Have you ever decided to fly and wanted to find out what the fare might be?  I don’t think too many people fly without checking fares and determining the best combination of availability, time it takes and cost.  I’m always surprised at just how close fares are between airlines.  It seems like they have a way to constantly check on each other’s pricing so one airline doesn’t get a pricing advantage over another.  I recently surveyed four airline routes (not using airline hub cities), and using the top four airlines found that the differences in fares was between 4.2% and 27.6%, but most were absolutely within a few dollars of each other.

I just concluded a study of LTL carrier base rates to determine how close or better, how far apart base rates are.  LTL carriers offer outrageous discounts and build the perception that base rates are the same and all you have to do is compare discounts to make routing decisions.  They get you to believe that an 80% discount is better than a 79% discount.

We used the pricing tariffs of nine national (or nearly) carriers and priced 280 shipments to evaluate how much difference there is in pricing.  We used 14 lanes representing regional and trans-continental traffic, small towns and large cities, multiple weight breaks and multiple commodity classifications. 

We found that on average, the variance between the low cost carrier and high cost carrier is 36%.  The range was from 9.3% variance to a whopping 123.4%.  We found that pricing was not identical on any of the 280 shipments and even different from/to the same  lanes.  Let me give you an example.

Example 1
1,000 pound, class 70 shipment from Shiner, TX to Bismarck, ND.
High Cost Base Rate = $2,146.70 (Carrier H)
Low Cost Base Rate = $1,480.90 (Carrier I)
Variance $665.80 or 45%
Example 2

1,000 pound, class 50 shipment from Columbus, OH to Itasca, IL (Chicago)
High Cost Base Rate = $488.10 (Carrier G)
Low Cost Base Rate = $388.50 (Carrier B)
Variance $99.60 or 25.6%

Example 3

2,000 pound, class 100 shipment from Hickory, NC to Blacksburg, VA
High Cost Base Rate = $1,180.60 (Carrier E)
Low Cost Base Rate = $801.60 (Carrier B)
Variance $379.00 or 47.3%

When adding the total costs for all 280 shipments we found that there was an 18% difference from the low cost carrier to the high cost carrier.  However, when evaluating the frequency of occurences,  the low cost carrer had a few lanes where they were the high cost carrier and vice versa, the high cost carrier had lanes where they were the low cost carrier.

So what does this really mean?  Much like flying, it’s a good idea to find out the exact charge for each shipment prior to booking the shipmetn with a carrier.  One cannot make decision based on discount alone, as that doesn’t tell you anything about the base rate.  It’s a bit like paying someone to paint your house by the hour.  Most people want to know in advance what the cost is going to be.  There are a couple of ways to determine the cost before routing freight.  One is to get rate disks from your carrier and another is to access your carrier’s web-site and get a quote for each shipment.  Neither of those are very efficient methods.  The best process would be to have a least-cost routing application, much like comes with a transportation management system (TMS). 

If a shipper is spending $100,000 per year for LTL services, and the average variance between base rates is 36%, then on average, that shipper could be spending $36,000 more than necessary.  If they optmized their routing based on cost, they could dramatically reduce their expense.

LTL rates are complex and differ greatly.  They aren’t likely to get any less complex in the future.  You can either let carriers play the discount game or you can equip yourself with tools and processes to optimize your shipping costs.

If you would like a copy of the full study, please send me an email at jbramlett@smartfreightware.com