Freight Shipping Blog

Freight Costs as a Profit Center… The Do’s and Don’ts

Posted by Rob Snowdale on Wed, Jan 23, 2013 @ 02:59 PM

The Situation:

So you ship to small to medium sized companies and you come to agreement with your customer that you will sell your product on a freight prepaid and add basis. After all, you ship a lot of goods and probably have better freight rates than your customer. You select the carrier, you dispatch the carrier and you pay the carrier. Then you invoice the customer for your product and for the freight charges. 

The Options:

A surprising number of companies decide to mark up the cost of the freight charges and make an additional profit in this way. On the other hand, some companies pass on the freight charges with no markup. 

The Rationale:

Those that decide to mark up the freight cost have thought it through. They feel that it’s their overall shipping volumes (volumes that their customer does not have) and their hard work in making sure they have ('the most competitive freight rates') possible that allow them to mark up the freight. They feel their internal costs of picking the product, packaging, calling the carrier, loading the freight and the carrying costs of paying the freight invoice prior to the customer reimbursing the freight cost should be compensated in some way. 

Those that decide to simply pass on the freight cost without markup feel that their competitive freight rates allow them to compete with vendors who may be closer to the customer and if they mark up the freight costs this might not allow them to make the sale in the first place. We’ve also had clients who think the practice of marking up freight costs is just not good business practice. 

The Reality- It’s all in the Freight Payment Terms

The fact is if you sell your goods with freight payment terms that specify Prepaid, Add and Handling you are perfectly within your rights to mark up the freight costs without recourse on the part of your customer. The internal costs of preparing and shipping your product referenced above is the legitimate rationale for marking up the freight costs and the inclusion of the word 'Handling' addresses those very real and significant costs. 

Where you can get in trouble is marking up the freight costs with freight payment terms of sale that are simply Freight Prepaid and Add. If you markup your freight costs on a Prepaid an Add term, your customer can in fact ask you for a copy of the actual freight invoice as verification that the itemized charge for freight is accurate and has not been marked up. Additionally if the freight invoice copy does not match the itemized freight charge on your invoice for goods sold, your customer can ask for and is legally entitled to a refund on the difference of the marked up freight charge and the actual freight charge. 

The possible loss of good will and confidence from the customer if you’re caught with your hand in the cookie jar ( not specifying the correct freight payment terms ) , so to speak, is certainly not a good thing and in fact could cause you to lose the customer and possibly involve you in a lawsuit. 

The same scenario works on inbound shipments to your firm. Do you buy from vendors on a Freight Prepaid and Add basis? If you do there is a very good possibility that your vendor is marking up the freight costs on their invoice for materials to you. Ask for a copy of the freight invoice to determine if they are marking up the freight costs. Maybe you’re entitled to a refund.

For more information about freight payment terms of sale, its implications and your possible recourse, contact Distribution Solutions, Inc.- DSi today!

Topics: freight cost management, freight payment terms

Five Ways to Cut Shipping Costs

Posted by Robert Snowdale on Tue, Jan 15, 2013 @ 01:11 PM

Is Your Company Effectively Managing Your Shipping and Receiving Costs?

Click here 5 Key Questions to find out.

Your answers to these 5 Key Questions will provide you with a clearer understanding of how effective your internal efforts at managing shipping and receiving costs are.

Shipping and receiving costs, while not the #1 line item expense on your company’s P&L’s, should be managed as efficiently as your top line item expenses. For many companies shipping and receiving expenses are NOT managed as efficiently as top line item expenses. Purchasing decisions in this area are often made on personalities and personal preferences and not on sound business principles and practices. An undisciplined practice in this area results in unnecessary costs and companies losing a competitive edge to their competitors; especially those competitors located closer to their customers.

Transportation Spend Management (TSM) is a discipline taught for many years in business schools. Its current day application in most companies however is a bit of a “lost art”. The answers to these 5 Key Questions may be simple enough to answer but the solutions that can change your answers are difficult for most companies to implement on their own. Without the metrics and technologies necessary for a disciplined TSM practice most companies will continue to spend more than necessary , lose business to their competitors and receive less than optimum results for their efforts. 

We are Distribution Solutions, Inc. – DSi, and this is our 23rd year of working with manufacturers, distributors and wholesalers in reducing freight costs and bringing visibility to the logistics function and its associated costs. We have offered our solutions and answers to these 5 Key Questions as successfully practiced today for our clients.

How do your company’s efforts and results in managing transportation costs compare to other companies in your industry? Do you know? We do!

Call us today for a no cost, no obligation assessment of your shipping and receiving costs at 508-747-6200.

Topics: transportation spend management, shipping and receiving costs

Are You Relying On Your Carrier For Cost-Saving Solutions?

Posted by Robert Snowdale on Tue, Jan 08, 2013 @ 12:54 PM

Between fuel prices and an uncertain market environment, companies who do not make concessions to their clients on shipping costs will lose market share to their competitors who have a more attractive landed cost of goods sold. To improve market share you have to rely on more than just your carrier’s good will to ensure you are getting the best pricing. 

Carriers are more concerned with increasing their profits than they are about making concessions, even if they can obtain higher volume accounts. Shipping rates are rising, and to cut costs you have to find a solution that will bring negotiating leverage to the table and help you benchmark your current costs so that future savings can be measured accurately.

Many companies who have been successful at keeping shipping costs low and improving their market position have outsourced their freight procurement requirements to Transportation Spend Management (TSM) consulting companies who control millions of dollars in freight spend. This can have a huge impact on shipping and freight charges, and will enable you to focus on other important business processes and priorities. 

Why Should You Outsource to a TSM company?

  • TSM companies can help to lower shipping rates, achieve greater concessions, and gain better services overall
  • TSM Companies can increase your shipping departments productivity through the implementation of technology tools not currently available
  • You gain the ability to analyze cost of inventory, freight costs, and improve your Cost of Goods Sold
  • Outsourcing can help you retain existing customers and increase sales and improve business processes at a faster rate.

As a line item expense freight and logistics cost should be managed as efficiently as your top line item expenses. Unfortunately for most companies these costs are not managed professionally and purchase decisions are often made on a relationship basis with little regard to cost and service. The positive effects of partnering with a TSM company can be compounding and result in major business transformations. 

There is a key that fits into the proverbial lock of cutting costs and improving customer retention in the supply chain world and it starts by knowing where to collaborate and with whom.  

DSi’s proprietary Transportation Spend Management programs can provide data on industry specific benchmark costs so you can evaluate how you compare to your competitors. A DSi freight management program typically saves 20% or more using name brand carriers who can meet or exceed your service requirements. 

Contact us today to learn more about our ”Guaranteed Freight Cost Savings” programs. If we don’t meet or exceed our savings projections to you, we write you a check for the difference. 

Topics: ltl carrier, freight cost management

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