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Here’s a simple tip for reducing your cost per hundred pounds: Just ship truckload quantities to all your customers and buy truckload quantities from all of your vendors. Problem solved. I’m here all week! Don’t forget to tip the hostess on the way out.
I know, I know…if your customers were buying truckload quantities, you’d be on a beach off the coast of Fiji somewhere. Let’s look at this issue from a more practical perspective.
Understanding Carrier Weight Breaks
If you are buying and selling in less-than-truckload (LTL) quantities, you must understand how carrier rating engines work. In the LTL world, freight rates are calculated with three criteria: distance, weight and freight class (which is density driven). This is fairly common knowledge among LTL shippers. However, one criterion is not given as much attention as it is deserved: the weight breaks in carrier pricing.
Weight breaks are points in carrier pricing where the rate per hundred pounds decreases, which essentially incentivize shippers to ship more weight. Carrier pricing reduces at a per hundred rate at the following thresholds: 500 lbs, 1,000 lbs, 2,000 lbs, 5,000 lbs, 10,000 lbs and 20,000 lbs. Below is an example for how the cost per hundred is calculated at these different weight breaks within a certain zip code pair at a particular class:
• 0-499 lbs = $44.64
• 500-999 lbs = $36.86
• 1,000-1,999 lbs = $31.86
• 2,000-4,999 lbs = $29.99
• 5,000-9,999 lbs = $22.88
• 10,000-20,000 lbs = $21.94
Why It Matters
Understanding weight breaks in carrier pricing is important because your company can use this to its advantage in its buying and selling patterns. Let’s say you have a “free freight” or “delivered price” program where your company includes freight when a customer purchases $1,000 worth of product. However, $1,000 equals about 400 lbs of material. Based on the rate break system, boosting the “free freight” level to a point where the weight would equal 500 lbs or greater would reduce your cost per hundred (and increase your profit margins). Thus, it makes great sense to adjust these “free freight” levels.
Similarly, if purchasing staff are armed with this data, they can drive smarter practices on inbound orders from vendors. As an example, let’s say that the purchasing department identifies they are buying at levels where the weight is just under the price break point. Perhaps a few more dollars in purchasing will boost that order to the cheaper rate per hundred points.
Not everyone can sell or buy truckload quantities. However, making small adjustments to selling and buying patterns can be the next best thing. When it comes to managing your supply chain, the key point to remember is to always be evolving. Those who stand still get passed by.
Any views or opinions expressed in this column are those of the author and do not represent those of Ceramic Industry, its staff, Editorial Advisory Board or BNP Media.