Prime Advantage Blog

LTL General Rate Increases and Their Impact on Costs

Guest Contributor on Sep 1, 2016 9:00:00 AM

090116.jpegPrime Advantage has invited industry experts to share insights on achieving manufacturing and business success. In this post, Neal Willis of ReTrans Freight, discusses how to manage rising LTL prices.

It’s a widely accepted practice of LTL carriers to make periodic adjustments to their base rates through the form of a General Rate Increase (GRI). Historically speaking, GRIs (increases) usually occur once a year, however, there have been years when carriers imposed more than one GRI in the open market, and also years when carriers didn’t impose one at all. Carriers consider many elements when factoring what GRI percentage they will be imposing onto their customers, some of which include the carrier’s operating ratio, damage claim rates, the state of the overall economy and the demand for freight in general.

The important thing to know about LTL carrier GRIs, however, is that the announced percentage is not necessarily indicative of the true impact to a shipper’s bottom line freight cost because the GRI is not a flat percentage rate increase across the board. It is an aggregate combined average percentage increase across all lanes serviced by a carrier. While some rates in some lanes may rise considerably, some may remain unchanged and some may actually decrease.

For example, a carrier may announce a GRI of 4.9%; however, the rates in some high demand lanes may be increasing by more than 15% while rates in other less commonly used lanes remain unchanged. If the lane your product ships in and out of the most happens to be one of the lanes experiencing a 15% increase, then the effective impact of the GRI on your bottom line will be closer to 15%, rather than the announced 4.9%. The takeaway is that a shipper could be seriously impacted by an effective rate increase much higher than what’s announced by the carrier, so it’s imperative for shippers to check each lane for actual impact on costs.

Carriers have become very granular in their approach to pricing and some won’t even handle freight unless it’s been shrink wrapped and palletized. Today’s market is a carrier’s market, and as a shipper, it’s all about how to make yourself more marketable. Simple ways to garner favor with carriers can include altering your pick up or delivery schedule, corralling claims ratios, and upgrading packaging. You might find that it costs less to upgrade product packaging versus incurring the significant rate increases that come as a result of a high claims ratio.

There are a number of ways to disqualify your business as a shipper of choice, such as consistently being flagged for inaccuracies on your bill of ladings and the use of inferior packaging, which leads to damages and higher than normal claims ratios. The consequences for these offenses can range anywhere from a steep hike in pricing, all the way to a carrier refusing to pick up your freight.

ReTrans Freight is an Endorsed Supplier to buying group Prime Advantage. Prime Advantage Members save on LTL, and other freight services, because of the increased buying power of group purchasing.

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Topics: Manufacturing

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