Class rate making
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Class rate making forms the basis of less-than-truckload (LTL) rate making. It involves grouping items into 18 classes based on their characteristics, with class 500 being the highest and class 50 being the lowest. The lower the class, the lower the price. Heavier shipments also receive lower costs per pound due to economies of scale. For example, if a 5,000 pound shipment at class 85 costs around $2,995.50 based on the published rate of $59.91 per hundredweight. However, large companies like XYZ would negotiate a fixed freight-all-kinds (FAK) class rather than use the published class rates, since carriers want to ensure continuous business from large shippers.
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Class rate making
- 1. CLASS RATE MAKING: Freight Rate Development by Hayford Adjavor By Hayford 1
- 2. Introduction First in this series on the above topic is Class Rate system which forms the basis of LTL Rate Making. I have heard this question been asked many times, hence my desire to share this writ-up of my investigation with readers. I will try not to bore you! By Hayford 2
- 3. Snapshot of Class Rate Table Class Rating 500lbs 500lbs 1000lbs 2000lbs 5000lbs 10,000lbs 20,000lbs 500 $684.61 $554.60 $472.28 $397.12 $345.33 $283.06 $248.51 400 $547.69 $443.68 $377.82 $317.69 $276.27 $226.45 $198.81 300 $410.77 $332.76 $283.37 $238.27 $207.20 $169.84 $149.10 250 $342.31 $277.30 $236.14 $198.56 $172.67 $141.53 $124.25 200 $273.85 $221.84 $188.91 $158.85 $138.13 $113.22 $99.40 175 $239.62 $194.11 $165.30 $138.13 $120.87 $99.07 $86.98 150 $205.38 $166.38 $141.68 $119.14 $103.60 $84.92 $74.55 125 $171.16 $138.65 $118.07 $99.28 $86.34 $70.77 $62.13 110 $150.61 $122.01 $103.90 $87.37 $75.97 $62.27 $54.67 100 $136.92 $110.92 $94.46 $79.42 $69.07 $56.61 $49.70 92.5 $128.02 $103.71 $88.32 $74.26 $64.58 $52.93 $46.47 85 $118.77 $96.21 $81.93 $68.89 $59.91 $49.11 $43.11 77.5 $108.98 $88.28 $75.18 $63.21 $54.97 $45.06 $39.56 70 $101.28 $82.04 $69.86 $58.75 $51.09 $41.87 $36.76 65 $95.26 $77.17 $65.71 $55.25 $48.05 $39.38 $34.58 60 $90.28 $73.14 $62.28 $52.37 $45.54 $37.33 $32.77 55 $85.31 $69.11 $58.85 $49.48 $43.03 $35.27 $30.97 50 $80.28 $65.01 $55.36 $46.55 $40.48 $33.18 $29.13 By Hayford 3
- 4. Class rating make it easy to price objects with different shipping characteristics such as shipping a small assorted quantity of items as Less-than-Truckload. One idea behind this rate making process is, objects with similar characteristics are grouped into similar item class. There are eighteen different classes in total; 50 X 500, with 500 being the highest class. Another rationale underlying this rating process is, the lower the class into which an article falls, the lower the price. Consequently, Low-value items that are easy to handle, unlikely to damage, and dense will receive lower class rating. And the higher the weight of a shipment, the lower the cost per pound (with economies of scale advantage) By Hayford 4
- 5. Based on the above, suffice to mention that pricing then is represented in cost per hundredweight (CWT). For example if a shipment weighs 5,000lbs with a total number of pallets less than 17 (which is by definition an LTL shipment); and this shipment is ranked at class 85 for instance, what would then be the transport price? Or how do we determined within the scope of class rate system what the price of shipment will be? By the above illustration, this article would cost the shipper around $ 2,995.50 minus any discounts or fuel surcharges. So how did we arrive at this figure? It is simply by the following arithmetic: {(5,000 IBL/100) x $59.91} By Hayford 5
- 6. The question then is how does this apply to LTL shipments at say Company XYZ? Class rating works better for small shippers and producers who may probably not have the same bargaining and/ or negotiation advantage as a fortune 500 company like XYZ. Hence instead of class rating, Freight-All-Kind (FAK) rating is used which is simply a variation of the Class Rate System. It is worth mentioning that FAK rating is then nothing more than a negotiated fixed class into which articles shipped by shippers fall into- say 85. By Hayford 6
- 7. Conclusion:- So in conclusion, due to the size of Company XYZs operations, carriers are somewhat assured of continuous business of hauling freights; hence FAK rating will be a win-win for all parties compared to Class Rates. In the next episode, we will discuss Freight All-kind rates in details. By Hayford 7