How Are Freight Shipping Rates Calculated?
Freight shipping is a vital component of global trade and commerce, enabling the transportation of goods across vast distances. Whether you’re an individual shipping a package or a business transporting large quantities of merchandise, understanding how freight shipping rates are calculated is essential. This comprehensive guide will break down the factors that influence freight shipping rates and provide you with a clear understanding of the process.
The first step in calculating freight shipping rates is determining the freight class. Freight class is a standardized classification system carriers use to categorize different types of cargo based on their characteristics. The National Motor Freight Traffic Association (NMFTA) developed the National Motor Freight Classification (NMFC) system, which assigns a class number to each type of freight.
The freight class is determined by density, stowability, handling, and liability. Freight classes range from class 50 (least expensive) to class 500 (most expensive), with each class having its associated rate per hundredweight (CWT). The higher the freight class, the higher the shipping rate.
Weight and Dimensions
The weight and dimensions of the shipment play a crucial role in determining freight shipping rates. Carriers charge based on actual or dimensional weight, depending on which is higher. Actual weight is simply the physical weight of the shipment. In contrast, dimensional weight is calculated by multiplying the shipment’s length, width, and height and dividing the result by a dimensional factor.
It is crucial to accurately measure and provide the weight and dimensions of your shipment to receive an accurate freight shipping rate. The dimensional factor is determined based on the carrier’s specific rules to calculate dimensional weight. If the dimensional weight exceeds the actual weight, the carrier will charge based on the dimensional weight.
The distance between the origin and destination is a significant factor in determining freight shipping rates. Carriers consider the mileage or zones covered when calculating shipping costs. Typically, the longer the distance, the higher the shipping rate. Carriers account for fuel costs, driver wages, and other expenses associated with long-haul transportation.
Mode of Transportation
The mode of transportation chosen for shipping goods also affects freight rates. There are various options, including truckload (TL), less-than-truckload (LTL), air freight, ocean freight, and rail freight. Each mode’s cost structure is based on capacity, speed, and convenience.
Rail freight offers a balance between cost and speed for specific routes. Truckload shipping is generally more expensive than LTL for smaller shipments requiring only part of the truck. Air freight is the fastest but tends to be more costly. Ocean freight is suitable for large loads but has longer transit times. Understanding the pros and cons of each mode will help you make an informed decision that aligns with your needs and budget.
Freight Accessorial Charges
Freight accessorial charges are additional fees incurred for services beyond the standard pickup and delivery. Common accessorial charges include residential delivery, liftgate service, inside delivery, reweighing, storage, and fuel surcharges. These charges vary depending on the carrier and the specific requirements of your shipment.
It is crucial to discuss any potential accessorial charges with your carrier before finalizing the shipping agreement. Understanding and budgeting for these additional fees will help you avoid unexpected costs and ensure a smooth shipping process.
Market conditions, including supply and demand dynamics, can also impact freight shipping rates. During peak seasons or when capacity is tight, such as around holidays or in times of high demand, carriers may increase rates. On the other hand, during slower periods, rates may be more competitive as carriers try to fill their capacity.
Keeping an eye on market conditions and planning your shipments accordingly can help you take advantage of lower rates or anticipate potential increases. Staying informed about industry trends and working closely with your logistics provider can help you navigate market fluctuations and optimize shipping costs.
Packaging and Special Handling Requirements
How you package your goods and any special handling requirements can also impact freight shipping rates. Fragile, oversized, or hazardous shipments may require additional care, specialized equipment, or extra insurance coverage, leading to higher shipping costs. Proper packaging and complying with handling regulations can minimize the risk of damage and avoid unnecessary charges.
Consulting with your carrier or logistics provider to understand their packaging guidelines and any specific requirements for your shipment will ensure that your goods are adequately protected and that you receive an accurate shipping rate.
The choice of carrier is a crucial factor in determining freight shipping rates. Different carriers have their pricing structures, service levels, and areas of specialization. It’s essential to research and compares multiple carriers to find the best combination of service, reliability, and competitive rates for your specific shipping needs.
Factors to consider when selecting a carrier include their reputation, network coverage, transit times, customer service, and pricing transparency. By conducting thorough due diligence and requesting quotes from different carriers, you can make an informed decision that aligns with your requirements and budget.
Calculating freight shipping rates involves a combination of factors, including freight class, weight, dimensions, distance, mode of transportation, accessorial charges, market conditions, packaging, and carrier selection. By understanding these elements and how they influence the shipping cost, you can effectively manage your logistics expenses and optimize your supply chain.
Working closely with a reliable logistics provider or freight broker can simplify the process and help you navigate the complexities of freight shipping rates. They can provide expert guidance, negotiate rates on your behalf, and help you find the most cost-effective shipping solutions.
Accurate information, proper planning, and effective communication with your carrier are vital to obtaining precise freight shipping rates and ensuring a smooth and efficient shipping experience. By being proactive and staying informed about industry trends and best practices, you can make informed decisions that benefit your business and bottom line.
In addition to understanding how freight shipping rates are calculated, it’s important to consider strategies for optimizing your shipping costs. Here are a few tips to help you save money on your freight shipments:
Consolidate Shipments: If you have multiple smaller shipments, consider consolidating them into larger ones. This can help you qualify for lower rates, primarily if you can utilize truckload shipping instead of less-than-truckload (LTL) shipping.
Utilize Intermodal Transportation: Intermodal transportation involves using multiple transportation modes, such as truck and rail, to transport your goods. This option is cost-effective for long-distance shipments, as rail transportation is more economical than trucking alone.
Optimize Packaging and Dimensions: Efficient packaging and maximizing available space can help reduce shipping costs. Use appropriate-sized boxes and containers, and ensure your shipments are appropriately palletized to minimize wasted space. Dimensional weight can significantly impact shipping rates, so optimizing dimensions is critical.
Negotiate with Carriers: Establishing solid relationships with carriers and negotiating rates can lead to long-term cost savings. If you have consistent shipping volume or anticipate future growth, consider entering into a contract with a carrier that offers favorable terms and rates.
Use Technology and Automation: Utilize transportation management systems (TMS) or freight management platforms to help automate freight shipping. These tools can provide real-time visibility and rate comparisons and help streamline operations, saving time and money.
Evaluate Packaging Materials: Consider the cost and weight of your packaging materials. Lighter packaging materials can help reduce dimensional weight charges, while cost-effective options can help lower overall shipping expenses.
Plan and Optimize Timing: By planning your shipments and allowing flexibility in your schedule, you can take advantage of lower rates during off-peak periods or negotiate better pricing with carriers.
Analyze and Optimize Freight Class: Regularly review the freight class assigned to your shipments to ensure accuracy. Sometimes, a slight adjustment in the classification can lead to significant savings.
Monitor and Review Invoices: Carefully review your shipping invoices to ensure accuracy and identify any billing errors or discrepancies. If you notice any inconsistencies, address them promptly with the carrier to avoid unnecessary charges.
Seek Professional Guidance: Consider working with a freight broker or logistics provider specializing in optimizing shipping costs. They have industry expertise, established relationships with carriers, and can offer valuable insights and solutions tailored to your specific needs.
By implementing these strategies and staying informed about industry trends and best practices, you can effectively manage your freight shipping rates and achieve cost savings over time. Remember, shipping rates can vary, so regularly reviewing and adjusting your approach will help ensure you’re getting the best value for your shipping investments.
To understand how Freight Shipping Rates are Calculated, you need to know the following: type of packaging (pallets, crates, containers, etc.), type of goods (for classification), shipment size and weight, delivery zip code, and whether there are any special handling requirements. FreightCenter can give you an instant quote.
Keeping a keen eye on your shipping budget can be tricky, especially when you don’t understand where your money is going, how Freight Shipping Rates are calculated, or how to make the most of your dollars.
The rate you pay is entirely subjective to your situation. This doesn’t mean we can’t explain precisely how these rates are calculated so that you can make the best decision possible.
Here at FreightCenter, we’ve been working in the trucking industry since 1998. During this time, we’ve seen large price fluctuations in the market. We will explain why prices fluctuate and what impacts your freight shipping rates when shipping freight from A to B.
Freight Costs Are Calculated Based On the Following:
The urgency of your shipment.
Supply and demand in your freight’s origin.
Supply and demand in your freight’s destination.
Current weather conditions.
The type of trailer you need.
Your freight’s length of haul
The specific accessorials or requirements of your shipment.
Transportation Industry Supply and Demand
Like any other industry, these two factors influence shipping and are a leading component in all price-related fluctuations.
While typically referenced together, supply and demand are two separate economic “laws” that govern market trends.
The Law of Supply: sellers will supply more of a product or service at higher prices.
The Law of Demand: consumers will demand less of a product or service at higher prices.
Understanding the Supply Curve
When the price of a product increases, sellers manufacture more of that product to increase their profits. In the case of the truckload market, as rates rise, more carrier capacity enters the market as existing carriers build up their fleet and new carriers seek to enter.
As prices fall, sellers manufacture fewer goods because production is no longer as profitable. In the case of the truckload market, as rates fall, carrier capacity leaves the market as margins shrink.
Understanding the Demand Curve
When the price of a product decreases, more customers will want to buy the product because it is cheaper.
When the price of a product increases, fewer customers will want to buy it because it is more expensive.
When supply and demand are equal, the market is in equilibrium. This means that the number of goods or services sellers supply balances the amount buyers demand.
In the Freight market:
Supply = carrier capacity, also known as trucks & drivers.
Demand = freight overall volume, aka # shipments that need to move
3 common Markets of Freight Supply and Demand
Supply Exceeds Demand
When there are more trucks/drivers than available shipments, rates decrease. Because carrier capacity is high and truckload volume is low, this is known as a “loose” market — or shipper’s market, since rates favor shippers.
Demand Exceeds Supply
When there are more available shipments than trucks/drivers, rates increase. Because truckload volume is high and carrier capacity is low, this is known as a “tight” market — or carrier’s market, since rates favor carriers.
Supply & Demand Are Equal
The supply and demand curves intersect when the number of shipments, available trucks, and drivers is balanced. This is known as market equilibrium.
Supply Indicators in the Freight Industry
DOE Diesel Index:
Fuel prices tend to be much more volatile than other operating expenses (e.g., driver wages) and fluctuate dramatically over a year. This volatility can have a significant impact on carriers’ profitability.
When diesel prices shoot up faster than spot rates, carriers cannot recoup all their fuel costs, and it squeezes into their profits. If, on the other hand, fuel prices fall faster than spot rates, carriers are more profitable.
Class 8 Truck Orders: As truckload rates increase, carriers will reinvest profits into their businesses, buying new trucks to add capacity and replace old ones. Eventually, the new capacity will flood the market when rates (and demand) are past their peak, contributing to excess supply and driving rates down lower. Class 8 truck orders will often continue to rise long after spot rates have started to fall. However, there is a several-month delay between when a carrier places an order and when a truck enters its fleet with a driver.
Demand Indicators in the Freight Industry
Consumption: Consumption, or consumer spending, is the monetary value of goods and services purchased by U.S. consumers.
When consumption increases, it means we’re buying more “stuff.” The more we buy, the more shippers will have to produce (Industrial Production), and the more shippers produce, the more freight will need to move (Truckload Volume).
The opposite is true when consumption declines.
Industrial Production: National production (how much “stuff” we’re making as a country) is a crucial influencer of freight volume. This index directly impacts how much freight is moving across the country.
The Inventory-to-Sales Ratio measures the number of months of inventory shippers have in their warehouses compared to their monthly sales.
(Inventory Value $) ÷ (Sales Value $) = Inventory-to-Sales Ratio
When consumption is high (people buy lots of stuff), inventories will usually shrink as products quickly move out of warehouses to meet consumer demand. To replenish the stock, shippers will produce more, driving up Industrial Production.
When consumption is low (people buy less stuff), or if there is uncertainty in the supply chain (e.g., leading up to tariff implementation), companies will stockpile inventory, either as a strategic measure or because people aren’t buying it.
Supply: We define supply as the amount of equipment (trucks, vans, reefers, etc.) available to move a shipment. Supply is limited in today’s market — a market that has seen a steady decline in the number of new drivers available. Because of this, prices are consistently higher than they were in years past.
As the supply of carriers available increases, the price of shipping your goods decreases.
Demand: In the shipping industry, demand is the total amount of goods that need to be moved. When demand increases, so do the prices associated with hauling a shipment.
Right now, we’re seeing more goods ready for shipment than trucks available. When this is the case, the price is sent on an uphill climb, causing the companies hoping to ship their products to pay more.
This balance between supply and demand depends on several different factors. Prime among these is the region, seasonality, and equipment type.
Fluctuations in the balance between supply and demand can be attributed to these three factors, often in tandem. For clarity, here is a quick definition of each:
Region: An area of unique physical and environmental characteristics, weather patterns, and inhabitant behaviors.
Seasonality: Changes that occur in predictable, consistent patterns, dependent on the changing seasons.
Equipment Type: The kind of equipment needed to move a particular type of freight (We’ve compiled this list of standard equipment types used in the shipping industry and how they’ll impact the price you pay.)
Here is an example scenario showcasing where all three of these factors come into play:
Mid-to-late fall is harvest season in the midwestern region of the U.S. The seasonal uptick in the supply of raw produce in that region leads to a rise in the number of trucks equipped with the necessary capabilities to meet demand. As such, the price of booking a truck to haul raw produce rises as the need for those services increases.
On the flip side, if you’re a company that ships a product requiring a refrigerated trailer (reefer) or a different equipment type out of South Dakota during this peak harvest season, your price will also rise, but for another reason. The cause of this price hike can be directly tied to a lack of trucks pulling these trailers in that region during that season.
Based on these factors, the good thing about price fluctuations is that they’re both cyclical and predictable. By this, I mean that harvest season happens every year without fail, so planning for these scenarios is very manageable.
The Urgency of Your Shipment
The urgency with which you need your freight delivered directly correlates to how much you will pay for it. It’s best to plan for your shipments in advance.
In the trucking industry, the warning you provide your transportation provider before a load’s departure is known as lead time. When it comes to your freight’s budget-sensitive and on-time delivery, giving adequate lead time is essential.
This industry has only two bargaining chips: time and money. Consider the following scenario:
Joe has a load he needs to move. The receiver has been waiting on him for days, and any more delays will lead to significant congestion of their supply chain.
In a free-market economy, these delays are rarely tolerated, and to retain his partnerships, Joe must get his freight out the door ASAP. The kind of urgency needed to move this last-minute shipment, which Joe didn’t plan for, comes with a steep price tag.
Because Joe’s transportation partner wasn’t notified beforehand, they are left with a shorter supply of available trucks as many have already pre-planned their upcoming days. This, in turn, can increase Joe’s price due to the limited options available.
Related: How Does Lead Time Impact Freight Shipping Costs?
Your Freight’s Length of Haul
The distance your freight travels to get to its final destination is another prime indicator of the price you will pay. Generally, the longer your shipment has to travel, the more it will end up costing. However, it should have a better rate-per-mile (RPM).
In the trucking industry, we break the length of haul (LOH) into these five categories:
Any load that needs to be moved less than 250 miles from its starting location falls into this category. This type of haul typically has a day rate or minimum charge attached to it. If you need to move freight for a distance shorter than 250 miles, you’re still charged for the whole day and not on a rate-per-mile basis.
This is done to compensate the truck driver for their work accurately. When factoring in the time needed to load and unload a shipment, the driver still does a full day’s work and should be compensated.
This is the category we use to classify hauls 250-400 miles in the distance. This type of haul is typically accomplished within one work day and, like the short haul, is priced slightly differently than the long haul.
Mid-hauls also have a day rate to ensure fair compensation for drivers. Although a haul of 270 miles may be accomplished before the end of the day, the front and backend preparation put in by the drivers leaves them with a full day’s work.
Aptly named the “tweener,” is the LOH that falls between the mid and long-haul distances. Tweeners cover a distance range of 401-800 miles. Because of their long length, tweeners typically take one to two days to accomplish and are called “overnighters.”
The tweener is where we begin seeing rates billed on a rate-per-mile basis. This is done because there is no need for the compensation contingencies used on shorter hauls.
With a distance range of 801-1,200 miles, the job of a long-haul trucker is no joke. Like the tweener, long-haul loads are billed on a rate-per-mile basis. As truckers slip into a rhythm of cruise control, good weather, and partnership with the road, the long-haul can become a highly effective option for moving your freight great distances.
Note that the ebb and flow of the transportation market dictates the rate you pay.
As the name suggests, extended-long involves the shipment of a product for any distance greater than 1,200 miles. Without needing to pick up/drop off any load for an extended period, extended-long hauls can reach an excellent efficiency level for the carrier.
This efficiency, in turn, can translate to a more cost-effective rate-per-mile for the shipper than a shorter shipment.
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How Weather Impacts the Price of Your Shipment
Weather is a significant disruptor in the shipping industry. A price hike will follow when there are actual weather events at your starting or ending points.
This is for a good reason. These weather events bring safety concerns and a heightened threat of incidents. As such, truck drivers are less keen to move freight. When situations like this occur, shippers needing to get their product out the door have fewer options.
This brings us back to supply and demand, as we mentioned above. When there are fewer drivers, there is less supply to meet demand. In this case, any driver willing to move your shipment amid severe weather can, essentially, name their price.
As you may suspect, this leads to an increase in your price, and you will likely see a significant uptick in your rate per mile associated with those longer hauls.
Related: “What is Happening to the Trucking Industry? [And How to Overcome the Next “Perfect Storm”]
How Do Accessorials Impact The Price Of Your Freight?
The transportation world has unique service offerings developed to simplify shippers’ lives. That said, drop trailers, tarping, and driver assistance don’t come free of charge. Without proper supply chain management, accessorial costs can genuinely add up.
Work with your transportation provider to select only the necessary accessorials to save money on your freight rates. Anything more can quickly get out of hand.
Your Freight’s Destination Matters
How much a load costs to haul from point “A” is directly tied to the supply of goods waiting for the empty vehicle at point “B.” Carriers are extremely plugged into the ebbs and flows of supply and demand. As a result, shippers are more reluctant to agree to a shipment where they know they won’t have anything to carry out of point “B.”
For example, suppose you wanted to move a truckload of steel from your facility in Minneapolis, Minnesota, down to your customer in Omaha, Nebraska. In that case, the price you pay to move your shipment directly depends on what is available for haul in the Omaha area.
Suppose a truck driver or carrier knows there will be nothing to haul out of the delivery destination. In that case, there’s a good chance they will need to ‘deadhead’ (or drive somewhere with an empty trailer to get to the next paying load pickup destination).
Neither the driver nor the carrier gets paid for this. In these situations, their reluctance to move your shipment rises. As their unwillingness increases, so does the price you pay.
Carriers do not want to end up in a situation where they are left ‘deadheading’ after dropping off a load. Because of this, they are highly motivated to either find a shipment to haul out of your endpoint or to charge you extra to make it worth their time.
So, what should it cost to ship from A to B? The truthful answer is: It depends.
With the knowledge of how freight shipping costs are calculated, you now have a better understanding of why it depends. It takes time to properly articulate and accurately predict how much your load will cost in an industry as complex as the trucking industry.
Luckily, as a shipper, you don’t always need to know precisely where the market is or what is going on in the areas of the country you need to ship to. A great transportation provider will be well aware of the market environment and provide the best guidance on how/when/where to move the shipment you need most affordably.
But how do you know when a transportation company fits your business well?
Here at FreightCenter, we understand how difficult filling your network with great providers can be. To help you do so, we compiled a comprehensive list of questions when vetting potential carriers. Download the Freight Carrier Vetting Guide today and become the supplier consistently delivering for your customers.
When you have shipping questions, please do not hesitate to reach out to one of our sales professionals, who are ready and willing to assist you in any way they can.
How are your shipment dimensions and weight, including
packaging, affect your freight costs
The dimensions and weight of your shipment are used to calculate density. Density is the relationship between how much room an item takes up and its shipment weight. For example, a square inch of lead is much denser and thus heavier than a square inch of cork.
The density of your shipment is used to find your freight classification.
In general, as you estimate freight costs, the higher the density of your shipment, the less it costs to ship.
Calculating shipping rates and freight shipping costs can challenge even the most experienced business owner. Fortunately, it doesn’t have to be! At On Track Freight Systems, we’ve outlined a few simple steps and tips to effectively and accurately calculate freight shipping rates and freight costs. Read on to learn more. And don’t hesitate to reach out to us today for our free freight calculator.
How to Calculate Freight Shipping Rates?
While calculating your freight shipping costs can sound complex, it’s generally not. Here are a few simple steps you can use to calculate your freight rates and freight shipping cost
Start with the Tariff for the Class and Weight of the Shipment
To understand how to calculate freight rates, we first need to start with the fact that all LTL shipments are created based on tariffs. Carriers should publish these tariffs, also known as base freight rates, at least once a year. Tariffs should be presented as a cost matrix that explains hundredweight (CWT) rates for every freight class and weight for each zip code combination.
You Will Need the Origin and Destination Zip Code for Freight Shipping Cost
When rating an LTL shipment or estimating the cost of freight, you will need the destination, origin zip code, freight classification, and weight of each product.
Shippers Should Know the Freight Class & Weight
Freight classification is published by the National Motor Freight Classification, the standard that compares commodities moving intrastate, interstate, and foreign.
The NMFC provides an item number for every commodity. This number is assigned for applying to classes and governing regulations and rules. In total, there are 18 different classes — spanning from Class 50 up to Class 500. The class is based on different dimensions:
In general, freight with a lower class will be less expensive to ship. The lower classes represent cargo that is low-risk and very dense. On the other hand, higher classes will indicate freight that will take up more space and be lighter. The higher the freight class, the more it will cost to ship.
The Formula for Calculating Freight Shipping Rates
To calculate your freight shipping rates, you will need to know the following information:
Origin zip code
Zip code for delivery
Tariff rate for the class and weight
Once you have this information, the simple formula for calculating your LTL freight shipping rates is listed below:
Freight Class x Tariff Rate for Class & Weight
The previous freight shipping rate formula is a fundamental representation. If you’re determining a line-haul rate, many other factors could come into play. Common factors that may alter your freight shipping rate for line hauls include:
Deficit weight rating
Freight All Kinds
Lane specific strategies
We encourage you to reach out to Track Freight Systems for a free freight quote to ensure you have the most reliable information from the team at On.
LTL Freight Tariff Variables You Should Consider
When you are looking to calculate your LTL freight cost, it’s imperative to know that rates for the same lane can vary from tariff to tariff. For instance, the shipping tariff produced by a regional carrier may offer special rates on shorter hauls than on longer hauls. On the other hand, a page with a broad national footprint could offer better tariffs on longer hauls than on shorter hauls.
Another thing to remember when calculating your freight shipping rate is that the carrier may offer you a discount. These discounts are often negotiable and can correlate with several factors, such as:
The volume of the freight
The relationship you have with the carrier
At the same time, minimums may be negotiable. A carrier’s minimum represents the lowest amount charged per shipment. It’s essential to consider applicable discounts when estimating freight shipping costs.
Common Challenges Associated with Calculating Freight Cost
The complex reputation of calculating freight costs for LTL shipments exists for a few reasons.
The vast number of factors. When calculating LTL freight shipping cost, the number of factors associated with the move can make it more challenging. For example, consider pallet count, cargo weight, and freight classification.
Benchmarking can be a challenge. Benchmarking LTL shipping can be complicated because making direct comparisons with the operations of other shippers can be complex.
A lack of understanding of cost drivers. Many shippers need to account for the factors driving LTL freight rates. Because freight networks continually change, shippers should stay informed of alternating supply and demand patterns when estimating freight rates.
Accurate Data Is Key to Freight Quotes and Calculating Freight Shipping Costs
Whether attempting to estimate freight costs yourself or requesting a quote, capturing your actual class is imperative. Far too often, shippers are provided a FAK cargo designation on invoices, which obscures the basic classes.
In this instance, there may be several types of goods being shipped. The shipper has no natural way of knowing the class of the cargo if everything in the shipment is classified under the FAK designation. This can introduce several inaccuracies and complications that can dramatically change the price. In the end, accurate data is paramount.
And when you correctly capture the data elements — mainly those instrumental to tariff calculations — you can streamline all LTL pricing activities and mitigate flawed assumptions.
Contact On Track Freight Systems for Easy & Competitive Freight Shipping Rates
Getting the best LTL rates for your shipments is paramount. At On Track Freight Systems, we are a leading carrier in New York, Long Island, and New Jersey. We offer fast, highly affordable LTL overnight shipments throughout an expansive coverage area.
And if your shipments extend beyond our expansive footprint, we offer an array of cost-effective coast-to-coast logistics and shipping solutions to ensure your shipment is on track!
Ultimately, calculating freight shipping rates can be confusing because of the many factors you must consider accurately. However, On Track Freight Systems makes it easy by offering a free quote.