LTL Sourcing Do’s & Don’ts

Logistics is a highly complex category that is oftentimes mismanaged from a sourcing prospective. There are many moving pieces and different factors that need to be taken into consideration when evaluating the total cost of a specific transit lane, whether it be with an Airline such as United, or a Domestic Freight Provider such as YRC. Over the years, Carriers have developed proprietary pricing systems referred to as “Base Rates” or “Tariffs” -- and oftentimes the majority of the total cost of shipping goods can be attributed to these different fees. The biggest challenge with evaluating this spend category is the proprietary nature of the pricing schema that Carriers use to come up with a tariff or Base rate structure that is applied to different transit lanes.

In the LTL (less than truck load) space, Carriers will offer a discount off of their base/tariff Rate. The Tariff with LTL carriers is simply a formula which takes into consideration factors like weight (in kgs, lbs, etc.), volumetric size, total mileage of a route, origin, destination, etc. Once all inputs are entered into the Tariff calculator the customer would receive a base price to transport products based on all these factors. Each Carrier’s tariff assigns slightly different weights to each factor of cost which results in the disparity from Tariff to Tariff (Carrier to Carrier). For example, YRC may have hundreds of dispatch and trucking depots in Montana, whereas UPS has a limited presence in that area. Therefore, YRC would assign less of a cost based on the originating Montana Zip code and UPS’ Tariff structure would assign a higher cost based on the input of the Zip code since it costs UPS more to operate in that region. Think of it as a regression formula used to estimate the cost of shipments by the Carriers. Since each Carrier uses a different “regression formula”, their costs, after running through their Tariff programs, will always be slightly different based on their operating model and overall infrastructure. And as mentioned before, since each Carrier assigns a discount to their own Tariff structure during negotiations and contracting, it is virtually impossible to compare apples to apples amongst different suppliers. Each discount is discounting from a different base rate, and each base rate is calculated differently based on the inputs, so therefore a 50% discount from YRC’s proprietary tariff can be more competitive than UPS’ 75% discount from their proprietary tariff or vise-versa.

There is good news though. Carriers are willing to use alternative Tariff structures – usually by request only – to price out your lanes. When all Carriers use the same Tariff during a bidding process, you can then effectively evaluate Tariff discounts on an apples to apples basis across all lanes since discounts are being provided, per each region, from the same Base Rate/Tariff calculator. Universally available Tariff subscriptions are commonly held by most major Carriers. Czarlite is a very popular benchmark base rate that is used in North America.

When running a sourcing event for multiple lanes, with multiple carriers, it is paramount to utilize a universal Tariff structure to enable an apples to apples pricing comparison. By utilizing a standardized bidding and contracting structure it is much easier to evaluate lane optimization scenarios with multiple suppliers. For example, it is much easier to identify and compare where certain Carriers may be more competitive than others, region by region (per the Montana Zip code example), or by shipment type.