The final price of shipping cargo, or a freight rate, is one of the most important concerns for shippers. Even for seasoned shippers, landing a satisfying rate can be a challenge. The key to getting a good freight rate is understanding how the different freight rates are formed.
Truckload vs LTL Freight Rates
In trucking, there are two main shipping modes: full truckload and less than truckload (LTL). Though they share lots of similarities, the pricing for both modes is very different.
Truckload rates do not depend on the density or commodity type – the main criteria here is mileage. That means distance primarily determines your freight rate. It doesn’t matter if you are shipping a truck of retail products or boxes full of feathers, the price will still be the same for the same distance, season, and market conditions. It also doesn’t make any difference whether you’re moving a full trailer or if your freight fills only a half of it. If you rent a full truckload, you pay the price for the entire trailer capacity.
Basically, truckload freight rates are formed by the following factors:
- Lead time
- Fuel costs
- Transit time
Less than truckload rates are a bit more complicated. Since there are several shippers combining their freight into a single trailer, quantity, size, and weight of your freight play an important role in determining the freight rate. The most crucial aspect of an LTL freight rate is freight classification. It’s a unique code, ranging from 50 to 500, which is mostly defined by a shipment’s density. The lighter your freight is, the more it will cost to ship it.
LTL rates are defined by the following characteristics:
- Freight classification
- Base rate
Spot vs Contract Rate
Apart from modes distinction, freight rates can be spot and contract. The main difference between these two rate types is the first one is a single-case rate, while the contract is long-term price agreement.
What is the spot freight rate?
Spot freight rates are a price that carriers offer for a current moment, and it’s the cost of moving your cargo from one location to another for once. Spot rates are usually given shortly prior to the planned departure, and can sometimes be lower than usual rates.
What is the contract freight rate?
The contract freight rate is discussed and agreed by both parties, which fixes your budget with a certain carrier for a long period of time. Usually, contract freight is signed for a year or more. It is determined by all the above factors as well as market conditions, and some additional factors.