Thinking outside the box: LTL, Multiweight, Hundredweight, and Ground with Freight
How do you decide which mode to use when tendering a shipment?
We have all, at one point, found ourselves stuck in a rut. The transportation industry is no different. We routinely see shippers of all scopes and sizes still using the same shipping processes and services they have for decades.
Why? Because that's what they've always done.
Change is tough, but as Henry Ford said, “If you always do what you’ve always done, you’ll always get what you’ve always got.”
With carriers trying to expand to new markets, cover increasing operational costs and post higher profit margins to drive value for stockholders, the shipper has been hit hard in the last several years. Carriers have implemented several additional fees and rate increases that have increased the cost of shipping certain items considerably (e.g. oversize charges, extreme length charges, peak season surcharges, 5% annual increases).
What impact can you have?
Evaluating your current supply chain or just your transportation makeup can be an effective way to reduce costs, either by reducing the cost of shipping or reducing labor costs involved.
The standard rule of thumb is that if your shipment is a total of 150lbs or more it goes via LTL, and if it’s less, send it via parcel. However, it’s not that simple. Although this is a good rule in most cases, FedEx and UPS have designed programs that target LTL shipments between 150-750 lbs that are multi-carton shipments, going to the same location, and are shipped on the same day.
Billing parcel like LTL & vice versa
Multiweight, hundredweight, and ground with freight (GFP). Maybe you’ve heard these FedEx and UPS terms describing programs created to compete with smaller LTL shipments (typically less than 500-700lbs), comprised of multiple boxes, fitting parcel parameters, transitioning to a billed per hundred pound shipment cost.
There are clear benefits to these programs, including employee time savings (not having to build and shrinkwrap and / or strap a pallet), removal of pallet costs, better tracking, faster transit and delivery times, no LTL accessorials or high fuel surcharges, etc.
However, they are programs that are specifically designed to fit the parcel network and are not applicable to all multiple carton shipments.
Multiweight / Hundredweight:
Multiweight (FedEx) and hundredweight (UPS) are comparable services billing at a cost per hundred pounds for parcel carriers. When does it make sense?
For the sake of this illustration, we will look at Multiweight in more detail. Per the FedEx Service Guide:
“FedEx Ground® multiple-piece shipments may receive multiweight rates if the total shipment weighs 200 lbs. or more. A shipment average minimum package weight applies and varies by contract. Multiply the per-pound rate by total shipment weight and divide by 100.”
10 package shipment
Distance: 250 miles (Zone 3)
With the FedEx Tier 3 pricing and a 25% discount on the service your charges would be as follows:
$43.14 / (220 / 100) = $94.91 - 25% = $71.18 + 8% fuel = $76.88
In the above example, your total cost would be $76.88 for a 220 lb shipment going to a location in Zone 3. Maybe you have a good regional LTL carrier that can provide minimums this low, but the benefit of shipping via Multiweight is that the shipment incurs no LTL accessorials and ground tariff fuel surcharge. Inside delivery, liftgate, limited access, detention, re-delivery fees are all common charges added to LTL invoices. These charges don’t exist in the parcel world, which mitigates risk, allowing you to better anticipate and price products and services to maintain effective costing.
Quicker Delivery Times
Reduced accessorial fees vs. LTL
More predictable costing
Carrier will bill the lesser cost of ground vs multiweight / hundredweight
Minimum total shipment weight of 200 lbs
Minimum per package weight average of 20 lbs
Doesn’t fit all businesses
The alternative: Ground with Freight pricing
Maybe GFP is a better solution for your freight. UPS provides this service for multi-piece parcel shipments utilizing LTL rates and discounts, but ground tariff rules and additional charges apply.
Atlanta to Nashville
$54 minimum shipment charge
LTL rate example $550 List Rate
In this example we will apply an 85% discount to list rate for LTL costs:
$550.00 – 85% = $82.50 + 8% ground fuel = $89.10
Per package minimum cost does not apply
*A UPS Zone 2, 1 lb package has a minimum cost of $9.90
Utilizes same rate and discount structure as LTL for easy comparison
Low minimums available
Surcharges replace high cost LTL accessorials
Faster transit times
Predictable shipping costs
Ground per package minimum applies
High package count shipments can result in increased charges if weights, distances or charges are low
NMFC Class codes can increase charges significantly
User must manually select GFP when selecting service or it will be billed as a ground/hundredweight shipment which could negate savings
The takeaway: think outside the box
Henry Ford is known for being the father of the automotive industry, and was forced to change his way of thinking after bankrupting multiple automotive companies. By partnering with the right people and changing his processes, he was able to create what we have today, the Ford Motor Company and more importantly, the assembly line.
The services discussed in this article are specialized and will not reduce costs for all shippers. Undertaking a project to implement new services and successfully optimize mode selection is very specific, and takes expert knowledge and technology to be foolproof and successful.
Think outside the box. Consult a professional who can evaluate your current supply chain and shipping processes. You may be surprised to find significant opportunity where you previously thought that margins were already as tight as they could be.