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FAK (Freight All Kinds): One way you can get additional discounts from a freight carrier is to have all of your freight classified as one generic classification. This is called a Freight All Kinds (FAK) tariff. This simplifies freight management for the shipper tremendously.

 

Additionally, a FAK may give you a discount off another commod­ity. For example, if you are moving a light class 150 product and you have in effect a FAK of class 70, you are receiving a discount on the cost of the shipping for the product. This type of tariff logic can reduce substantially the costs of shipping products.

 

Freight companies understand fully the effect a FAK has on creat­ing additional discounts. They may offer you a FAK at a slightly higher freight class compared to your average freight class. Once again, it becomes critical that you have a thorough understanding of your freight classes because in this example your freight charges would be higher. From a position of knowledge, you can negotiate a better freight pro­gram for you and your company.

 

Another concept that is extremely important is FOB (free on board). FOB helps us to determine who pays the freight, who owns the freight, and when title passes. It also helps determine who is responsible for filing a claim if the shipment is damaged or lost (see figure 1).

Consignee: The receiver of the goods.

Tariff: A tariff is simply the contract that a shipper and carrier agree upon before they enter into business. Inside the tariff, the base rates and discounts are defined.

 

Discount: Freight discounts, sometimes called incentives, are simple percentage reductions off of a freight bill. They are there for the ask­ing, whether it be LTL, truckload, small parcel, air, or intermodal. These

basic discounts are often in the range of 35 to 50 percent. Discounts can go much higher based upon the freight class, volume, mix, and other less tangible negotiating points.

Another part of the tariff is the accessorial charges.

Accessorial Charges: Additional charges the carrier may invoice. Examples are

      Single Shipment Charges: having only one shipment to pick
up at a facility may not allow carrier to spread their pickup fixed
costs over several shipments; therefore they want to add addi­
tional charges for only one shipment received.

      Document Fees: Many times carriers will want to charge to copy the original bill of lading or for making corrections.

      Proof of Delivery, Redelivery, and Special Equipment
Charges: if your customer requires a lift gate.

Some carriers even have accessorial charges for deliveries to high traffic, congested areas, like the New York City garment district! Many, but not all, of these charges can be negotiated out or minimized as part of your tariff.

STRATEGIES

Developing a strategic freight plan is the fundamental first step to tap­ping the hidden gold mine the world of transportation management offers. While developing this plan, keep the mindset of creating a win-win strategy for your company, customers, suppliers, and carriers.

 

First, we create the framework for our desired outcomes, such as a reduction of freight costs as a percentage of cost of goods sold or sales as measured on a monthly profit and loss statement. We determine a transportation plan for both our inbound and outbound freight. We gather hard facts on how much freight we have to bring to the negotiation table. We determine the best course of action for both inbound and outbound transportation requirements and combine them to get us the best discounts or negotiate them separately based on their unique re­quirements. Transportation strategies should include negotiations be­tween (1) you and your freight carriers, (2) you and your customer, and (3) you and your product supplier (they may have better unique trans­portation options than anything you may have negotiated). So, having these three options gives you the best possible opportunity to explore finding the lowest landed cost through these sourcing options.

 

Secondly, determine what type of carrier is best suited to our goals. A regional, short-haul, or long-haul carrier?

 

Regional carriers can be very niche-oriented and serve a very local­ized marketplace. In many instances, they can pick up and deliver the same day or next day without expedite charges and do it so effectively that they are profitable and offer a lower cost than a short-haul carrier.

 

Short-haul carriers have a larger geographical base than most regional carriers and can move your freight in one or two days. Their expertise is in picking up the freight and getting it delivered quickly. Short-haul car­riers can be used strategically to minimize your transportation costs.

 

Long-haul carriers also move freight from point A to point B, but over greater distances, e.g., East Coast to West Coast. They are experts at taking your freight, combining it with other freight, and moving it to your destination quickly. All of the above publish and sell against their transit times to help you determine what mode of transportation is best for your needs.

Lastly, our strategic transportation plan must address our internal ability to rate and route shipments across our multiple portfolio of car­riers, suppliers carriers and customers' inbound freight programs. We must assess the use of (1) manual systems, (2) automated information systems, or (3) third-party logistics providers (TPLPs) to accomplish this rating and routing function. This is the function that on a daily basis will save your company a tremendous amount of money. One misrouted shipment could be a difference of S20 to thousands of dol­lars. Your company cannot afford to neglect this function or let the element of time and convenience override the requirement of finding the most favorable rating and routing.

This takes time, coordination, and effort to rate and route a ship­ment across your carrier portfolio and can be done fairly quickly and easily if planned and done on a systematic day-to-day basis. The cost savings can have enormous returns on the bottom line.

Companies cannot afford not to manage their freight. Large and medium-size companies often manage their freight themselves. This requires a staff that is capable of managing all freight issues them­selves, from rating and routing, to negotiating with carriers, to audit­ing and paying the bills. This can be done with manual systems and is increasingly being done by robust software systems. They make the rating and routing function much more streamlined and affordable to companies of any size, without adding additional staff in most instances, making the RO1 extremely attractive for the dollars invested.

Third-party logistics providers offer a number of services from au­diting and paying freight bills, to consulting and negotiations. Some TPLPs will leverage all freight from all clients to obtain the highest discount possible.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 11


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