Riverside Logistics

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Preparing a Domestic Less-Than-Truckload (LTL) bid in Today’s Market

The first question is why should you be concerned about preparing a domestic USA LTL bid?

Warehouse space is loosening up as is truck capacity. Rates usually follow a downward path when that happens. The market is 30-40% lighter right now so it is a good time for bid requests to go out. There’s a lot of truck(er)s and less business for them to handle. Conditions are ripe for bidding out your business. The freight spot market rates have come down, which indicates that overall truck market(s) are softening. During softening conditions, you are in a good position to bid out your business for annual contracts (or longer).

So how do you go about bidding domestic trucking rates?

Here are the basic steps needed:

  1. Put together your process.
  2. Indicate how many rounds you are going to do in your bids.
  3. Determine which business you are going to bid out.
  4. Decide if you are going to look at bidding all your business or just some of it.
  5. Have a goal for reducing your freight costs. For example, “x % reduction in overall LTL costs”.

Now that you have made those decisions, here are the steps you go through during the actual bid:

  1. Identify which carriers you want to participate in the bid. Get their contact information.
  2. Notify the carriers you have identified that you are preparing to send them a bid.
  3. Collect data at least 6 months (minimum) for all the shipments in play.
  4. Include lane level detail, but don’t show actual costs or carrier SCAC’s for each move.
  5. Use zip code to zip code for the origin and destination data set.
  6. Rollup the data by origin and destination states showing average weights, density, and ship sizes.
  7. Provide a data sheet for each type of product that includes specifics such as:
    1. the value of the product.
    2. the National Motor Freight Classification (NMFC) for the product (if you don’t know ask carriers for this).
    3. the average product ship weight.
    4. type and size of pallets used to ship product.
    5. packaging type(s) such as Cases, Bales, Crates, etc.
    6. Percentages of prepaid and collect freight.
    7. Bill to addresses and contacts information.
  8. Include percentages for types of business handled such as:
    1. Business to Business
    2. Business to Customer
    3. Military or Government business
    4. School/College business
    5. Other types if you have them
  9. Show how much of the business requires additional charges. These are called “assessorial”.
    1. This includes charges for things such as: Liftgate use, Inside delivery, Residential delivery, Delivery Notification or Appointments. Ask for a list from one of your carriers.
    2. Show each assessorial as a percentage of the total shipments and provide a requested target cost for each, if you know it.
    3. Show which assessorials you want the carriers to “WAIVE” the cost on .
  1. Make sure you specify what Base Tariff Rates to use. Carriers traditionally discount off of a rate basis. You need to specify which one they are to use.
    1. Present a target pricing discount level in percentage terms. Discount requests are from a common base rate set. For example, you might ask for an 80% discount from Czarlite 2010. Ask your carriers if they use Czarlite (they should, as it is common used).
    2. Designate whether or not you want the rates to be applicable to Canadian Freight, or freight going into and out of Canada. If the carrier serves or has partnerships with carriers that serve Canada.
    3. Also specify your existing assessorial breakdown percentages so the carrier understands how important these assessorials are to your overall business mix.
  1. Fuel Surcharge (FSC)scales are extremely important to the overall cost structure. Fuel can represent 30% of your total cost. Typically, FSC scales are pegged to the DOT’s weekly national average diesel fuel prices. All LTL fuel surcharges drive off the base line haul rates as a percentage. See example below:
Proposed LTL- Fuel Surcharge
National Average Fuel Price The % Fuel Surcharge Will Be
At Least But less than LTL
$1.05 $1.15 9.40%
$1.15 $1.25 9.90%
$1.25 $1.35 10.40%
  1. A Sample Bill of Lading (BOL) is helpful so the carrier can see what type of BOL you use for you business. In many cases the shipper has a pre-printed BOL that shows the classes/types of products shipped and their NMFC’s.
  2. Pictures of the product being shipped is helpful for the bid as well. Most carriers will ask for pictures of the product to accompany the bids.
  3. Lastly, an LOA, Letter of Authorization, for the carrier to provide pricing is required. This (or a copy) should be written on the companies letterhead and be signed by an officer of the company or someone who is duly authorized to negotiate freight rates.

All of the above is not mandatory for a bid, but it is all extremely important to the quality of the bid results and the ability of the carriers to correctly price your freight. It may seem a little daunting for first timers, but after you have done a couple of bids using the above process, it gets a lot easier over time.

Riverside Logistics has been doing LTL bids for over 20 years and has a proven process to get the best results from RFP’s and RFQ’s for clients. If you would like us to do an LTL, Truckload or Parcel bid for your company we would be happy to do so. One thing we have is a lot of baseline information to compare results of the bids against. This allows us, in your stead, to provide very competitive rate information and produce the best results for your company.

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LTL carriers struggle to move freight

Between the effects and protocols related to Covid-19 and the overall lack of capacity in the trucking market, the carriers are struggling to pick up, move and deliver freight. Over the last 6 weeks we have seen an escalation of this problem, with every week growing successively worse. Now, LTL carriers are either selectively quoting volume moves or have abandoned volume quotes altogether. They are doing this in the “short term” because their pipelines are over capacity and they simply cannot handle any more freight.

So, what does “short term” mean? Could be a couple of weeks, a couple of months, or possibly even longer. This current situation of tight capacity has come about, it appears, due to several factors that have all combined at the same time to exacerbate the situation.

Covid 19 caused a lot of carriers to retire early, furlough and or layoff drivers, not knowing how severe or how long the lockdowns would last. This drained some immediate driver capacity, which is hard to replace in a short amount of time when staffing needs now require more (new) personnel. Shutting down then re-igniting the driver recruitment process takes time. Probably a full quarter or more. In addition, when a terminal in the LTL network has a Covid case or two, or three, or a relative of the workers is in contact with Covid infected individuals, based on protocols, it takes those people out of circulation for at least 2 weeks. This too, strains the labor force and makes it that much harder to operate a terminal and a network. Some carriers have had to embargo certain nodes in their networks to play “catch-up”. When these embargoes (they do not call them that but that is what they amount to) happen, it effectively shuts off the flow of freight in and out of region for a period of time. This has the net effect of straining the capacity of other carriers operating in the same area and or delaying or stopping freight from moving as it normally would. The net impact is more stress on the supply chain.

When the network gets backed up, these backups tend to cascade down thru the various modes of transport. When intermodal rail backs up, then over-the-road trucking backs up, then LTL backs up. Costs rise, sometimes precipitously, and service levels usually go the other way and fall off. The infra-structure simply cannot handle the volume and delays happen. LTL carriers not only pickup and deliver freight they also “line-haul” it. With driver recruitment on hold, carriers are going outside their own networks and “brokering” trucks to handle the line hauls between nodes. Naturally, this takes brokered capacity out of the system, thus making it harder for pure brokers to find trucks to fill clients needs. You can see from this example, that it becomes a “Domino Effect”, where changes in one mode affect others and so on and so on. Everybody pays with lower service levels and higher costs.

The net effect right now is that freight costs are going up in the short term until the capacity equation (supply and demand) returns to an acceptable level. Service levels, which equate to days in transit are also going to lengthen in the short term. Shippers are not going to react favorably to this environment. Budgets will be broken, customer service will degrade, and the norms for conducting business will be altered. All of these “effects” will hopefully last only for a short period of time rather than an extended period. So back to the question ‘ how long will it last”? Good question, which unfortunately has no good answers to go with it. The market will eventually return to some semblance of “normal”, it always does.

The big question is how long it will take to get there and what can a Third-Party Logistics (3PL) do to help? A 3PL normally has multiple client-related contracts with multiple carriers. They (3PL’s) usually can flex modes up or down across multiple partners, to get you, the client, the best mix of desired service levels and cost. Riverside deals with many clients and uses many carriers. This means we have a lot of experience determining who does what better than the other guy. In a pinch, we have very close and effective working relationships with the carriers and can usually make thing happen, when a client can’t. So the bottom line is that Riverside can provide “workable” options to a client to help them navigate the current freight environment and provide a service and cost equation that meets their needs.

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TRENDS IN TRANSPORTATION-Growing use of DENSITY-BASED PRICING by LTL CARRIERS

by James Durfee

Within the last 3 years, less-than-truckload (LTL) carriers have shifted away from the traditional National Motor Freight Classification (NMFC) rate-setting formula.  In the past carriers assigned a distinct class rating to each different commodity.  Because of new scanning technology that allows carriers to weigh and inspect each shipment it has become easier to utilize more density-based pricing. Density-based pricing prices freight according to the weight per cubic foot of space (cubic feet) the shipment uses in the truck. This model has had a significant impact on shippers’ freight costs.  Due to this change, it’s important to understand the new pricing methods for LTL shipments, how it impacts rates and how to negotiate rate structures.

TRADITIONAL NMFC CLASS RATING

As background, the “class rating” assigned to LTL products, runs from a low of class 50 to a high of class 500. The higher the class the higher the cost. A rough rule-of-thumb is that using class 100 as the baseline, class 50 would essentially be 50% of the baseline cost and class 200 would approximate 200% of the baseline cost. This is a very rough approximation, but it illustrates how significantly costs can vary based on the CLASS RATING of a shipment. Class ratings are normally assigned using the following 4 characteristics:

  • Density – pounds per cubic foot
  • Handling – ease or difficulty handling product
  • Stow Ability – ability to effectively load product in the trailer
  • Liability – cost in dollars per pound to compensate pay for lost/damaged product.

PURE DENSITY BASED PRICING

Pure Density-Based pricing assigns a class to product just using the following formula:

  • Length x Wide x Height in inches= cubic inches / 1728 = cubic feet.
  • Divide weight of product (including pallet weight) by cubic feet = DENSITY

If the density = 6, the product would be classed at class 125

If the density < 4, the product would be classed at class 250

In this case the cost of the shipment could almost double if the density drops by 2 lbs./cubic ft. That’s a substantial difference and points out how important it is to understand the density of your product and how it is classified.  Remember, density-based pricing limits carrier liability.  The reduced insurance risk then falls back on the shipper to have additional insurance for high value items.

If you would like to discuss this topic further, contact one of our sales representatives at 804-729-8189.

By James Durfee

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