Contract Rates Vs Volume Rates - Understanding The Difference

Given the fluid nature of less-than-truckload shipping, pricing dynamics can change for the shipper. Depending on factors such as fuel costs, the popularity of certain lanes, capacity issues or the size and dimension of your freight, carriers will be forced to adjust their rates to best suit their business. 

Meaning of Contracted Rates

Contracted Rates are most commonly negotiated by third party logistics (3PL) companies, like us here at Koho. Partnering with a 3PL for LTL services will allow the shipper to take advantage of the lower cost negotiated for the high volume of shipments that the 3PL is able to provide the carrier. Typically Contracted LTL rates are negotiated with each individual carrier based on shipment factors such as, average weight, freight class, volume, packaging and lanes. These contracts are renegotiated every 1 to 2 years. This type of deal allows for a total cost savings throughout your supply chain.

Meaning of Volume Rates

Volume rates are based on the weight and density of the freight on the truck.  If a shipment exceeds a certain cubic feet and density (Cubic Capacity) or certain linear feet and weight (Capacity) contracted rates are no longer an option for the shipper. The general guideline for switching to a volume rate is if the shipment is 12 linear feet or more or weighs more than 15,000 pounds. Volume rates can sometimes be lower than contracted if a carrier does not have enough freight to fill their truckload on a given lane. 

Contracted Rates Vs Volume Rates 

• Overall, Carriers usually prefer to load contracted freight in their truck over volume shipments. This will result in longer transit times for volume shipments; an important factor to keep in mind when planning your supply chain.
• The volume freight rates provided to a shipper by a carrier are only valid for 5 to 10 days. 
• If a truck that has a liftgate is needed or the freight is going to a residence, the carrier might not offer the volume estimate any longer.
• Volume freight rates offer reduced liability for the shipper; the liability for the contract rate is typically higher.
• The volume quote must be on the original Bill of Lading or else that total will not apply. 
• Volume rates depend on the capacity the carrier has available on the truck at that moment in time. 
  

Ultimately, standard or contracted rates negotiated by your logistics provider can offer you the best value but volume rates can be a good option compared to Full-Truckload rates. Market conditions and freight contracts are a good indicator of what might occur with pricing. It is always best to rely on the transportation experts at your 3PL to help you navigate your freight pricing. The more information you have the more likely you will decrease your total spend on freight services.