Jan. 2 2014 07:46 PM

This month in our series of articles on the LTL industry, we will be discussing the Rate Agreement. Now that you understand important operational topics such as Pickup and Delivery, Line haul, Dock operations and carrier networks this will be the next, and very important, step to ensuring you have a sound and financially effective LTL network. Important topics that will be covered are what an LTL rate agreement includes, why you need one, what you should look at in negotiating your rate agreements, as well as how to determine the best LTL carriers (who to make your rate agreements with) for your business.

Although cumbersome and sometimes difficult to understand, LTL rate agreements provide you pricing based on your specific shipping profile. Most rate agreements will be structured on a specific rate tariff. While most carriers have and publish their own tariffs, you can also request they use a non-carrier specific tariff, which can be beneficial when using multiple carriers. The carrier will then appoint a discount percent off the published tariff pricing. Agreements may contain one standard discount, several different discount levels spread among different states/regions, or even lane specific discounts. The agreement will also contain any other information such as minimum charges and NMFC Classification exceptions (FAKs).

Having a rate agreement in place with your LTL carriers is essential for many reasons. First, without a rate agreement, you will be forced to rely on current, market level pricing that can vary greatly with both shipping demand and carrier capacity conditions. This will create a financial strain as you will not be able to accurately forecast your transportation budget. Also, your biggest loss often will be in the time spent procuring capacity and rates from carriers. Further, it will be nearly impossible to perform baseline analytics to determine the impact of a general rate increase or changes to a carrier’s pricing structure. Lastly, rate agreements can protect you from erroneous charges and give better insight to your LTL shipment costs.

Negotiating a LTL rate agreement can be very challenging unless you have detailed shipping data and a solid understanding of the rate tariff being used. Having data that includes both weight and class will enable both the carrier and yourself to understand proper discount levels. The most important thing to understand when negotiating an LTL rate agreement is that the more a carrier understands your shipping profile, the better pricing they will be able to propose. In the end, there are many strategies in negotiating a strong LTL rate agreement but you must first have the data to understand your desired outcome. 

Selecting the right LTL carriers can be an important decision as well. Generally there are three types of LTL carriers: national, regional and inter-regional. Depending on your shipment profile you will want to select the carriers that best match your shipping needs. It is fair to say that no two LTL carriers are operationally the same, but the end result for each carrier is to ship your freight from A to B by the most economical means. Therefore partnering with the carriers that most reflect your shipping needs will not only provide the desired level of service but will enable you to attain the most competitive pricing available.
Understanding your LTL shipping profile, partnering with the right LTL carriers and having strong LTL rate agreements in place will give you the visibility and advantage you need to create an exceptional LTL shipping network.

Steve Pollard is Transportation Project Manager with enVista, a leading supply chain consulting and IT services firm specializing in freight audit/payment and carrier contract analysis/negotiation services that delivers significant transportation savings to their clients. Steve has 14 years of experience in transportation sourcing and specializes in conducting freight rate and cost analysis and RFP engagements. Steve can be reached at spollard@envistacorp.com. For more about enVista and their Transportation services visit our website at www.envistacorp.com