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November 27, 2018

Know the absolute minimum charge

If you're an eCommerce merchant who offers LTL freight as an option for shipping,  you should pay close attention to your carrier's minimum charge. This charge, referred to as the Absolute Minimum Charge (AMC), may be the determining factor on whether or not your shoppers are converting their carts into orders.

A carrier's AMC is the lowest amount the carrier is willing to accept for shipment. Usually it isn't a single figure, but a set of figures that depend on the origin and/or destination. A very simple AMC may be structured as follows:

  • Interstate traffic: $125.00
  • Intrastate traffic: $118.00
  • Florida Keys: $195.00
  • Manhattan, NY: $235.00

Pay attention to the AMC for the areas you ship to most often. The AMC may be the most important thing to consider when choosing a carrier. The following example illustrates why this can be true.

The merchant in our example is evaluating proposals from two carriers. The tariffs are summarized in this table:

  Carrier A Carrier B
List rate per LBS $1.00 $1.00
AMC $85.00 $120.00
Discount 70% 75%

 

A common conclusion is that Carrier B is the better option because of the larger discount. However, the merchant in our example sells one product (to keep it simple) that weighs 100 LBS. Applying the carrier tariffs yields the following results:

Quantity Total Weight Carrier A Carrier B
1 100 $85.00 $120.00
2 200 $85.00 $120.00
3 300 $90.00 $120.00
4 400 $120.00 $120.00
5 500 $150.00 $125.00

 

Carrier B is a better option when orders contain a quantity of 5 or more. However, if orders of this size are an unusual occurrence then the merchant is better off with Carrier A who has a lower AMC. For orders that have a quantity of 1 to 3 units, the difference in cost is between 35 and 41 percent. That's significant, particularly if our merchant has competitors.

LTL carriers document their AMC in their rules tariff. You can usually find this information by doing an online search for absolute minimum charge. Set aside some time one day to familiarize yourself with your LTL carrier's Absolute Minimum Charge. Think about how it applies to your online orders. You may discover that it's something you should be paying more attention to.

If you are interested in offering LTL freight as an option on your online store, take advantage of this resource:

LTL Freight Primer

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