's Expertise

We excel in handling temperature and service sensitive freight. As a refrigerated carrier with more than 25 years experience, we’ve cut our teeth on the most challenging of them all – fresh and frozen LTL shipments. In serving our customers, we’ve offered many services including partial shipments, full truckloads, pool consolidation and pool distribution programs, customer pickup, warehousing and full logistics support.

We want to help shippers obtain the best balance between reliable performance and affordable pricing. Whether you are a manufacturer looking to expand your business by providing delivered pricing to a major customer; or a small food service company looking for ways to reduce cost and take control of your freight through a consolidation program, we can be of service. Give us a call; we’d like to help you control your transportation costs.