Spot rates vs. Contract/Primary Rates

• Two ways to price shipment

Spot rates

• one-time fee a shipper pays one load at current market pricing
• short-term transactional pricing that reflects the real-time balance of supply and demand in the market
• during the pandemic, stop rates are very high due to high demands and low supplies
• spot rates provided the carrier is normally good for 24 hours
• Best if:
  • primary and backup carriers don’t accept a lane at their rate
  • urgent or unexpected shipment is needed (kinda like bounce load where we are time-sensitive I guess?)

Contract/Primary rates

• Longer-term (normally 12-months, but can range from quarter, 6 months, 2 years)
• Benefits:
  • consistent, reliable
  • more predictable; more stable
  • lower costs than spot rates
• Determined by:
  • Bid process
  • A shipper or customer will bid
• Bed to get contract pricing when you have a predictable freight environment
• Win-win for both carriers and shippers b/c:
  • carriers get fixed rates
  • shippers give committed load volume

Other fees

Fuel surcharge

• a fee added on at the time of shipping
• Since fuel price is volatile and unpredictable, it’s not reasonable to ask a carrier to lock in fuel pricing at the time of a bid
• fuel and diesel prices change and are published weekly

Accessorials

• fees that carriers will charge the shipper
• added at the time of shipment; normally after a shipment is delivered
• it’s better for shippers to be fair with accessorials charges; you don’t want to keep acc. charges way down that hurt your relationship with carriers
• hard to predict in advance
  • if you’re putting them into your budget, it’s best to look at last year’s accessorials
• Examples
  • detention
    • delayed loading/unloading time
    • as a shipper, you can control this by looking at which facilities tend to have higher detention charges over a coruse of quarter/year
  • stop off charges
  • lumper fees
  • layovers
  • driver work
    • if driver has to assist in reworking or unloading a truck
  • lift gate
  • detention
  • lumpers

LTL vs. Intermodal

Process of LTL spot quote (customer’s pov)

• Variety of ways to quote by a customer:
  1. Directly with a customer rep
     • Email info like pickup address, delivery address
     • Customer rep send back a list of rates from various carriers & transit times for each rate
  2. Input information themselves on the system
     • select accessorials like lift gates, limited space, etc.
• Variables to keep in mind for pickups/dropoffs
  • some vendors only require pickups/dropoffs at certain times of the day or certain days of the week; not 24/7
  • if not communicated clearly, it incurs extra fees for delays, etc.
• At least 24-48 hour lead time for pickup is needed

Can you negotiate rates?

• 2019? Yes. At this moment? Nah.
• Long-term agreements may help
• Cheapest rates is not always the best!!!
  • It can be delusional because the rates may not include hidden fees (lift gates, fuel surcharges, limited pickups, etc.)
  • Reliability, Credit of the 3PL provider play a big part when deciding on which provider to choose.
  • If you choose the one with the cheapest rates, your customer may suffer and therefore in the long term, it’s not ideal.

Intermodal

• shipping freights over “rail”
• 10-15% cheaper than truckload
• Things to consider:
  • capacity
  • time, seasonality
    • During peak season (September ~ December), many imports nearby ports like LA.
    • Avoid lanes nearby those areas during peak season
  • distance (> 700 miles)
  • loads that are not time sensitive are good-fit
  • you can’t change the shipment time or location during shipping process

Mini Bid

• when there’s an influx of shipments all of a sudden and primary carriers have met their commitments, you might do a mini bid to get extra capacity for a quarter or 6 months. ds- helps keep consistency during inconsistency
• provide carriers competitive rates
• provide shippers reliable capacity

Misc.

• The pandemic made dramatic changes in logistics industry:
  • E-commerce jumped 10 years in the last 1.5 year
    • Trying to replicate Amazon’s 2 day delivery, which can’t be done in a typical way ==> 3PL comes into play
• Spot quote (when customers reach out to customer rep for shipments)
  • Do
    • provide as much info as possible upfront
      • location, hours, contacts (phone #, email), lift gates, limited space, etc.
    • ask questions
      • do you need people to unload?
  • Don’t
    • generalize your request
    • guesstimate the dimension or total weight of a shipment, etc.
• LTL vs truckload (TL)
  • Truckload
    • a.k.a. FTL (Full Truckload)
    • Flat rates whether the trucket is full or just one box
    • Your freight is the only shipment on the truck
    • Carrier ships straight from origin to destination
    • more pallets than LTL

    • 10,000 lbs

    • only one destination
  • LTL
    • Less than Truck Load
    • Truck is full but with shipments from different companies/customers
    • Pay only for what you use
    • cost-effective for 150 lb < loads < 10000 lb
    • typically one to six pallets
    • Prices for an LTL shipment are determined by:
      • weight
      • pick up location
      • class
      • destination zip codes.
    • Ideal for:
      • sending pallets to two or more destinations
      • short-haul of high-volume shipments that don’t meet the criteria for FTL
    • like amazon’s fulfillment service where you pay for the space you use
    • Regulated by National Motor Freight Traffic Association
      • classifies freight based on commodity, density, and ease of transport
      • Standard LTL dteremiend by shipment’s origin and destimation, size, and any accessorials required
• Project freight
  • freight out of a certain origin or to a certain customer
  • e.g) when there’s a food roadshows, a group of carriers will move around with the show crew which is not a typical lane (could include delivery to residential area not a warehouse)

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Reference:

• https://www.youtube.com/watch?v=g1usE9qk-wA&list=WL&index=16&t=948s
• https://www.dtsone.com/know-difference-ltl-shipping-truckload-shipping/