LTL Freight for SMEs Explained

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A business’ freight costs can be a significant source of savings if optimised and selected strategically. In fact, it is important to consider freight selection as a vital step in the manufacturing process rather than it all just ending with the completion of a product.

LTL or Less-than-Truckload shipping is a cost-effective shipping option for small-to-medium sized businesses or businesses shipping small amounts of product to customers who value cheaper shipping options.

What constitutes LTL freight?

When a load of freight comprises less than a 48 or 53-foot trailer (normally weighing between 100 and 10,000 pounds), and therefore makes up part of a truck’s freight, it is termed LTL shipping.

When is LTL shipping beneficial?

LTL freight makes financial sense for smaller businesses when their product will not fill a full truckload and therefore they would preferably only pay for what they use. For example, if a shipment will only take up just over half of the truckload, there is little point in paying for the space and mileage of the whole truckload which can be money down drain. Likewise, for the shipping company, offering LTL freight can work in their favour as they can appeal to a larger range of business sizes and requirements as well as making more money for the same truckload space and freight overheads by renting out every spare bit of room.

Drawbacks of LTL shipping

If the purchaser requires a shipment hastily or at least in a predictable timeframe, LTL shipping can be more hassle than it is worth and thus may be a poor choice of freight. When a shipping company ships using a LTL method, they ‘collect’ freight from an array of customers until they have enough to comprise a full load. This can take some time and is dependent on a group of people being reliable rather than just a single entity. Once the shipment is on its way, it can take some time to offload as multiple shipments equate to multiple destinations and offloads. The time taken to deliver items can therefore be lengthy and unpredictable, which may be undesirable and intolerable for some customers.

LTL freight, by its very nature, is man-handled extensively. This is because of the multiple stages and stops before its final destination while the rest of the loading space is being filled. This extra handling results and an increased susceptibility to damage. As such, it is imperative to package and wrap LTL shipments sufficiently to avoid damage to the product en route to its destination.

How is LTL shipping priced?

As with most freight options, the costing structure of LTL shipping is based upon the dimensions of the shipment, the distance it must travel, the route of travel it takes, the type of goods and the target delivery of the shipment. It is a given that the shipments dimensions are a primary factor in cost, as something that weighs less and takes up less room in theory results in less fuel consumption for its travel. Likewise, the distance and route of travel determines fuel consumption costs and even insurance premiums (shipping by boat in pirate-infested waters would result in higher premiums than safe waters for example).

The type of goods is essential as certain goods may not be able to travel together and therefore would require their own load or partial load, increasing the cost of shipping. The service level is the target delivery time and is a determinant of the shipping cost of an item. As aforementioned, with LTL freight, the trade-off of cheaper shipping rates can be less predictability of delivery times however, if in fact predictability is what a company would like, then it can be arranged at a premium.

LTL freight can be a very good option for a lot of companies looking for ways to optimise their shipping practices and decrease costs. However, it needs to be weighed up with the need for predictability and reliability, which can ultimately end up dearly costing the company in customer satisfaction.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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