As a small business owner, every single dollar spent on freight cuts right into the profit margin. Here are some tips to help the understand freight shipping costs, which will help improve your bottom line.
1) Understand different trucking services and how they are priced
• Less-Than-Truckload (LTL) Service is when trucking companies combine smaller shipments from multiple companies on the same truck and make multiple deliveries. These goods move through a network of terminals on route to their final destination. At each terminal, the shipment may be taken off one truck and transferred to another that is loaded with goods destined for the same region. LTL is used by companies without the volume to move a full truckload. A typical LTL shipment ranges from 100 lbs. to 20,000 lbs. Pricing can be two methods: By weight and class (type of freight) or by pallet.
• Full-Truckload (FTL) Service FTL – TL (Full Truck Load or Truck Load) is trucking service that is used for large shipments (usually over 10,000 pounds) that an entire trailer or container is filled to capacity with cargo belonging to one customer. Unlike less-than-truckload (LTL) freight, the advantage of FTL shipping is that freight travels directly to its destination and is not transferred from truck to truck nor is the freight is handled in route whereas an LTL shipment will typically be transported on several different trailers. Freight cost is generally based on per mile, instead of per-pound pricing.
2) Be aware of Reweighs and Reclassifications
One of the biggest and most costly mistakes small businesses and infrequent shippers make involves reweighs and reclassification. Many small business shippers do not have scales, so they just estimate the weight and naturally it ends up being inaccurate. What happens when the carrier arrives and discovers a discrepancy is they will charge the company a reweigh fee – which is basically a “fine". Then not only does the carrier charge this reweigh fee, but also for the extra freight due to the shipment weighing more than what was quoted on the original bill of lading.
Another problem small businesses face is freight reclassifications. Class is based on a scale from 50 to 500, and is based primarily on the item’s value and density, with higher numerical ratings indicating a higher per-pound transportation cost. Even more complicated when you deal with freight of mixed classes – called FAK – Freight of All Kinds. If the small business shipper estimates the density and forgets to take into account the pallet or other packaging materials, it can result in a reclassification. Again, more costly fees will be incurred.
The weighing and inspection process has increased substantially as the number of freight shipments have declined in recent economic times, and carriers are making up for lost profits this way. Be sure to give the most accurate information possible at the time of obtaining a freight quote, otherwise it can end up costing hundreds or even thousands of dollars extra– all of which go right to your bottom line.
3) Use a freight broker for 20-30% savings
Aside from gaining advice on the least-cost shipping method, going through a freight broker can provide significant discounts. Due to their large volume of shipping, freight brokers pass on a 20-30% cost savings to the customer who is not a regular freight shipper. Carriers charge more to an individual or small business if they do not ship a large enough volume to offer incentive pricing. However by going through the freight broker, the carrier gives them the large volume discount and it is passed on to the customer. This is why the infrequent shipper receives better pricing from a freight broker than if they went directly to the carrier.
Also consider hiring a freight broker if you are confused about what type of freight services you need and where to find carriers. A freight broker is essentially a “One Stop Shop". They advise on the different options for shipping freight and offer numerous ways to save money. Another time-consuming, but money-saving service a freight broker provides is matching up your freight shipment with a carrier, from their extensive network, who is closest to the freight source. Think about it – do you have time to call 100 carriers to find out who, during the day you need the freight shipped, will be the closest carrier?
Freight brokers are the way to go for small companies and individuals who do not have a logistics department, shipping knowledge, or simply the time to negotiate the best rates and services from hundreds of different carriers. Further, today’s economic recession has forced many companies to cut their logistics departments or do away with them altogether, and instead are electing to outsource their logistic needs. Choosing to go through a freight broker has actually saved companies more money due to not only lowered freight costs, but also in the form payroll reductions. Still, if a company continues to maintain its logistics department, a freight broker works with their staff as a third party support group, and the small business company still saves money due to the greatly discounted freight costs. Using a freight broker can often be the key to competitive advantage; a company can gain more time to focus on its core business, decrease capital expenses, and improve productivity and efficiency.
4) Avoid the extra “Accessorial” charges
Carriers charge extra for delivering to residential locations. Residential deliveries add to carrier costs because it takes longer to unload a truck and get it back on the road compared to deliveries in an industrial area. The carrier is who determines if a destination is considered a residential or commercial address. Typically, they define a commercial address is one that opens and closes to the general public at set times each day. But be aware that schools, colleges, and churches located in residential zones may also incur residential fees. If you are at a residential address, try instead to arrange with a local business to receive goods at their location. Or, perhaps it makes sense to have purchased loads drop shipped directly to your customer, bypassing your location. It can make a big difference to your bottom line.
Another caveat is if the receiving location does not have a loading dock (one that allows forklifts to drive into the trailer). When the shipping or receiving address does not have a loading dock, the options are either manual unloading or use of a more expensive truck with a lift gate (a platform at the back of the truck that can raise and lower a shipment from the ground to the truck) to bring pallets of freight down off the trailer. Carriers will then bill an “accessorial charge” that could be as much as $150 for a single pallet shipment.
Wait, there is one more. If the driver is required to go inside (beyond the front door or loading dock) to pickup or deliver a load instead of remaining on the dock or in his truck, additional fees will be charged for this ”Inside Service" It’s imperative that the shipper be aware of all of these additional charges involving freight shipments – as they can add up to be more than the initial cost of the freight shipment.
Be aware that even though freight carriers have a legal obligation to provide a minimum amount of liability insurance, the norm is typically only10 cents per pound. If your cargo is stolen or damaged in transit, the carrier provided insurance may not be enough to recover the cost of replacement.
Freight insurance can be purchased from a variety of 3rd-party companies and offers coverage that far exceeds carrier liability. If time is of the essence, this is yet another service that a freight broker can do for you. By planning what your coverage should be rather than living with the carrier's insurance you can design the outcomes and limit your risks.