LTL Rate vs. Cost: Why Going with the Lowest Rate Doesn't Always Save You Money

o you automatically route your LTL shipments to the provider who quotes you the lowest rate? For the purpose of this blog, take a moment to think back to your decision-making process and recall the reasons you decided to go with this lowest rate logistics model. With that in mind, this blog may give you pause to think about the dialogue that could be taking place within your organization in order to determine what your true LTL shipping costs are (this is more than just the rates you’re paying). Reconsidering how you view your overall LTL costs vs. individual rates will help you keep your customers happy and allow you to remain one step ahead of your competition.

Cost vs. Rate

Cost refers to the total combined expense of an LTL shipment, including both time and dollars (the shipping, customer service, accounting, administrative tasks, technology, etc.) This includes the rate.

Rate is simply the dollar amount charged by the LTL carrier for the transportation of that same LTL shipment – meaning the rate is only one part of your overall cost. Rates are easy to identify, whereas identifying cost requires a commitment and collaborative spirit from many levels of an organization, both internally and externally.

Reflect on the first quarter of 2014 and the inclement weather that impacted all of us in the movement of freight. Were you one of the thousands of shippers that experienced missed-pickups, tracking and tracing nightmares, delays, or the communication of incorrect information? Did you lose any customers over it? If so, what was the total cost associated with that? No one can control the weather, but there are certain things that can be controlled, like having a sound LTL program in place.

If the inclement weather taught us anything, it certainly exposed some gaps in many shippers’ perception that the lowest rate is the most important variable when selecting an LTL shipping provider. More times than not, there is a trade-off between the value you receive and the rate you pay.

One of Trinity’s guiding principles is continuous improvement, constantly aspiring to reach our greatest potential. In order to do so, we responded to the inclement weather experience as an opportunity to improve. We evaluated what went right, and what didn’t. We discussed it internally, and we discussed it with LTL carriers in our program, and most importantly, we discussed it with our customers.

What we found was a common theme across the board. When rate was the sole driving factor in selecting carrier providers as per our customer’s requirements, it had much more of a negative impact on the LTL shipping experience through this period than when choosing carrier providers based on overall value.  Whether it was delayed transit times or just plain poor customer service, several of our “lowest rate” customers changed their preferences in the future to avoid this model.

In retrospect, a lot of the pain our LTL customers felt during the first quarter could have been reduced or eliminated by proactively identifying value over rate. There is a place for the lowest rate model, as in some cases it is a good fit (such as when arranging warehouse transfers or returns), but we cannot ignore the fact that in the majority of times, your company’s vision and your customer’s requirements might not benefit from this method of thinking.

As you review your LTL logistics program, Trinity can work with you through honest dialogue in order to develop a sound recommendation that is flexible yet strong enough to weather the storms of an ever-changing LTL service industry.