Saturday, July 25, 2015

LTL vs. Partial Truckload Pricing

Partial Truckload Quotations           

Many times shippers will ask their freight brokers for a pricing matrix for shipments consisting of more than 5 pallet spaces - but less than truckload quantities.  While many accurately refer to this freight as “LTL”, many of us in the industry refer to these quantities “partial” truckloads. 

The distinction between the two terms actually means quite a bit when it comes to freight pricing systems.  “LTL” or “Less than truckload” freight is generally reserved for freight "under" 5 Pallets where shipment pricing is generally handled a “Cube/Density pricing model.  In this case this freight quotes are generally consistent and would generally move with a large national carrier such as Yellow or Old Dominion.  Companies specializing in LTL aren’t interested in partials or truckload quantities because such quantities would compromise their pricing methodology and reduce their margin.  LTL carriers also typically cross-dock freight through multiple terminals which results in longer transit times.

Partial truckload carriers, on the other hand, are companies (usually smaller than LTL carriers) who travel longer distances and often deliver on the same truck they picked up on.  These carriers may only handle larger quantities of freight and usually price freight out based on pallet spacing rather than density.  Partial carriers also have to adjust their shipping rates based on what portion of the truck you occupy.  For example, because a partial carrier doesn’t know if he will fill the truck out completely before a run he usually tries to get 45% of the truck’s revenue from the first ¼ of the truck used.  A savvy shipper or freight broker understands that the “last” ¼ of the truck usually only has to account for 15-20% of the truck’s revenue.

This realty causes an interesting dilemma for shippers.  Naturally, shippers who move partials would like to have the same pricing consistency as shippers who move LTL, however, to achieve this the fixed pricing model has to be at the higher end of the spectrum – just in case the shipper finds himself on the nose of the trailer as opposed to the tail. (think 45% vs. 15-20%).  Not all trucks are actively completing a load when the shipper says “go”.

The best protection against inflated pricing is to work with a brokerage that moves enough partial volumes to ensure that the shipper is priced out based on efficient load matching.  Since most lanes usually have multiple partial truckload carriers operating in them, a good broker will have the ability (more often than not) find the carrier who is completing the load rather than starting it.