How to identify whether your carrier price model is the most beneficial for you
Loading meter, volume, weight, per parcel or per drop. Do you know how your carriers charge you for your shipments? By analyzing your shipment pattern and identifying the real cost drivers you will know which the actual sources to savings are – and that is great knowledge for the next time you negotiate freight prices with your carriers.
Carriers have different ways of charging you for shipping your goods and sometimes it is not crystal clear what the exact cost drivers are. However, it can be very beneficial to spend some time investigating the details of the carrier’s price model so that you know exactly what affects your freight bill and thereby empower yourself in the next negotiation round.
First, you need to know the different carriers’ price models and then you need to analyze your shipping pattern to identify which carrier price model will be most profitable according to your specific shipping pattern.
Working in the delivery industry for more than 20 years we can for sure confirm that there are hundreds of different ways that the carriers put together their price models, however with help from our Shipping expert Rasmus Darre we have identified 5 of the most common carrier price models:
Loading meter: You are billed according to how much your goods occupy in loading meters in a truck, meaning that only the floor space your goods occupy affects your price. The weight and height of your goods don’t affect the price. One EUR pallet equals to 0,4 loading meter. A standard truck has 13,6 loading meters.
Volume: You are billed according to the space your goods occupy in cubic meters in a truck.
Volumetric weight: You are billed according the volumetric weight of your goods. This is being calculated based on a volumetric divisor set by each individual carrier, unless the actual weight of your goods is higher than what the calculated volumetric weight would be. E.g. your carrier’s volumetric divisor is 333 kg/m3, and you have a shipment with the measurements 30 cm long, 40 cm wide and 50 cm high. Multiply the measurements and divide with the volumetric divisor: 0,30 m x 0,40 m x 0,50 m * 333 kg/m3 = 19,98 kg. Be aware that carriers use different metrics to calculate the volumetric weight e.g. cm, inches, dm3, m3 etc. as well as different volumetric divisors for parcels, groupage and part load.
Per parcel: You are billed according to the number of your parcels.
Per drop: You are billed per drop, regardless of how many parcels/pallets on the delivery.
Often carriers bill you based on a combination of the price models above, e.g. from 0-100 shipments you are billed by volumetric weight, from 101-200 shipments by loading meter and so on.
Your shipments and shipping pattern determine, which price model is most profitable for you.
Analyze your shipments and shipping pattern
To identify the most profitable carrier price model to go with you should take a look at your shipment pattern. The easiest way to do that is to go back in time and analyze the characteristics of your shipments for a given period and see if any patterns appear. In addition, you should also take into account what you expect to send over the next year. These are examples of factors you can sort by:
- Number of heavy and small shipments
- Number of heavy and big shipments
- Number of light and small shipments
- Number of light and big shipments
- Number of shipments which can be stacked
- Number of shipments which can’t be stacked
- Number of shipments, that are shipped as parcels, groupage or part load.
- Number of shipments that require special handling (dangerous goods, temperature regulated goods, valuables etc.)
- Geography: How long is the transport for your shipments? What is the destination for your shipments? Number of shipments headed for the same destination or area.
When establishing your expected shipping pattern, start calculating which of the price models are most profitable for you. This is a complex process because of the many different factors to take into account, and you may even find that it would be beneficial for you to pack your goods different to the way you do it today. However, it is worth the effort, as standard offers from carriers most likely don’t fit your specific shipping needs. We highly recommend that you negotiate your way to an individual carrier agreement adapted to your specific needs.
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