The vast web of the domestic freight shipping network can be intimidating to any new or established business. Unless you are moving the same sized product to the same destination over and over, any number of factors will affect your freight classification and the associated shipping costs. Considering distance, weight, and delivery time is just the tip of the iceberg when choosing the best design for your shipping needs. And a thoughtful and deliberate plan of action can save you a lot of money and headaches down the line. Calculating freight class rates and formulating transportation routes is as much an art as it is a science, and a clear understanding of the shipping industry combined with a sound strategy will help you generate long-term success.
Third-party logistics company (3PL)
A Third-Party Logistics company (3PL) can help simplify the process and increase your ability to navigate the rivers of transportation throughout the country. Often a mediator on price, a 3PL can broker special rates and discounts and facilitate the company’s goals and values—such as getting products to their destinations on time, and for the best price.
When selecting a 3PL, or coaching your own shipping department, there are many factors to consider, and a clear strategy is important if everything else is to fall into place. First, you need to understand how the shipping industry looks at your product. Then you can decide the best method to deliver it to your customer.
What determines freight class?
The first thing to consider is the Commodity. What are you selling? Is it perishable? Is it heavy? Fragile? It’s important to know and understand your commodity and how the shipping company views the logistics of delivering your product.
A Freight Class is assigned to your product(s) when they are assembled and ready to ship. The cost of shipping will be affected by the freight class, which is broken up into 18 factors based on weight, density, dimensions, the value of items, liability, ease of handling, and storage capacity. If the commodity can be packed on pallets, in cartons, crates, or barrels, the shipper will need to adjust their load based on the freight class of your shipment. Therefore, much thought should be given to how you want to package your item. A more manageable package for the shipper will result in lower costs.
If the size and weight of your products remain relatively constant, then you can usually go with a per-item, zone-based approach, where the shipping price varies by your delivery location and not by size and weight.
Pitney Bowes, a global technology company, reported in 2014 that an astounding 93% of consumers acknowledge that shipping options are an important factor in their online experience—up from only 24% in 2014.
Not only that, but 88% of those surveyed said free shipping was a more attractive offer to purchase, even if it took 5-7 days as opposed to paying for 1-2 day delivery.
Guaranteed delivery time should be a staple of any business. Having options for the consumer such as 1-2 day, 5-7 day, or free shipping should be considered, or you could risk your customer looking elsewhere. Therefore, you must have the ability to get the product to them through different channels. A 3PL can help find the best routes and systems for delivery.
The distance traveled obviously influences the cost, but the directness and modes of transportation are the reason. Packages are loaded from pickup destinations, and then trucked, trained, or flown either directly to their final destination, or transported to central hubs or Distribution Centers (DC). At the DC’s, truckloads are consolidated to maximize a truck’s capacity. Then they are routed using major channels. If your product is loaded and unloaded “dock-to-dock” without the need for lift-gate service, then the cost will be significantly lower than if it has to be delivered to a residential address, or for an inside delivery. If your package needs to be delivered to a limited access facility, like a school, or a church, or a storage facility, then extra charges will apply. These and other Accessorial Charges such as fuel price increases can boost the overall cost of delivering your product.
Does your product fit in a 1st class envelope? Or on a flatbed 18-wheeler? Chances are it fits somewhere in-between. A clear understanding of what each method of transportation can do for you can help you decide how you want to transport your shipment. Now that you know your commodity, and can package it to maximize its freight class, you can focus on how to get it where it needs to go.
If you have a large volume or quantity of shipments, getting your products to their destination on time takes a well-coordinated effort. Hiring a Full-Truckload Freight (FTL) to transport your goods will be costly; therefore most companies will capitalize on an option known as LTL, or Less-Than-Truckload.
LTL’s rates are much more desirable compared to full truckload for smaller shipments. Not only will a shipment be dispatched for a fraction of the cost, but LTL’s also have the added benefit of such services as residential pickup or delivery, inside delivery, and reaching destinations that may not be on an FTL’s mainstreamed express route. Delivering through a parcel company or LTL is significantly more expensive than bulk freight, and must be factored into your decision.
LTL rates usually start with their AMC, or Absolute Minimum Charge. This is the lowest rate the carrier will agree to ship, before other charges are added based on classification, destination, accessorial charges, etc. LTL carriers also provide a Base Rate, which is a rate quoted per 100lbs based on the freight’s class. The base rate is different from the AMC in that many carriers will adjust their base rate depending on demand and the capacity of their shipment.
FAK, or Freight All Kinds is an agreement with the carrier that allows shipments of all classes to be shipped and billed as the same freight class. By negotiating the FAK, shipments of lower and higher classes can be consolidated and charged as an agreed-upon average class and can reduce your shipping cost dramatically.
Choosing a 3PL
As your business grows, and your network expands, it is helpful to have an experienced team handling your domestic shipping needs. The cost of transporting goods through the supply chain network has steadily increased, and the complexity of transportation management may be best outsourced. Statistics show that 3PL’s often obtain better shipping rates and have greater resources to expedite your product. Experts estimate that a company can expect freight charges to typically represent up to 10% of their total cost, a significant enough portion to pay attention to and to apply the most effective tactics to minimize. But choosing a 3PL is not as simple as the selecting the cheapest or the biggest. It is important to choose the best fit for your company. Success should then be measured by a profitable long-term relationship.
When deciding on a Third-Party Logistics company (3PL), here are some things to consider:
How will your product be shipped?
Is the 3PL able to handle all available means of transportation; air, rail, FTL/LTL, waterways? Researching how the 3PL handles products similar to your own may offer some insight into how yours may be processed.
What specifically will you need to move your product? Re-palletizing, custom packaging, warehousing, white-glove service? While many of these and other services will increase the cost, a 3PL can often negotiate the terms and provide the best rates.
Recognize your company’s core value system
Choosing a 3PL means you will be working closely together to create a seamless approach to carry out your delivery procedure. The 3PL, therefore, should be an appendage of your company that must consistently reflect your goals and values. Does the 3PL exhibit proficiency in customer service? What is your company’s sense of urgency? Does the 3PL feel the same? Is there a sense of team play — of people pulling together to make things happen? Does the size of the 3PL reflect your own? Or is it so large that you feel your company won’t receive the personalization you desire? What international resources does the 3PL offer? Your company’s core value system should be firmly in place from the start. Creating a long-term, healthy relationship with a 3PL will depend on a shared vision of your immediate strategy and long-term goals.
If you have any more questions about how to determine freight class, please contact us today!