How to calculate & get (the best) truck freight rates
Whether you’re just starting out in the trucking business or are doing a deep-dive into your finances, calculating freight rates is key to success. Though there are several layers involved in the cost breakdown of truck freight rates, understanding the fixed and variable expenses of each delivery is essential to breaking even and profiting. In this blog post, we’ve outlined all the factors to consider when calculating truck freight rates.
What are freight rates?
Freight rates are the cost of transporting goods from location to location. Each cost depends on distance, weight, type of shipment, additional services and more. Aside from profitability, knowing how to accurately calculate truck freight rates puts you at a competitive advantage in the industry. Having a thorough understanding of the breakdown behind rates allows you and your trucking business to negotiate with suppliers and carriers while also ensuring customer satisfaction through cost transparency. Plus, it gives you the opportunity to make well-informed transportation decisions.
What impacts a freight rate calculation?
Working in the trucking business is no easy feat, and getting goods from point A to B requires a lot more than picking a delivery route. Truck freight rates are determined with a variety of factors in mind. While there are common calculations, which we’ll get to, it’s important to have a general sense of what variable factors can be tagged onto a base rate.
When calculating truck freight rates, the base rate is the starting point. It covers standard expenses such as insurance, gas, equipment, driver wages and other fixed costs associated with transporting goods. The base rate is set by carriers and determined through industry standards, along with operational expenses.
The mile freight rate varies based on the distance driven. With longer haul journeys, there are a variety of additional costs involved. From overnight accommodations to tolls, the mile freight rate takes into factor layered expenses. The Freight Carriers Association publishes fuel surcharge rates weekly which are a general foundation for most carriers. If a shipment’s travel distance is 500 miles and the carrier has a set rate of $1.25 per mile, here’s how the freight rate would be calculated:
500 miles x $1.25/mile = $625
Volume and weight
Another aspect that affects costs is the heaviness and bulkiness of shipments. For example, delivering retail goods wouldn’t be nearly as expensive as industrial goods. For this reason, carriers often use a formula that incorporates the density of goods. Shipments that are heavier or bulkier are a factor in increased costs.
Created by the National Motor Freight Traffic Association, the National Motor Freight Classification system is widely used to take varying factors into account such as handling and liability. Depending on the type of goods being shipped, each freight classification has a unique code to help regulate rate structures. In general, the higher the freight class, the higher the cost. In total, there are 18 classes recognized by the NMFTA. As a simple calculation, carriers multiply the weight of the shipment by the rate associated with the freight class. For a shipment with an assigned freight class of 85 (and a carrier rate per CWT of $8.50) that weighs 2,500 lbs, here’s how the freight rate would be calculated:
(2,500 lbs / 100) x $8.50/CWT = $212.50
The mode in which goods are transported also impacts the rate and calculation. Basic freight shipping rates can be broken down into these categories:
Less than truckload (LTL)
When a shipment doesn’t require a full truckload, it can be used in multiple small loads with different shippers for efficiency. This process is known as LTL freight shipping. LTL freight rates are based on the volume, freight class, distance and weight of the goods.
Full truckload (FTL)
For shipments that do require an entire truckload, FTL rates are based on the travelled distance and can sometimes be negotiated through carriers.
Combining multiple modes of transportation? From ocean to rail, intermodal shipping rates vary based on container sizes, routes and distance.
Time-sensitive shipments incur higher costs due to the urgency and specialized carriers required.
If crossing borders, the shipping mode, weight and destination are what establish international shipping rates.
From oversized goods to fragile cargo, specialized handling requirements have a varying range of rates dependent on the associated risks. For example, if hazardous materials are part of the cargo, it can heavily impact the costs associated.
What are the most common freight rate calculations?
While we’ve already covered a variety of factors involved in calculating freight rates, here is a round-up of a few more to keep in mind:
We mentioned earlier that carriers use formulas to determine the volume and weight costs. Shipping something large? If you have a shipment that weighs around 4,000 lbs and the carrier’s rate is $0.45 per lb, here’s how you would calculate the freight rate:
3,000 lbs x $0.60/lb = $1,800
In some cases, a carrier can set a rate per cubic foot. If you have a shipment that weights 2,500 lbs and it takes up 500 cubic feet of space, you would first calculate the density. To do so, take the weight divided by volume and multiply it by the rate per cubic foot.
From service charges to additional fuel, it’s important to keep in mind that base rates are never the total. If a shipment has a base rate of $600 and there are additional service charges totaling to $75, plus a fuel addition of 10%, the calculation would be:
$400 + $75 + ($400 x 0.10) = $515
With an increasing demand in the transportation industry, operating a trucking business can definitely be lucrative. As you grow, scale and price your services strategically, it’s equally important to incorporate systems that will support you and your team. With a #1 rated TMS like Rose Rocket, you can navigate global commerce and streamline your operations simultaneously. If you’re interested in learning more about the business benefits of TMS, book a demo below with one of our Rose Rocket logistics experts.