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

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

Your LTL (Less Than Truckload) Rates Are Going Up!

Posted by Robert Snowdale on Wed, Dec 12, 2012 @ 12:23 PM

Probably More Than You Think!

Carriers take GRI’s (General Rate Increases) every year and in some years more than once per year.  If you make shipments of over 150 lbs and use the major LTL carriers your rates increased just last summer.

Here is a list of some of the top LTL carriers and their summer 2012 rate increases:

ABF (Arkansas Best Freight) - 5.9% increase Effective: 06/20/2012
Conway - 6.9% increase Effective: 06/21/2012
Estes Express - 6.9% Increase Effective: 08/08/2012
Fedex Freight - 6.9% Increase Effective: 07/09/2012
Old Dominion - 4.9% Increase Effective: 08/06/2012
UPS Freight - 5.9% Increase Effective: 07/16/2012
YRC Freight - 6.9% Increase Effective:  06/25/2012

What You Probably Don't Know About These GRIs 

THE PERCENTAGE INCREASES LISTED ABOVE ARE ONLY “AVERAGES” - IN FACT, DEPENDING ON WHERE YOU SHIP TO OR FROM YOUR LTL RATES WENT UP EVEN HIGHER!

The increases listed above are the average increases across all origin and destination zip code combinations that each individual LTL carriers services. These guys are smart! They have analysts and yield engineers who look at all of their shipping history and determine what parts of the country are imbalanced ( i.e. much more outbound than inbound or inbound than outbound) or otherwise problematic for them. They then increase their rates in those areas significantly higher than the “ published” or announced GRI average.

So if carrier A has a balance issue in the Southwest and you happen to be shipping a good percentage of your shipments to or from this area, you didn’t just take a 6.9% increase you might have been hit with a 10% or 15% increase.

Worse, since you’re not on their yield team and don’t know how and where they engineered their base rates, you’ll never know how much of an increase you are dealing with.

Why Distribution Solutions, Inc?

We are DSi, and this is our 22nd year of working with manufacturers and distributors to help reduce their freight costs, and improve their marketplace competitiveness. Our services bring visibility and efficiency to the supply chain through management services and technology.

To compare your current LTL costs to the kind of LTL costs a DSi program can achieve for you, click on the link below:

Compare Your LTL Rates >>

For more information about DSi and how our services may help you, please click on the link below to view a brief 3 minute introduction to DSi:

Watch Video >>

Topics: ltl carriers, freight cost management, General Rate Increases

Best in Class Freight Cost Management Practices- How Does Your Company Compare?

Posted by Robert Snowdale on Wed, Dec 05, 2012 @ 12:07 PM

Hey, Freight Costs are not my worry-I am told by our shipping manager that we have GREAT freight rates. Of course every shipping manager thinks they have great freight rates but how competitive are they? How do they compare with other similarly sized companies in similar industry sectors? 

To find out how your company compares to others in your industry sector in terms of Supply Chain Costs as a percentage of sales click here.

The old and very true adage goes "if you’re not measuring it, you’re not managing it." Assuming your company has some measurements in place, how do you know if your measurements merit a slap on the back or a well-placed kick?

Large, well run public companies expect every line item expense to be managed from a Best in Class approach. Entrepreneurs and their employees in smaller, privately held businesses may think they stack up well against their peers--even as they lose market share month after month to competitors who can offer similar products at a better landed cost. 

We are DSi, and this is our 24th year of working with small to medium sized companies to improve the responsiveness of their logistics performance and to provide guaranteed freight savings using name brand carriers that meet or exceed client specific service requirements.

Best in Class Operating Practices

Here are six operating practices that can help you achieve a Best in Class level of Freight Cost Management within your company:

  1. Establish "Business Rules"- what does it take to be a freight carrier in good standing for your company?
  2. Conduct annual bid processes using a Uniform Disclosure Document with all qualified carriers leveraging all available volumes, inbound, outbound, third party.
  3. Select and award business on a one year contract to a right-sized Core Carrier Group (the Goldie Locks approach- not too many, not too few).
  4. Establish current Benchmark costs for all modes of transportation.
  5. Implement and distribute Routing Guides for all shipments, and measure and report compliance with those guides.
  6. Measure performance against Benchmark costs, Routing Guides and Business Rules through Freight Audit, Payment and Management Reporting services.

How Do I Get Started?

Most small to medium sized companies do not have the resources to bring a Best in Class management approach to this key line item expense, nor are they able to measure and report performance in this area. 

Call us today at 508-747-6200 to find out more about how we can help you to achieve Best in Class performance in this area.

 

“Best in Class”- Definition: "The highest current performance level in an industry used as a standard or benchmark to be equaled or exceeded.


Topics: best in class, supply chain costs, freight cost management

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