Class Rate System: the basis of making LTL rate development for freight movement

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 XYZ’s 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