One of the most confusing parts of LTL freight is pricing — the way that carriers price out a shipment. This article will help you to better understand LTL pricing and how carriers classify freight commodities to ensure pricing is fair and reasonable for their customers.
Our focus will be on the different “classes” or “classifications” of freight and how the National Motor Freight Transportation Authority (NMFTA) steps in to help maintain fairness between carriers and shippers.
To first understand freight pricing, you must ultimately understand that density is king. More and more these days, carriers are pricing shipments solely based on density. While there are many other factors contributing to freight pricing, you will soon learn that it all centers around density.
Why not just bill on weight?
Billing on weight really isn’t a fair metric of measurement for either the shipper or the carrier. Let me provide some extreme examples. For simplicity, let’s just say we would charge $.10 per pound.
I have 8 normal-sized pallets (48” x 48” x 48”) which take up 16 feet of truck space. If I was shipping heavy, steel, raw materials with each pallet weighing 2,000 lbs., I would be shipping 16,000 lbs. This would cost $1,600 for this shipment. Not a bad price considering the weight, but let’s look at the opposite.
Now I have the same 8 pallets but this time I am shipping ping-pong balls and each pallet is 50 lbs. The total weight is 400 lbs. It is taking up the same amount of space on the truck, however. Based on weight, the cost would be $40 for this shipment.
If I were the shipper paying to ship heavy steel raw materials, I would be concerned that I’m paying 40x the amount of someone who took up an equal amount of space on the carrier’s truck. And if I were the carrier, I would be equally concerned that I’m only getting paid $40 on a shipment that might not even cover the fuel costs to get the shipment to its destination.
Why not bill on the amount of space it takes up on a truck?
Well, carriers sometimes do price shipments this way. Pricing this way is called “Pallet Rates.” It doesn’t matter the weight of a pallet; a standard-sized pallet is the same price at 100 pounds as it is at 2,000 pounds.
However, this pricing sometimes can favor the shipper and other times favor the carriers. As example, a shipper that ships 2,000 pounds might think that this is a great deal, while the shipper that ships 100 pounds probably wouldn’t agree. It’s likely that the shipper who is shipping 100 pounds could find another option at a better rate because of the lower weight.
So… it’s complicated?
In short, yes. What has happened is that carriers and shippers brought in a third party called the NMFTA to help both sides get pricing right. By combining the weight of shipment and the amount space it takes up on a truck, we arrive at the term that has become so popular in the LTL industry today: density.
Density is measured by the number of Pounds per Cubic Foot (PCF) of each shipment. It takes the length x width x height (per 12 inches) and calculates the weight in pounds. Shipments can range from 1 PCF all the way to 50+ PCF.
To get better rate (per 100 pounds, known as CWT) with carriers, you want a higher density/PCF.
We have PCF, now what?
The NMFTA has a classification system to help carriers use PCF to identify which “class” (CL) a shipment should be rated as. There are 18 classes that range from CL 50 to CL 500 and are listed in order from densest to least dense.
CL 50 shipments are the densest shipments and are typically 50 PCF or greater, and will have a lower cost per pound. CL 500 shipments are the least dense shipments that are less than 1 PCF and will have a higher cost per pound. For example, a CL 50 shipment might be $.10 per pound while a CL 500 shipment might be $30 per pound. This is how class is figured into pricing.
Got it. “Density is King” and “denser = better rates.” Is that it?
Almost, but not quite. While a lot of commodities are rated on density, other factors are sometimes used to help provide standard classification on select commodities where multiple factors play a role alongside density.
In effort to standardize commodities among all acting members of the NMFTA (LTL carriers and LTL shippers), the NMFTA created the NMFC Code Book to help bring clarity to certain commodities. Based on an evaluation of density in addition to three other factors — stowability, ease of handling, and liability of each commodity — the NMFC has assigned a classification and code to all commodities grouped into one of the 18 classes (CL 50 – CL 500).
While every shipper has the right to ship things solely on density, they also have the right to look up the commodities they ship in the NMFC code book to find the “NMFC Code” that is tied to that specific commodity.
That said, there are many commodities in the NMFC that are solely density-based. Below is the classification chart for these commodities.
OK. Do I have to check this NMFC book for all my commodities?
You should, yes, but you don’t have to. Remember, you could always get rates based solely on density. Expert advice would tell you that it is always a good practice to go through the NMFC book with all your commodities to check to make sure you are taking advantage of the best possible class that you can.
Where do I find this NMFC book?
You can find it on the NMFTA website (http://www.nmfta.org/) or you could contact a freight partner to help you assess your commodities to find their best-fit classes.
In the end, knowing how freight is priced is important. While most commodities will be rated based on density, many commodities have a standard class no matter what the density. Of course, the denser the commodity, the lower the cost is per pound.
To access the best possible rates, all shippers should check the NMFC code book or ask an expert for help.