LTL GRI (General Rate Increase) and the Actual Impact on CostsWritten by Neal Willis
It’s a widely accepted practice of LTL carriers to make periodic adjustments to their base rates through the form of a General Rate Increase (GRI). Historically speaking, GRI’s (increases) usually occur once a year, however, there’s been years when carriers imposed more than one GRI in the open market, and there’s also been years when carriers didn’t impose one at all. Multiple elements are taken into consideration when carriers are factoring what GRI percentage will be taken by their customers, some of which include the carrier’s current operating ratio, a shipper’s claims ratio, the state of the overall economy and the demand for freight in general.
The important thing to remember about LTL carrier GRI’s, however, is that the announced GRI isn’t necessarily indicative of the true impact to a shipper’s bottom line freight cost because the GRI is not a flat percentage rate increase across the board. It is merely an aggregate combined average percentage increase across all lanes serviced by a carrier. Rates in some lanes may remain unchanged, some may increase more than 4.9%, and some may increase less than 4.9%.
For example, a carrier may announce a GRI of 4.9%; however, the rates in some high demand lanes may be increasing by more than 15% while rates in other less commonly used lanes remain unchanged. If the lane your product ships in and out of the most happens to be one of the lanes experiencing a 15% increase, then the effective impact of the GRI on your bottom line will be closer to 15%, rather than the announced 4.9%. The takeaway is that a shipper could be seriously impacted by an effective rate increase much higher than what’s announced by the carrier, so it’s imperative for shippers to check each lane for actual impact on costs.
Carriers have become very granular in their approach to pricing and some won’t even handle freight unless it’s been shrink wrapped and palletized. In today’s market, it’s all about how to make yourself more marketable because it’s a carriers market. Simple ways to ingratiate yourself include altering your pick up or delivery schedule, corralling claims ratios, and upgrading packaging from low-grade cardboards to shrink wrap. It may actually cost less to upgrade product packaging than it would to incur the significant rate increases that come with a high claims ratio.
There are a number of ways to disqualify your business as a shipper of choice, such as consistently being flagged for inaccuracies on your bill of ladings and the use of inferior packaging, which leads to damages and higher than normal claims ratios. The consequences for these offenses can range anywhere from a steep hike in pricing all the way to an outright refusal from a carrier to pick up your freight.
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