25 June 2018
What is a freight carrier?
Companies that sell material products require the means of transporting their shipments from point A to point B. Enter freight carriers, which work as the railroad created between your product and its intended destination. However, carriers vary, and the terminology used within the industry is jargon to most of us. Thus, it’s important that when choosing a freight carrier—or studying them for that matter—that you discern certain terms from others, understand key differences like LTL and FTL, freight broker and freight forwarder, and ultimately wade through the seemingly complex waters of the shipping industry.
What exactly does a freight carrier do?
It carries a company’s products or goods via air, sea, or land, all the way to their intended destination. There are both international freight carriers and domestic carriers. Both types of companies will have to follow a strict set of regulations governed by their respective territories, and both will have certain legalities to uphold. Regulation is a key factor in the shipping industry, one that is both limiting and important.
Why is choosing a great freight carrier important?
If you’re a store or e-commerce business, then it’s safe to say you know that shipping logistics are part of your lifeblood. Simply put: the wrong choice can be the difference between being profitable and going under. The reliability, efficiency, and cost-effectiveness of your freight career are an essential piece of your machine. Without it, your company could experience great losses, and the failure of said freight career will marry your company’s integrity, being that the public rarely differentiates between a company and their means of shipping. If you’re B2B or B2C and you’re expecting a certain good or product, if the delivery is delayed or mishandled; do you blame the random freight carrier responsible, or the company itself?
In this we have an interesting dynamic between a company and their freight carrier; in many ways, they have a symbiotic relationship. In which case choosing the right freight carrier becomes one of the most vital decisions for a company’s livelihood.
What types of freight options are available?
In regards to freight, there is a wide variety of different options to choose from. A given option is typically chosen with the following factors in mind: distance, volume of the shipment, pricing, and time. With these key factors in mind, there is a freight option that fits every operation.
TL freight stands for truckload. A freight carrier that offers this type of shipping will have an entire truck dedicated specifically to one company’s shipment. This means, from the origin to the intended location, the only products or goods that will travel are owned by one company. One of the great benefits of TL shipping is transit time, as there won’t be any other stops to unload the shipment. It will travel directly from the origin to where the company desires, which can greatly enhance the speed of the process.
LTL freight stands for less than truckload. This means a company’s shipment takes up less space than what is offered by the truck. Instead, it reaches its capacity by storing additional freight (typically products or goods offered by a different company that are in transit to the same location). LTL shipping is more complex than TL, as it relies on a hub-and-spoke sort of network which offers a multitude of access points, loading and unloading zones, and connecting trucks. This increases the amount of handling the shipment will endure and often lengthens the transit time. However, by utilizing time, equipment, and capacity, it can dramatically affect the price of the shipment. LTL has a give and take relationship when it comes to the quality and efficiency of the shipping process, but if it’s the right option for a given company, it can greatly reduce their overhead.
PTL freight stands for partial truckload. It is, in most regards, somewhat of a hybrid between TL and LTL. Essentially, three key requirements fall into categorizing a shipment as PTL; it needs to be higher in volume than LTL, have some leeway in the transit time, and it can’t be a vulnerable or sensitive shipment. This means that a truck will essentially take a partial truckload of multiple shipments but deliver them in succession. You would think that PTL shipping means a lot more handling (unloading and loading) of a given shipment but in fact, generally speaking, PTL shipments pass through fewer hands than PTL.
How does a freight carrier determine its rates?
Weight, size, distance
The shipping industry’s rule of thumb is that size and weight make up the largest factor that determines how much your shipment will cost. However, there are exceptions to this rule, but they are rarely a reality. With that being said, the distance traveled can greatly affect the price too. You may not have a large shipment, but if it needs to go across the country, then it’s safe to say that the transit time will greatly affect your overall cost. Lastly, the type of product or good being shipped can contribute as well, particularly if it’s deemed sensitive. The NMFC (National Motor Freight Classification) number—each type of commodity has one—will be the key component when influencing the price based on the type of product.
Each type of shipping will have a freight class. This will also influence the total cost. A base guideline to freight class goes as follows: the freight will be classified based off weight (also called density), type of packing, total value of the shipment, and the sensitivity or in other words the vulnerability of a certain product or good being damaged during the shipment process. In an oversimplification; if you’re shipping something that you’d slap a fragile label on, odds are you’re going to be paying more for the total cost.
Lastly, a huge contributing factor to the total cost of a shipment is the dimensional weight. There’s a standardized formula used by freight carriers across the board to calculate this measurement. For those that don’t understand dimensional weight, here’s an example: let’s say you’re shipping some premade balloons, but you have a large volume of them. You pack them into large boxes which take up a massive amount of a truck. In proportion, their weight is next to nothing. This dimensional weight will be part of the cost equation and a factor that needs to be considered.
Who are the middlemen?
With some quick research done on the shipping industry, titles like freight broker, freight forwarder, and third-party logistics seem to spam the page. The reason is that freight carriers often respond directly to third parties who work as liaisons between companies that require goods or products shipped and the platforms that offer the shipping.
The reality is that the freight business is colossal, webbed with different entities and responsible parties that, if absent, would result in a toppled industry. The interconnectedness of freighting is somewhat of a marvel in regards to communication, the passing of hands, and technicality. As aforementioned, while a freight carrier becomes a part of a customer’s lifeblood, the carrier itself shares the same relationship with their intermediaries.
Often, a company that needs something shipped will not have the know-how to deal with a freight carrier directly. From legality, general paperwork, contracts, cost-efficiency, to the sheer time devoted, it is wildly more beneficial to allow someone that speaks the language to act as the glue in the relationship between company and carrier.
Enter freight brokers and freight forwarders.
What is a freight broker?
Fundamentally, a freight broker is an intermediary that connects a company which requires shipping services (known as shippers) to a freight carrier(s). There is tons of work that goes into the process of shipping a commodity. The shipper is going to have a long list of desires, requirements, and basic needs, and so too will the carrier transporting their shipment.
Thus a freight broker, typically someone well-versed in the industry, with a host of contacts and regulation knowledge, will step in and facilitate an arrangement between the two. One that hopefully benefits both parties and evolves into an everlasting relationship. They will connect the two companies based on their certain needs, establish a contract, and then nurture the relationship and line of communication between the two.
They are responsible for the wellbeing of both parties and must govern the relationship so that it never falls apart. In fact, one of their main job requirements is to teach both parties to compromise by highlighting how a lasting relationship will benefit both of them.
However, a freight broker is never responsible for the shipment or the payment of the shipment, being that they belong to neither party.
What is a freight forwarder?
A freight forwarder is somewhat synonymous to a freight broker, but they’re capable of a lot more. While they’ll act as an intermediary between shipper and carrier, they will also consolidate freight services and play a hand in the shipping process itself. What this means is that they’ll likely combine certain shipments or break others into segments, all with one aspiration; to optimize the time and money it takes to ship a certain good or product.
Furthermore, they can act as a storage facility for their clients, using their own facilities to store certain commodities between shipments. In which, often the freight forwarder will take full responsibility for the shipping process, meaning the client will pay them directly, rather than the freighter. Freight forwarders are almost always bigger operations than freight brokers, being that they support a much bigger bandwidth of operations.
Lastly, a freight forwarder can also help with internal shipping logistics. This means they’ll consult a company on how they package, label, and organize their shipments. These are key components in efficient shipments, as poor packaging can crumble beneath a threatening route, an improperly labeled package can get lost in transit, and so forth.
Lastly, the final piece of the shipping industry which coordinates, assists, and optimizes freight carriers is third-party logistics, commonly referred to as 3PL. These companies made their rise in the middle of the 20th century, once the shipping industry expanded and relationships between carriers and shippers strained. Their thesis is rather simple; optimize the entire fulfillment and shipping process, then work as a liaison between carriers and shippers when need be.
Typically, these companies will operate somewhere in the transport, distribution, storage, and shipping space. If it’s a large, industry-grade 3PL company, it probably integrates all the above—or most of them. If it’s a smaller company, it might find its niche by focusing specifically on one facet of third-party logistics.
What do 3PLs do, exactly?
A 3PL company will generally handle storage and freight returning. This could mean being specifically composed of a warehouse network, in which they use their facilities as holding bays for carriers. Additionally, a 3PL that focuses on storage can also offer a packaging service. They’ll initially hold what needs to be stored, then help pack it into the freighters fit to deliver the shipment.
A 3PL company can also focus specifically on the transportation of goods and products. These are commonly thought of as your FedEx, UPS, and DHL type of companies in the world. Those that serve as the face of transportation and shipping, yet rely on a host of other entities to carry out their operation and deliver on their promise.
The least common type of 3PL companies is one that works on the financial structure of freighting. These companies typically service clients that spend well in the millions for their shipping and help them optimize shipping costs, monitor overhead, manage booking and bookkeeping, assist with legal work, and a host of other information and financial-based services.
The freighting industry is complex, interwoven, and not easily understood. A gamut of cogs contribute to the turning of the machine, and companies have experienced extreme success by specifying on one facet of its multi-layered design. Freight carriers—once the most prominent title in the industry—are now thought of as the companies which focus on providing equipment to transport goods or products. However, to understand what a freight carrier is, you must also familiarize yourself with the interworking of the industry.